Question 1. What Are The Various Streams Of Accounting?
There are 3 streams of accounting:
Financial Accounting: is the system in which commercial enterprise transactions are recorded systematically within the diverse books of accounts maintained by way of the business enterprise a good way to prepare economic statements. Theses monetary statements are basically of sorts: First is Profitability Statement or Profit and Loss Account and 2d is Balance Sheet.
Cost Accounting: is the process of classifying and recording of expenditure incurred for the duration of the operations of the corporation in a systematic manner, with a purpose to ascertain the value of a cost center so one can control the fee.
Management Accounting: is the method of evaluation, interpretation and presentation of accounting facts collected with the help of economic accounting and fee accounting, with the intention to assist control in the method of choice making, creation of policy and daily operation of an corporation. Thus, it is clear from the above that the control accounting is primarily based on economic accounting and fee accounting.
Question 2. Explain Financial Accounting. What Are Its Characteristic Features?
Financial Accounting is the process wherein enterprise transactions are recorded systematically in the numerous books of bills maintained by means of the organization so as to prepare economic statements. These financial statements are essentially of types: First is Profitability Statement or Profit and Loss Account and 2nd is Balance Sheet.
Following are the traits functions of Financial Accounting:
Monetary Transactions: In economic accounting handiest transactions in financial terms are considered. Transactions not expressed in financial terms do no longer discover any region in economic accounting, howsoever important they will be from enterprise point of view.
Historical Nature: Financial accounting considers most effective the ones transactions which are of historic nature i.E the transaction that have already taken area. No futuristic transactions discover any vicinity in economic accounting, howsoever crucial they'll be from commercial enterprise point of view.
Legal Requirement: Financial accounting is a legal requirement. It is essential to keep the financial accounting and prepare financial statements there from. It is also compulsory to get these financial statements audited.
External Use: Financial accounting is for those folks who aren't a part of decision making technique concerning the business enterprise like buyers, clients, suppliers, economic institutions etc. Thus, it's miles for external use.
Disclosure of Financial Status: It discloses the financial repute and economic performance of the commercial enterprise as a whole.
Interim Reports: Financial statements which are based on economic accounting are period in-between reviews and cannot be the very last ones.
Financial Accounting Process: The technique of monetary accounting gets affected because of the distinct accounting regulations accompanied by using the accountants. These accounting regulations differ especially in regions: Valuation of inventory and Calculation of depreciation.
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Question 3. Explain Cost Accounting. What Are The Objectives Of Doing It?
Cost Accounting is the procedure of classifying and recording of expenditure incurred all through the operations of the enterprise in a systematic manner, if you want to ascertain the cost of a price middle so as to control the fee.
Following are the fundamental 3 objectives of Cost Accounting:
Ascertainment of Cost and Profitability
Presentation of records for managerial selection making.
Question 4. What Are The Characteristic Features Of Cost Accounting?
Following are the function capabilities of Cost Accounting:
Cost accounting views the complete organisation from the individual issue of the business enterprise like a activity, a technique and so on.
Cost accounting goals at ascertaining the profitability of character additives of the business enterprise.
It is meant for the ones folks that are a part of the selection making manner of the organization. Thus, it is most effective for internal use.
It isn't a criminal requirement. It is not compulsory to maintain price accounting records.
In Cost Accounting, statistics is right now to be had which allows in choice making process.
Cost Accounting considers every and every transaction, whether or not related to past or future if you want to have an effect on the commercial enterprise.
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Question 5. Define Management Accounting. What Are Its Objectives?
Management Accounting is the technique of analysis, interpretation and presentation of accounting records amassed with the assist of financial accounting and cost accounting, with the intention to help control inside the technique of selection making, introduction of coverage and day after day operation of an organization. Thus, it's miles clear from the above that the management accounting is based on financial accounting and fee accounting.
Following are the targets of Management Accounting:
Measuring performance: Management accounting measures two forms of performance. First is worker performance and the second is efficiency dimension. The real performance is measured with the standardized overall performance and a document of deviation from the standard performance is pronounced to the management for the effective choice making and also to signify the effectiveness of the methods in use. Both sorts of overall performance control are used to make corrective actions so that you can enhance overall performance.
Assess Risk: The goal of management accounting is to evaluate risk as a way to maximize threat.
Allocation of Resources: is an important objective of Management Accounting.
Presentation of diverse financial statements to the Management.
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Question 6. What Are The Limitations Of Management Accounting?
Limitations of Management Accounting:
Management Accounting is based totally on economic and cost accounting, wherein historic records is used to make future decisions. Thus, power and weak spot of the managerial selections are based totally at the strength and weak spot of the accounting records.
Management Accounting is beneficial only to those those who are inside the choice making process.
Tools and strategies utilized in control accounting handiest offer data and now not equipped made selection. Thus, it's far most effective a supplementary provider.
In Management Accounting, choice is based at the manager’s institution as management attempt to keep away from prolonged guides of clinical selection making.
Personal prejudices and bias have an effect on the selections as the translation of economic records is based on personal judgment of the interpreter.
