ECO 02 Solved Assignment 2021 – 22

IGNOU Free Solved Assignment 2021 – 22

ACCOUNTANCY – I SOLVED ASSIGNMENT 2021 – 22

TUTOR MARKED ASSIGNMENT (TMA)

COURSE CODE: ECO-02

COURSE TITLE: ACCOUNTANCY-I

ASSIGNMENT CODE: ECO-02/TMA/2021-22

COVERAGE: ALL BLOCKS

Maximum Marks: 100

Attempt all the questions:

1. What is Bank Reconciliation Statement? How is it prepared? Explain the advantages of preparing a Bank Reconciliation Statement. 3+7+10=20

Ans: Bank Reconciliation Statement

Business concern maintains the cash book for recording cash and bank transactions. The Cash book serves the purpose of both the cash account and the bank account. It shows the balance of both at the end of a period. Bank also maintains an account for each customer in its book. All deposits by the customer are recorded on the credit side of his account and all withdrawals are recorded on the debit side of his account. A copy of this account is regularly sent to the customer by the bank. This is called ‘Pass Book’ or Bank statement. It is usual to tally the firm’s bank transactions as recorded by the bank with the cash book. But sometimes the bank balances as shown by the cash book and that shown by the pass book/bank statement do not match. If the balance shown by the pass book is different from the balance shown by bank column of cash book, the business firm will identify the causes for such difference. It becomes necessary to reconcile them. To reconcile the balances of Cash Book and Pass Book a statement is prepared. This statement is called the ‘Bank Reconciliation Statement.

How to Prepare Bank Reconciliation Statement?

To reconcile the bank balance as shown in the pass book with the balance shown by the cash book, Bank Reconciliation Statement is prepared. After identifying the reasons of difference, the Bank Reconciliation statement is prepared without making change in the cash book balance. We may have the following different situations with regard to balances while preparing the Bank Reconciliation statement. These are:

1. Favourable balances

(a) Debit balance as per cash book is given and the balance as per pass book is to be ascertained.

(b) Credit balance as per pass book is given and the balance as per cash book is to be ascertained.

2. Unfavourable balance/overdraft balance

(a) Credit balance as per cash book (i.e. overdraft) is given and the balance as per pass book is to be ascertained.

(b) Debit balance as per pass book (i.e. overdraft) is given and the balance as per cash book is to be ascertained.

The following steps are taken to prepare the bank reconciliation statement:

(i) Favourable balances: When debit balance as per cash book or credit balance as per pass book is given:

(a) Take balance as a starting point say Balance as per Cash Book.

(b) Add all transactions that have resulted in increasing the balance of the pass book.

(d) Extract the net balance shown by the statement which should be the same as shown in the pass book.

In case balance as per pass book is taken as starting point all transactions that have resulted in increasing the balance of the Cash book will be added and all transactions that have resulted in decreasing the balance of Cash book will be deducted. Now extract the net balance shown by the statement which should be the same as per the Cash book.

(ii) Unfavourable Balance/Overdraft: Sometimes a businessman withdraws excess amount from the bank account and the closing bank balance of a month is a debit balance. This balance amount is called ‘overdraft balance’ as per Pass Book. This is shown in the cash book as a credit balance. Overdraft balance is to be shown in the minus column of statement as the starting point. The other steps shall remain the same as mentioned above. The following illustration helps to understand dealing with the unfavourable balance as per cash book and pass book.

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2. Give journal entries for the following adjustments and also explain the accounting treatment of these adjustments while preparing the Final Accounts of an Enterprise? 4×5=20

(i) Prepaid Expenses Rs. 5000

(ii) Interest on Drawings Rs. 1000

(iii) Provision for doubtful debts Rs. 3000

(iv) Loss of Goods by theft Rs. 6,000

(v) Abnormal Loss of Stock Rs. 5000

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3. (a) Names the items which are recorded at the invoice price in the consignment account. Give journal entries passed for the adjustment of loading in respect of each item. 10

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(b) “Joint Venture is a temporary partnership”. Comment and explain how is it different from Partnership. 10

Ans: Meaning of Joint Venture

A joint venture is the combination of two or more persons into a specific single activity. It is a form of partnership which is limited to a specific venture. It is exactly the same as partnership, with the exception that it is one of a business that is to be terminated after completion of venture for which it is started. Since the business is to be terminated after completion of the venture, a firm name is not generally used. Thus the joint venture is like a temporary partnership with or without a firm name. It can also be said a particular partnership or partnership for a particular object.