Question 7. What Is The Scope Of Management Accounting?
Following is the scope of Management Accounting:
Financial Planning and
Break Even Analysis
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Question eight. What Are The Various Techniques Used To Discharge The Function Of Management Accounting?
Following are the approach used to discharge the characteristic of management accounting:
Question 9. Compare Financial Accounting And Cost Accounting.?
Financial Accounting protects the pastimes of the outsiders managing the corporation e.G shareholders, creditors and many others. Whereas reviews of Cost Accounting is used for the inner cause by using the management to allow the equal in discharging numerous capabilities in a right manner.
Maintenance of Financial Accounting records and preparation of economic statements is a criminal requirement while Cost Accounting isn't a felony requirement.
Financial Accounting is involved about the calculation of income and situation of the agency as entire whereas Cost accounting offers in price ascertainment and calculation of profitability of the character merchandise, departments etc.
Financial Accounting considers only transactions of historic monetary nature while Cost Accounting considers now not best historic records but also future events.
Financial Accounting reviews are organized inside the fashionable formats according with GAAP whereas Cost accounting statistics is mentioned in something shape control desires
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Question 10. Compare Financial Accounting And Management Accounting?
Financial Accounting reports are utilized by outside events which includes creditors, shareholders, tax government etc. While Management Accounting reviews are used by managers in the organisation for making plans, directing, controlling and taking choices.
In Financial Accounting, most effective historical financial transactions are taken into consideration and do not do not forget non monetary transactions while in Managerial Accounting emphasis is on choices affecting the destiny, for that reason it may take into account future facts as well s non financial factors.
Maintenance of financial accounting information and instruction of economic statements is a legal requirement while Management Accounting is not at all legal requirement. Moreover, these systems have their own reporting formats.
In Financial Accounting, precision of statistics is required while in Management Accounting timeliness of facts is needed.
In Financial Accounting, best summarized data is prepared for the complete organisation whereas in Management Accounting distinct reports are prepared approximately merchandise, departments, personnel and client.
Preparation of Financial Accounting is based of Generally Accepted Accounting Principles while Management Accounting does now not follow such principles to prepare reviews.
Financial reports generated via the Financial Accounting are required to be correct while accuracy is not the prerequisite of control accounting.
Question 11. Compare Cost Accounting And Management Accounting?
The scope of management accounting is broader than that of fee accounting.
Both the accounting streams aren't a legal requirement.
Cost accounting offers only fee statistics for managerial use whereas control accounting provides all styles of accounting records i.E., value accounting as well as monetary accounting statistics.
In Cost accounting, the principle emphasis is on value ascertainment and cost manage whereas in management accounting the principle emphasis is on choice-making.
The diverse strategies utilized by price accounting are standard costing, budgetary control, marginal costing and price-quantity-profit analysis, uniform costing and inter-firm contrast, and so forth. Whereas management accounting also makes use of those strategies however additionally uses strategies like ratio analysis, price range drift declaration, statistical evaluation and so on.
Cost Accounting is a part of Management Accounting whereas Management accounting is an extension of managerial components of value accounting with the last aim to guard the pastimes of the enterprise.
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Question 12. What Do You Mean By Accounting Concepts? List Them.?
Accounting concepts are the ones basis assumptions upon which fundamental process of accounting is primarily based.
Following are the basic accounting standards:
Business Entity Concept
Dual Aspect Concept
Going Concern Concept
Concept Cost Concept
Money Measurement Concept
Explain the following:
Business Entity Concept: According to this concept, the business has a separate felony identification than the person that owns the business. The accounting procedure is carried out for the commercial enterprise and now not for the person that is carrying out the business. This idea is applicable to both, corporate and non corporate agencies.
Dual Aspect Concept: According to this concept, each transaction has affects. This fundamental relationship between belongings and liabilities this means that that the assets are identical to the liabilities stays the identical.
Going Concern Concept: According to this concept, the organisation goes to be in life for an indefinite time frame and is not possibly to close down the commercial enterprise in the shorter time frame. This impacts the valuation of assets and liabilities.
Accounting Period Concept: According to this concept, the indefinite time frame is split into shorter time periods, every one being inside the shape of Accounting duration, in order to facilitate the training of financial statements on periodical basis. Selection of accounting duration depends on traits like commercial enterprise employer, statutory requirements and many others.
Cost Concept: According to this idea, an asset is recorded on the price at which it's far acquired instead of taking present day marketplace costs of numerous belongings.
Money Measurement Concept: According to this concept, simplest those transactions locate location in the accounting statistics, which may be expressed in terms of cash. This is the foremost drawback of economic accounting and financial statements.
Matching Concept: According to this idea, at the same time as calculating the profits throughout the accounting duration in a accurate way, all of the fees and fees incurred in the course of the length, whether paid or no longer, have to be matched with the income generated throughout the period.
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Question thirteen. Explain A)convention Of Conservation B)convention Of Materiality C) Convention Of Consistency
a)Convention of Conservation
This accounting convention is commonly expressed as to “expect all the future losses and prices, without considering the destiny earning and income except they may be certainly found out.” This idea emphasizes that income should in no way be overstated or predicted. This convention typically applies to the valuation of modern assets as they may be valued at fee or market charge whichever is decrease.