Difference between Partnership and Joint Venture

Basis of Difference	Partnership	Joint Venture
1. Going Concern	It is a going concern.	It is a terminable venture.
2. Purpose	It is not started for specific venture.	It is started for a specific venture or business.
3. Name	It always has a name.	It may or may not bear a name.
4. Parties	Persons carrying on business are called partners.	Persons carrying on business are called co-venturers.
5. Ascertainment of profit	Profits are ascertained at regular intervals, i.e., annually.	The profits are ascertained for each venture separately.
6. Separate set of books	There is no need for a separate set of books for a joint venture. Accounts can be maintained in the books of any co-venturer.	Separate set of books have to be maintained for each partnership business.

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4. What do you mean by conversion method? Describe the steps that are required to convert the accounts kept under single entry system into double entry system. 5+15=20

Ans: Conversion Method: Single entry system is incomplete accounting system which is not useful for large organisations and not useful in filling income tax return. By the reason of which it is sometime necessary to convert single entry system to double entry system. In single entry system, trial balance cannot be prepared due to which it is not possible to prepare profit and loss account and balance sheet in case of single entry system. So, conversion method is used to prepared financial statements and ascertain true profits and financial position.

If it is desired to change the system of accounting from single entry to double entry on a given date, the following procedure should be adopted:

If a businessman wants to convert the books of the 2001 maintained on the single entry system into double entry system in 2002, he should follow the following procedure, which is based on the assumption that proper subsidiary books have been maintained under the single entry system:

(1) A Statement of Affairs at the beginning of the year 2001 should be prepared and posted from it all those accounts which have not been maintained already.

(2) The Cash Book should be gone through and entries relating to impersonal accounts should be posted to their respective accounts as these items were not posted to impersonal accounts under the single entry system. This would complete the double entry of the Cash Book.

(3) Similarly, totals of other subsidiary books as were not posted to the impersonal accounts should be posted to their respective accounts. For example, the total of the Purchases Book will be debited to Purchases A/c and that of the Returns Inwards Book should be debited to Returns Inward A/c.

(4) Now, the personal accounts, which have already been kept under the single entry system, should be scrutinized in order to find out the items which have been made direct therein without passing through one of the subsidiary books, e.g., bad debts, discounts, allowances, etc., might have been credited direct to the personal accounts. Such items should be posted to their respective impersonal accounts so that the two-fold effect of such transactions may be completed.

(5) If a Petty Cash Book is maintained, the monthly analysis should be posted to the debit of the various accounts for expenses and the total credited to Petty Cash A/c.

(6) After completing the double entry of all the transactions of the previous year, a trial balance should then be prepared to test the arithmetical accuracy of the books. After taking into consideration the necessary adjustments like outstanding expenses and incomes, depreciation, provision for bad debts and discounts, Trading and Profit & Loss A/c and Balance Sheet should be prepared in the usual manner.

If only the Cash Book is maintained and the transactions other than cash affecting personal accounts are recorded directly to the personal accounts in the Ledger, a different procedure of conversion should be followed as given below:

(1) A Statement of Affairs, as described earlier, at the beginning of the year should be prepared.

(2) The Cash Book should be investigated into and all such items as were not posted previously to the real and nominal accounts should be posted to their respective accounts.

(3) A careful analysis of all the items shown on both the sides of the personal accounts should be made. The analysis of the debit side of the Directors’ Accounts will disclose the following:

(a) Opening balances as shown in the Statement of Affairs at the beginning of the year,

(b) Credit Sales.