B)Convention of Materiality
This accounting conference proposed that while accounting only those transactions might be considered which have cloth effect on financial status of the enterprise and other transactions that have insignificant impact can be neglected.. It offers relative importance to an object or event.
C) Convention of Consistency
This accounting conference proposes that the same accounting principles, strategies and guidelines ought to be used always on a duration to length foundation for preparing monetary statements to facilitate comparison of monetary statements on length to period foundation. If any changes are made inside the accounting methods or rules, then it need to be disclosed explicitly at the same time as getting ready the monetary statements.
Question 14. What Are The Various Systems Of Accounting? Explain Them.
There are two systems of Accounting:
1) Cash System of Accounting: This gadget facts simplest coins receipts and bills. This gadget assumes that there are not any credit score transactions. In this machine of accounting, prices are considered handiest when they're paid and incomes are taken into consideration whilst they're without a doubt acquired. This system is utilized by the companies which are set up for non income motive. But this system is considered to be defective in nature as it does not display the actual income earned and the contemporary scenario of the employer.
2) Mercantile or Accrual System of Accounting: In this machine, expenses and incomes are considered at some point of that length to which they pertain. This system of accounting is considered to be perfect however it can result into unrealized income which may reflect within the books of the accounts on which the organisation need to pay taxes too. All the organisation types of employer are legally required to follow Mercantile or Accrual System of Accounting.
Question 15. What Are The Different Types Of Expenditures Considered For The Purpose Of Accounting?
For the accounting purpose prices are categorized in three types:
Capital Expenditure is an amount incurred for acquiring the long time belongings together with land, constructing, equipments that are usually used for the reason of incomes revenue. These are not meant for sale. These fees are recorded in bills namely Plant, Property, Equipment. Benefits from such expenditure are unfold over numerous accounting years.
E.G. Interest on capital paid, Expenditure on purchase or installation of an asset, brokerage and commission paid.
Revenue Expenditure is the expenditure incurred in a single accounting yr and the benefits from which is also loved inside the equal period only. This expenditure does no longer boom the incomes capability of the business but maintains the prevailing incomes capacity of the business. It blanketed all the prices which are incurred throughout day to day strolling of commercial enterprise. The advantages of this expenditure are for quick length and are not forwarded to the following yr. This expenditure is on ordinary nature.
Eg: Purchase of uncooked material, promoting and distribution costs, Salaries, wages and so on.
Deferred Revenue Expenditure is a revenue expenditure which has been incurred for the duration of an accounting year but the gain of which can be prolonged to some of years. And these are charged to earnings and loss account. E.G. Development expenditure, Advertisement etc.
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Question 16. Define Management Accounting?
Management Accounting is the procedure of analysis, interpretation and presentation of accounting statistics gathered with the help of financial accounting and fee accounting, with a view to assist management in the process of selection making, creation of policy and daily operation of an employer. Thus, it is clear from the above that the control accounting is primarily based on financial accounting and price accounting.
Question 17. What Are Its Objectives Of Management Accounting?
Measuring performance: Management accounting measures two types of overall performance. First is employee performance and the second one is efficiency measurement. The actual performance is measured with the standardized performance and a record of deviation from the same old overall performance is pronounced to the management for the powerful decision making and also to indicate the effectiveness of the methods in use. Both types of overall performance management are used to make corrective actions to be able to improve performance.
Assess Risk: The intention of control accounting is to assess threat in an effort to maximize hazard.
Allocation of Resources: is an important goal of Management Accounting.
Presentation of various financial statements to the Management.
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Question 18. What Are Capital Expenditures? Is It Ok To Consider These Expenditures While Calculating The Profitability Of During A Certain Period?
Capital Expenditure is an amount incurred for acquiring the long term belongings including land, building, equipments which can be constantly used for the motive of incomes revenue. These aren't supposed for sale. These charges are recorded in bills specifically Plant, Property, Equipment. Benefits from such expenditure are spread over several accounting years.
E.G. Interest on capital paid, Expenditure on purchase or set up of an asset, brokerage and fee paid.
No, Capital expenditure should now not be considered while calculating profitability as blessings incurred from the capital expenditure are long time advantages and can not be proven within the same economic years wherein they were paid for. They need to be spread over a number of years to expose the true position in stability sheet as well as income and loss account.
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Question 19. Explain Revenue Expenditure. Does It Affect The Profitability Statement In A Period?
Revenue Expenditure is the expenditure incurred in one accounting 12 months and the blessings from which is likewise loved in the equal length simplest. This expenditure does now not growth the incomes capability of the business however keeps the prevailing incomes capability of the enterprise. It covered all the charges which can be incurred at some stage in daily walking of business. The advantages of this expenditure are for short period and are not forwarded to the following 12 months. This expenditure is on ordinary nature.