(d) Transfers.

The analysis of the credit side of Debtors’ Accounts will reveal the following facts:

(a) Cash received from debtors,

(b) Discounts allowed to debtors,

(d) Return Inwards,

(e) Bad debts,

(f) Allowances made to customers,

(g) Transfers,

The totals of these analysis columns as were not previously posted to the impersonal accounts will be debited or credited to their respective impersonal accounts (e.g., Sales A/c, Bills receivable, Returns Inwards A/c, Bad Debts A/c etc.) the corresponding credit or debit being given to a Total Debtors’ A/c.

Similarly, the analysis of the credit side of the Creditors’ A/c will show:

(a)Opening balances as shown in the Statement of Affairs at the beginning of the year,

(b) Credit purchases,

(d) Transfers.

The analysis of the debit side of the Creditors’ A/c will disclose:

(a) Cash paid to creditors,

(b) Discount allowed by creditors,

(d) Bills Receivable endorsed in favour of creditors,

(e) Returns outwards,

(f) Allowances and rebates allowed by creditors,

(g) Transfers.

The total of these analysis columns will be journalized by debiting or crediting the respective impersonal accounts, the corresponding credit or debit being given to Total Creditors’ A/c.

The double entry of all the transactions would thus be completed and the trial balance should be prepared to test the arithmetical accuracy of the work. After the preparation of the trial balance, final accounts can be prepared in the usual way.

5. Differentiate between the following: 10+10=20

(a) Receipts and Payments Account and Cash Book?

Ans: Differences Between Receipts and Payments Account and Cash Book

	Receipts and Payments Account		Cash Book
1.	It is the summary of all cash and bank transactions.	1.	It is the detailed record for all cash and bank transactions.
2.	It is prepared at the end of the accounting period.	2.	It is maintained on a day-to-day basis.
3.	It is generally prepared by the not-for-profit seeking organisations.	3.	It is maintained by all organisations profit seeking or not-for-profit seeking.
4.	Closing cash and bank balances cannot be determined on daily basis.	4.	Closing cash and bank balances are determined at the end of each day.
5.	It is not a part of the double entry system. It is the duplication of all cash transactions in summarised form.	5.	It is a book of original entry under double entry system.
6.	No narration is required in this account.	6.	Narration is must for all transactions (except contra entries).
7.	No posting in the ledger necessary.	7.	Posting in the ledger is necessary for completing double entry.
8.	No ledger folio is recorded.	8.	Ledger folio is recorded after posting into the ledger.
9.	It is a part of final accounts.	9.	It is a part of the books of account.
10.	It is a periodical account – prepared once in a year.	10.	It is a current account. Transactions are recorded strictly on daily basis.

(b) Income & Expenditure Account and Profit & Loss Account

Ans: Distinction Between the Income and Expenditure Account and the Profit and Loss Account

	Income and Expenditure Account		Profit and Loss Account
1.	It is a revenue account prepared at the end of the accounting period to find out the surplus or deficit for that period.	1.	It is a revenue account prepared at the end of the accounting period for measuring net profit or net loss by matching revenues and expenses according to the accounting principles.
2.	The surplus or deficit of an accounting period arises as a result of saving the income from subscriptions, small and recurring donations, legacies and profit from trading activities and from the expenses and losses incurred to render the necessary services.	2.	The net profit or an accounting period is the difference between total revenue and total expenses. Total revenue is the aggregate of gross profit, other incomes, non-trading income and abnormal gains. Likewise, total expenses combine management expenses, maintenance expenses, selling and distribution expenses, financial expenses and abnormal losses.
3.	When the organisation undertakes trading activities, a separate trading account is prepared and this is used as a subsidiary statement along with income and expenditure account.	3.	The balance of the trading account is transferred to the profit and loss account, which is the starting point of the preparation of the profit and loss account.
4.	The surplus of an accounting period cannot be withdrawn by the members; it is added with the General fund.	4.	The net profit may be withdrawn wholly or partly by the owners.

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