As the return on revenue expenditure is received within the same period as a consequence the entries relating to the revenue expenditure will affect the profitability statements as all of the entries are surpassed inside the same accounting year, the 12 months wherein they had been incurred.
Question 20. Explain Deferred Expenditures. How Are These Expenses Dealt With In Profitability Statement?
Deferred Revenue Expenditure is revenue expenditure, incurred to acquire blessings over a number of years say three or 5 years. These fees are neither incurred to accumulate capital property nor the blessings of such expenditure is acquired within the equal accounting length all through which they have been paid. Thus they don’t affect profitability assertion as they are no longer transferred to the profitability announcement within the length at some stage in which they're paid for. They are charged to earnings and loss account over a number of years depending upon the gain collected.
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Question 21. Explain Personal Accounts. List Different Accounts Consisting Personal Account.
Personal Accounts are the accounts of individuals or companies with whom the agency deals in numerous capacities.
Personal Accounts encompass following forms of debts:
Accounts of Customers
Accounts of Suppliers
Accounts of Bank/Financial Institutions
Question 22. Explain Real Accounts. List Different Accounts Consisting Real Accounts In Practical Circumstances.?
Real debts are the debts of assets which the organization owns and money owed of liabilities which the corporation owes. Real Account may consist of some intangible property.
Real Accounts consist of following styles of debts:
Patent Trade Marks Account
Question 23. What Are Nominal Accounts? List Accounts Consisting The Nominal Account.
Nominal Accounts are the debts of Incomes, Expenses, Losses and Gains.
Nominal Accounts encompass the following forms of bills:
Interest Paid or Received Account
Commission Paid or Received Account
Telephone Expenses Account
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Question 24. What Is The Principal Of Double Entry System Of Accounting? What Are The Advantages Of Double Entry System Of Accounting?
The most important of Double Entry device of Accounting is “Every debit has a corresponding credit score” as a result the whole of all debits has to be same to the full of all credits. In simple words, each commercial enterprise transaction influences debts. If one account is debited then the alternative account can be credited with the same amount. For instance: if the business purchases a machinery really worth Rs. 500000, then equipment account gets debited with amount Rs. 500000 as the business is receiving an asset for its operation, on the alternative side cash account automatically receives credited with the same quantity of Rs. 500000 as cash is going out of the business.
Advantages of Double Entry device of Accounting:
It considers each the factors of commercial enterprise transaction
Arithmetic accuracy of the accounting facts may be checked and verified with the aid of getting ready trial stability
Correct effects of the operations can be ascertained by means of making ready Final Accounts
Correct valuation of assets and liabilities at any point of time via getting ready Balance sheet
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Question 25. What Are The Rules Of Double Entry Book Keeping For Various Types Of Accounts?
Following are the fundamental regulations of double access e-book preserving for diverse kinds of bills:
Personal Account : Debit the Receiver, Credit the Giver
Real Account : Debit what is available in, Credit what is going out
Nominal Account : Debit all of the Expenses, Credit all the Incomes
Question 26. What Is Trial Balance? What Does An Accurate Trial Balance Suggest?
Trial Balance is a precis of all of the balances of numerous ledger bills and Cash/Book debts of an business enterprise at any given date. For the education of Trial Balance the entire Ledger debts and Cash book/Bank e-book are required to be balanced to get the ultimate stability. Assets and Expenses accounts having debit stability are published on debit side whereas Income and Liability accounts having credit balance are published on credit facet of the Trial Balance.
An correct Trial Balance is an evidence that every one the transactions are recorded and posted in the General Ledger account as in keeping with the accounting concepts. It also guarantees arithmetical accuracy of the system of ledger posting.
Question 27. What Is Depreciation? What Are The Causes Of Depreciation? Is It A Cost? Why?
Depreciation is a everlasting, slow and continuous discount within the ebook fee of the fixed asset. Except Land all of the constant belongings e.G. Car, Machinery, Furniture and so on depreciates in value making the asset vain after the end of a certain length.
Following are the causes of Depreciation:
Wear and Tear due to regular use of the asset
Deterioration occurs with the passage of time, whether or not the asset is in use or no longer
Damages accomplished to the property due to an coincidence like fireplace, mishandling etc.
Depletion of Asset
Obsolescence i.E. Due to new technology in use, new innovations, innovations and many others.
Yes, depreciation is a value. It is a historic price, which is charged in opposition to income of the organization lowering the profitability. It is a non-cash value as it's far by no means paid or incurred in cash.
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Question 28. What Is The Need Of Depreciation Account?
According to the matching principle of accounting, the fees incurred inside the accounting 12 months ought to be matched with the sales or profits earned all through the equal accounting year. Thus, it's miles essential to spread the value of constant asset much less scrap or realizable fee after the useful lifestyles of the fixed asset is over and this procedure of ascertain the equal is referred to as depreciation accounting.
Thus, depreciation account is wanted for specially functions:
To ascertain due profits and to symbolize the cost of the constant asset at its unexpired fee i.Book cost of the asset much less depreciation.
Question 29. What Is The Effect Of Depreciation Of Assets On Profits Received By Owners?
Depreciation forms a part of value that's used for arriving at accurate estimation of income, which then is distributed to the owners of the enterprise inside the form of dividend. Addition of depreciation to the value reduces the amount of distributable earnings.
By keeping a depreciation account part of the distributable earnings is retained in the commercial enterprise as a reserve that's used to purchase new machinery or for other functions within the future which reduces the profits or dividends received with the aid of the owners.
Question 30. List Various Methods For Calculating Depreciation.?
Methods for calculating depreciation are:
Straight Line Method
Written Down Value(Reducing Balance)Method
Production Unit Method
Production Hour Method
Joint Factor Rate Method
Question 31. Explain Straight Line Method To Calculate Depreciation. What Are It Advantages And Limitations?
It is the handiest and most often used method. The additives used to calculate Straight Line Method are:
Cost of Asset
Estimated Scrap vale-is the value of the asset at the give up of existence of the asset
Estimated existence of Asset
Formula to calculate:
Depreciation = (Cost of Asset-Estimated Scrap Vale)/Estimated lifestyles of Asset in years
The essential advantage of this approach is that an equal amount of depreciation is charged every yr at some point of the existence of the Asset which makes the calculation of depreciation easy.
But the predicament of this approach is that the amount of depreciation charged on the asset inside the later years is high due to the decreased cost of the asset.
Question 32. Explain Written Down Value (reducing Balance) Method To Calculate Depreciation. What Are The Benefits Of This Method?
In Written Down Value Method, the fee of depreciation is predetermined. This is carried out with the aid of deducting the amount of depreciation charged earlier than from the balance of value of asset (Cost of Asset-Estimated Scrap Value). In easy phrases, inside the first 12 months the quantity of depreciation charged is high and it gradually starts decreasing during the subsequent years.
Formula to calculate:
Depreciation = 1-
N= quantity of years
R= Residual/Scrap Value
C=Cost of the asset
The fundamental gain of this approach is that it recognises this fact that in the initial section of an asset, fees of upkeep, maintenance and so on. Are less which is going on growing with the progressing life of the asset. Thus, via charging higher quantity of depreciation inside the initial years and progressively reducing the quantity of depreciation counterbalance both the lower quantity of repairs and preservation value within the initial years and the gradual increase afterward. It can be noted right here that the written down price can in no way be zero.
Question 33. Explain Production Unit Method To Calculate Depreciation.
Production Unit Method is also a technique of calculating depreciation. According to this technique, charge of depreciation is predetermined at in line with unit, which is calculated on the idea of overall quantity of devices produced throughout the existence of the asset. This technique gives extra significance to the usage issue. Higher the range of units produced, higher can be the amount of depreciation and vice versa.
Formula to calculate:
Rate of Depreciation in step with unit = (Cost of system – Estimated Scrap Value) / Estimated variety of devices produced
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Question 34. Explain Annuity Method Of Calculating Depreciation.?
In this technique, the purchase of an asset is taken into consideration an investment of capital on which a positive charge of interest is earned. The price of the asset and the hobby are written down yearly by using same instalments until the book value of the asset is reduced to nil.
The annual fee by way of manner of depreciation is located out from the annuity tables. The annual rate for depreciation might be credited to asset account and debited to depreciation account whilst the interest may be debited to asset account and credited to hobby account. The disadvantage of this method is that it is a complicated method to price depreciation. Secondly, the load on Profit and Loss account goes on increasing with the passage of time and the amount of interest goes on diminishing as years bypass through.
Thus this method is first-rate proper to those belongings which require massive investment and don’t require common additions.
Question 35. Explain Joint Factor Rate Method Of Calculating Depreciation.?
This technique is likewise used to calculate quantity of depreciation. In this approach the depreciation is furnished partially at a hard and fast fee on time basis and in part at a variable rate on utilization basis.
Question 36. What Is Sinking Fund Method Of Calculating Depreciation?
It is also called Depreciation fund method. Under this technique a sinking fund or depreciation fund is created. Every yr the earnings and loss account is debited and fund account is credited with a sum, that's calculated such that the once a year sum credited to the fund account that is accumulating all through the lifestyles of the asset might be same to the sum required to replace the vintage asset. The essential benefit of this method is that it accumulates interest or dividends by using ordinary funding of cash outside the business e.G.In securities to finance the alternative of the assets, which has grow to be vain.
But alternatively this technique has downside additionally as the burden of profit and loss account goes on increasing as years pass with the aid of since the quantity spent on upkeep and preservation goes on growing due to the wear and tear and tear of the asset and the quantity of depreciation remains same.
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Question 37. Explain Endowment Policy Method Of Calculating Depreciation.?
This approach is much like Sinking Fund approach except on this technique in place of making an investment in securities the amount set aside is used to pay premium on an Endowment Policy. And the policy should mature on the date on which the ceases its beneficial life. This amassed cash is then used to replace the expired asset.
Question 38. What Method Of Depreciation Calculation Is Used To Calculate The Tax Liability According To Income Tax Act, 1961?
According to Income Tax Act, 1961 Written Down Method of depreciation is used to calculate the tax legal responsibility. In this approach, depreciation is charged at predetermined rate, which is calculated at the stability of value of asset less quantity of depreciation previously charged. The rate at which the depreciation could be calculated is likewise certain inside the Income Tax Act 1961.
Question 39. How Is Depreciation Calculated As Per Schedule Xiv Of Companies Act, 1956?
As in keeping with Schedule XIV of Companies Act, 1956 the corporation can calculate the depreciation by way of the use of both Straight Line Method or Written Down Value Method.
The rate to calculate depreciation is likewise specified in Schedule XIV. If any addition has been made to any asset in the course of the economic yr, depreciation on such an asset could be calculated on seasoned-rata foundation from the date of such addition or upto the date on which such asset has been sold.
Question 40. How Are The Fixed Assets Categorized To Calculate The Depreciation As Per Schedule Xiv Of Companies Act, 1956?
To calculate depreciation as according to Schedule XIV of Companies Act, 1956 the fixed belongings are labeled as beneath:
Buildings-Factory Buildings in addition to Administration buildings
Plant and Machinery
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Question forty one. Does Depreciation Generate Funds For Replacement Of Assets?
Yes, depreciation generate finances for substitute of assets. When depreciation is charged against the asset, a widespread element is taken out of the income every yr in the course of the life of the existing belongings, and is retained and accrued without being dispensed to the proprietors as dividend. Thus on the stop of the life of the prevailing asset, the business can have some price range to update vintage asset with the brand new one.
Question 42. Compare: Depreciation As Per Companies Act And Income Tax Act?
Under the Companies Act: Depreciation is computed either the usage of the instantly line technique or written down fee approach. In instantly line approach the amount of depreciation is uniform for all the years wherein in written down approach the quantity of depreciation is highest within the first yr and gradually decreases in the subsequent years.
Under Income Tax Act: Depreciation is computed using written down value method. Also it's far charged at the block of property and not on character property. The block of belongings means a group of belongings for which the same fee of depreciation is relevant.
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Question forty three. What Is Journalizing? What Are The Columns Of A Journal?
Journalizing is the process of recoding commercial enterprise transactions in the Journal in chronological order, as and when the transactions take place. Journal is also referred to as Book of Original Entry or the Book of Prime Entry.
Journal has following 5 columns:
Question 44. Explain Compound Journal Entry.?
In daily business, numerous similar transactions take location at the equal day and each account is both debited or credited. Thus rather than passing special entries, a compound entry may be surpassed, which entails a couple of debit or multiple credit score or each. This makes the magazine less bulky and avoids duplication.
Question 45. What Are Subsidiary Books? Why Are They Maintained?
Subsidiary e-book is the sub division of Journal. These are referred to as books of top access or books of unique access as all the transactions are recorded of their authentic shape. In those books the information of the transactions are recorded as they take region from daily in a classified manner.
The critical subsidiary books used are as following:-
Cash Book : Used to file all of the coins receipts and payments.
Purchase Book : Used to report all of the credit purchases.
Sales Book : Used to report all the credit score income
Purchase Return Book : Used to record all items returned by commercial enterprise to the provider
Sales Return Book : Used to document all properly again through the client to the enterprise.
Bills Receivable Book : Used to document all time-honored bills acquired by enterprise.
Bills Payable Book : Used to record all invoice regular by using us to our creditors.
Journal Proper : Used to record those transactions for which there's no separate e book.
These subsidiary books are maintained because it is able to be impossible to record each transaction into the ledger as it occurs. And these books report the details of the transactions and consequently help the ledger to grow to be brief. Future reference and any preferred evaluation becomes smooth as transactions of comparable nature are recorded together.
Question forty six. What Is A Ledger? What Do You Mean By Ledger Posting?
Ledger is the ebook where the transactions of comparable nature touching on someone, asset, liability, profits or expenditure are drawn from the magazine or subsidiary books where the transactions are recorded in a chronological order and published account wise within the Ledger account. Ledger maintains all types of bills i.E. Personal, Real and Nominal Account.
All the commercial enterprise transactions are first recorded in Journal or Subsidiary books in a chronological order when they in reality take region and from there the transactions of similar nature are transferred to Ledger and this system of shifting is known as as Ledger Posting.
Question 47. What Are Control Ledgers? What Are The Purposes Of Maintaining It?
In a commercial enterprise, every now and then it isn't viable to carry debts of all the suppliers and customers within the major ledger. In such instances apart from General or foremost ledger, the manage ledgers are maintained. Control ledgers statistics the man or woman bills. In the quit of the length, stability proven within the major ledger has to tally with the balance in the individual ledger debts maintained in the control ledger.
Purposes of retaining manipulate ledgers are:
Advances to Staff
Question forty eight. What Do You Mean By Balancing Of Ledger Account?
To realize the internet impact of all the enterprise transactions recorded inside the ledger account, the bills want to be balanced. Thus, Balancing of Ledger Account method the balances of Debit and Credit side need to be identical and this involves following steps:
First overall of each the sides are taken.
Secondly distinction between the totals of each the sides is calculated.
If the debit aspect is in excess to the credit side then location the difference at the credit score aspect by means of writing By Balance c/fd.
If the full of credit score aspect is in excess to the debit aspect, area the difference at the debit aspect via writing To Balance c/fd.
After putting the difference on the suitable side, make sure the totals of each the edges are same.
Question forty nine. Why Are Profit And Loss Accounts Prepared?
Profit and Loss Account is a length assertion which is ready to show the profit or loss incurred through the Organization within the yr for which it is ready. It is ready to reveal the end result of operations of all of the enterprise transactions for the duration of a given time period. It is also called profitability statement .It is the final result of all commercial enterprise transactions of the corporation. Profit and Loss account has 4 additives particularly Manufacturing Account, Trading Account, Profit and Loss Account and Profit and Loss Appropriation Account. Gross earnings or Gross loss so calculated in trading account is taken to the income and loss account.
Question 50. What Is A Balance Sheet? Why Is It Prepared?
Balance Sheet is a Statement displaying economic function of the business on a particular date. It has facet one supply of funds i.E Liabilities, the left facet of the balance sheet and application of price range i.E assets, the right aspect of the stability sheet. It is ready after getting ready buying and selling and earnings and loss account and has balances of real and private bills grouped and organized in a right way as assets and liabilities. It is ready to realize the exact financial function of the business at the remaining date of the financial yr.
Question 51. List The Type Of Items Which Appear Under The Liability Side Of A Balance Sheet.
Items which appear beneath the liability aspect of Balance Sheet are:
Long Term Liabilities
Loan from bank
Advance from Customers
Income Received in Advance
Question fifty two. What Are Adjustment Entries? Why Are They Passed?
Adjustment entries are the entries which might be passed at the stop of every accounting period to adjust the nominal and other accounts so that correct internet income or net loss is indicated in profit and loss account and balance sheet may additionally represent the proper and honest view of the financial condition of the enterprise.
It is important to skip these adjustment entries before preparing very last statements. Otherwise in the absence of those entries the profit and loss assertion can be deceptive and stability sheet will not show the genuine financial condition of the enterprise.
Question 53. Explain Bank Reconciliation Statement. Why Is It Prepared?
Bank Reconciliation Statement is a assertion organized to reconcile the balances of cash e book maintained via the concern and pass ebook maintained by using the bank at periodical intervals. At the end of each month entries in the coins book are as compared with the entries in the skip ebook. The causes of variations in balances of both the books are scrutinized and then reconciliation announcement is ready.
This statement is ready for a special reason and once in a month. It is ready with a view to signify objects which cause distinction among the balances as according to the bank columns of the cash book and the financial institution bypass ebook at a particular date.
Question 54. What Are The Reasons Which Cause Pass Book Of The Bank And Your Bank Book Not Tally?
Cheques deposited into the bank however no longer but gathered
Cheques issued however no longer but provided for price
Amount accumulated via bank on status commands of the concern.
Amount paid by the bank on status commands of the priority.
Interest debited by way of the financial institution
Interest credited by means of the bank
Direct payment via clients into the bank account
Dishonour of cheques
Question 55. What Type Of Errors Do Not Affect The Trial Balance?
Following are the forms of mistakes which do now not have an effect on the Trial Balance:
Errors of Principle
Errors of Omission
Errors of Commission
Wrong quantity recorded in the subsidiary books
Question fifty six. What Is Cost Accountancy? What Are The Objects Of Cost Accountancy?
Cost accountancy is the utility of costing and value accounting ideas, methods and techniques to the technological know-how, art and practice of price manage and the ascertainment of profitability as well as the presentation of records for the purpose of managerial choice making.
Following are the objects of Cost Accountancy:
Ascertainment of Cost and Profitability
Determining Selling Price
Facilitating Cost Control
Presentation of facts for powerful managerial decision
Provide foundation for working coverage
Facilitating preparation of financial or other statements
Question 57. What Is The Difference Between Costing And Cost Accounting?
Costing is the process of ascertaining charges whereas price accounting is the procedure of recording numerous prices in a systematic way, to be able to prepare statistical date to envision fee.
Question 58. What Is Cost Centre?
Cost centre is described as a vicinity, gadget, individual, branch, department, or any system or institution of these, on the subject of which direct and indirect prices can be ascertained and used for the cause of value manage. Thus, an agency for the costing functions is split in convenient units and one of the handy gadgets is known as value centre. Example: collecting, sorting, washing of clothes are the diverse sports that are separate value centre in a laundry.
The value centre enables this function of fee control. Thus, accurate identity of fee centre is a prerequisite for the successful implementation of value accounting process. This also allows the fixation of responsibility in the precise manner.
Question 59. What Are The Various Elements Of Costs?
There are three factors of fee:
Material Cost: This is the cost of material or the commodity used by the employer for its production purpose. Material is the substance, from which a product is made. Thus, it may be in a uncooked or a synthetic kingdom. It can be direct or indirect.
Direct Material Cost: paperwork an crucial part of the completed product and is identified with the character fee centre. It is also defined as process cloth, stores material, production fabric, and so forth. Example: Raw substances purchased or purchased primary packing cloth, etc.
Indirect Material Cost: is used for ancillary purposes of the business and cannot be effortlessly recognized with the man or woman cost centre. Example: Consumable stores, oil and waste, printing and stationery cloth and so forth.
Labour Cost: This is the cost, incurred inside the shape of remuneration paid to the employees or labours of the company. The body of workers required to transform cloth into finished product is referred to as labour. It can be direct or oblique.
Direct Labour Cost: is the cost incurred on those personnel who immediately take part inside the production procedure and easily identified with the man or woman cost centre.
Indirect Labour Cost: is the value incurred on those personnel who do now not at once take part inside the production manner and can't identified with the character fee centre. Example: income of foreman, salesmen, director’s salary, etc.
Expenses: are the fees of services supplied to the agency. It may be direct or oblique.
Direct Expenses: are the expenses which can be without delay identified with the person fee centres. Example: hire prices of machinery, fee of faulty work for a selected activity or settlement etc.
Indirect Expenses: are the fees which cannot be without delay diagnosed with the individual value centres. Example: lease, lighting, phone charges, etc.
Question 60. Explain Gross Profit.?
Gross Profit is a agency’s revenue minus its fee of products offered. It is likewise called gross margin and gross income. It is calculated via subtracting all charges related to income i.E production charges, uncooked substances, labour, promoting and commercial expenses from sales. It is an indication of the managements’ performance to use labour and cloth inside the manufacturing technique.
Gross Profit = Net Sales – Cost of Goods Sold
Question 61. How Do You Calculate The Following Inventory Levels?
Re-order stage = Maximum Lead Time x Minimum Lead Time
Maximum level = Reorder Level + Reorder Quantity – (Minimum Usage x Minimum Lead Time)
Minimum level = Reorder Level – (Normal Usage x Normal Lead Time)
Danger stage = Maximum Level x Lead time for Emergency purchases
Question sixty two. What Can Be The Discrepancies In Material Receipt?
There are two classes of material discrepancies:
First category consists of:-
Quantity obtained in extra
Quantity obtained in brief
Receipt of wrong quantity of cloth.
These discrepancies are normally because of the transportation system.
Second class includes – Discrepancies in nice of fabric supplied.
These discrepancies are resulting from the manufacturer.
Question 63. What Is Time Booking? What Are The Different Methods Used For Doing This?
Time booking is recording the time truly spent through a worker on diverse jobs completed by means of him in the manufacturing facility for fee analysis and dividing labour cost into various jobs and departments. It additionally enables in control over wastage of time- idle time.
Different strategies used for time reserving are:
Daily Time Sheets
Weekly Time Sheets
Daily Time Sheets: Under this method, a each day time sheet is supplied to every worker on which time spent by him on various work orders is noted. This approach may be with ease used if the employee works on various jobs of quick duration like in protection jobs. But this method is hazards also as it includes sizable paper paintings.
Weekly Time Sheets: In this method time is recorded for all of the jobs achieved all through the week in place of recording the paintings completed for an afternoon most effective. One sheet is allotted to every worker. It entails much less paper work. These types of weekly time sheets are beneficial for intermittent types of jobs like production paintings.
Job Card: Job Card is a way of recording info of time almost about the jobs or work orders undertaken by using the people. This technique helps the computation of labour price on the subject of jobs or work orders.
Question sixty four. What Does Reconciliation Of Time Attended And Time Booked Tell Us?
If the business enterprise is keeping a device of time card and job card, the problem of reconciliation will become simple as each the information are at the same card. If the time booked as consistent with the task cards is much less than the attendance time, this shows the idle time at some point of which the employee has not finished any work, even though he become present in the manufacturing unit. Thus, reconciliation of time attended and time booked tells us the real amount of labor done with the aid of the worker in assessment with the variety of hours spent by way of him inside the factory.
Question 65. Define Simultaneous Equation Method And Repeated Distribution Method?
Simultaneous equation technique:- is the method wherein the amount of every production department may be received by way of fixing simultaneous approach.
Repeated distribution technique:- is in which the overheads of service department are dispensed to different departments on agreed percent, and this technique is repeated till the quantity of overheads are exhausted to bear in mind similarly apportionment.
Question 66. What Is Budget? What Are Its Characteristics?
A budget is a economic document or an movement plan which is ready and used to undertaking destiny profits and charges. It outlines an organization’s economic and operational desires. It also can consist of non- monetary statistics with the financial information. They need to be made and permitted earlier of the year in which they may be to be used or implemented.
Following are the characteristics of an excellent finances:
It is expressed in quantitative or financial phrases.
It is ready for a set time frame It is ready before the duration in which it commences.
Practical to implement.
It spells out the gadgets and the guidelines to be pursued if you want to achieve the objective of the business enterprise.
Many humans are worried in drawing up a finances.
Flexible sufficient to permit modifications within the changing surroundings.
Prepared on the idea of installed standards of overall performance.