ABHYAAS CA ACADEMY, Ph:84999 46555

Vijayawada 77998 59135

Sub : Accounts
Topic : Theory
Computerised Environment
Accounting is the method in which financial information is gathered, processed, and summarized into financial
statements and analysis. An accounting system can be represented by the following

Business Transactions --- Journal Entry-- General Ledger --- Trial Balanae- Financial Statements

Need and requirement of the Computerised Accounting system:

1) Numerous Transactions: The computerized accounting system is capable of handling large number of
transactions with speed and accuracy.

2) Instant Reporting: The computerized accounting system is capable of offering quick and quality reporting
because of its speed and accuracy. Day to day cash flow and fund flow analysis can be also be handled by
computerized accounting.

3) Reduction in paper work: A manual accounting system requires more physical storage space to keep
accounting record/books and vouchers/documents. The requirement of stationery and books of accounts along
with vouchers and documents is directly dependent on the volume of transactions beyond a certain point. The is
a direct need to reduce the paper work and dispense with large volumes of books of accounts. This can be
achieved by introducing computerized accounting system.

4) Flexible Reporting: The reporting is flexible in computerized accounting system as compared to manual
accounting system. The reports of a manual accounting system reveal balances of accounts on periodic basis
while computerized accounting system is capable of generating reports of any balance as when required and for
any duration which is within the accounting period.

5) On-line facility: Computerised accounting system offers online facility to store and process transaction data so
as to retrieve information to generate and view financial reports.

6) Quick decision making: Generates real-time, comprehensive MIS reports and ensures access to complete and
critical information, instantly.

7) Scalability: Computerized Accounting adapts to the current and future needs of the business irrespective of
size of business.

8) Budget Comparison: Computerized Accounting also helps in immediate comparison with budget figures.
Variance reports and Performance Reports can be obtained quickly, for suitable managerial decision.

Limitations:
1) Cost of installation: Computer hardware and software needs to be updated from time to time with availability
of new versions. As a result heavy cost is incurred to purchase a new hardware and software from time to time.

2) Cost of training: To ensure efficient use of computer in accounting, new versions of hardware and software
are introduced. This requires training and cost is incurred to train the staff personnel.

3) Dangers for Health: Extensive use of computer may lead to may health problems such muscular, pain,
eyestrain etc. This affects adversely the working efficiency and increasing medical expenditure.

4) Unauthorized Access: Unauthorized access and copying of confidential financial information can happen
without any trails or loss of data to the owner. Unauthorized Access can be had through LAN or through the
internet by hacking into the company server.

Items to be considered while selecting a software: Or Consideration for selection of Pre-Packaged

Accounting software
There are many accounting softwares available in the market. To choose the accounting software appropriate to
the need of the organisation is a difficult task. Some of the criteria for selection could be the following:

1. Fulfillment of business requirements: Some packages have few functionalities more than the others. The
purchaser may try to match his requirement with the available solutions.

2. Completeness of reports: Some packages might provide extra reports or the reports matches the
requirement more than the others.

3. Ease of use : Some packages could be very detailed and cumbersome compare to the others,

4. Cost : The budgetary constrainsts could be an important deciding factor. A package having more features
cannot be opted because of the prohibitive costs.

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 ABHYAAS CA ACADEMY, Ph:84999 46555
Vijayawada 77998 59135
Sub : Accounts
Topic : Theory

5. Reputation of the vendor: Vendor support is essential for any software. A stable vendor with reputation and
good track records will always be preferred.

6. Regular updates : Law is changing frequently. A vendor who is prepared to give updates will be preferred to
a vendor unwilling to give updates.

What do you mean by Customised Accounting Software ?

A customized accounting software is one where the software is developed on the basis of requirement
specifications provided by the organization. The choice of customized accounting software could be because-of
the typical nature of the business or else the functionality desired to be computerized is not available in any of the
pre-packaged accounting software. An organization desiring to have an integrated software package covering
most of the functional area may have the financial module as part of the entire customized system. A feasibility
study is first made before the decision to develop a software is made. The life cycle of a customized accounting
software begins with the organization providing the user requirements. Based on these user requirement the
system analyst prepares a requirement specification which is given for approval by the user management. Once
the requirement specification is approved, the designing process begins. Development, testing and
implementation are the other components of the system development life cycle.

Q) Spread sheet as Accounting Software:

Accounts can be maintained in a computerized environment by using spread sheet package. The basic
requirement is that the user should have knowledge and skill to operate spread sheet software to keep control of
the figures. Spread sheet softwares allow grouping of accounts, replication of cell contents, formulas and macros,
pivot tables, calculations and functions which help in the maintenance of accounts. However, if suffers from a
limitation that the users have to complete double entry by using set formulas and other means, it cannot complete
it automatically.

Advantages:
a) It is simple to use and easy to understand
b) Most of common functions like doing calculations, setting formulas, macros, replication of cell contents, etc
can be easily done in a spread sheet.
c) Grouping and regrouping of accounts can be done.

Disadvantagaes:
Data limitations: It has data limitations i.e depending upon the package they can handle data only up to a
specified limit.

2) Simultaneous access on a net work may not be possible: Many of the modern softwares allow locking of the
table when updating is taking place. This is not possible in a spread sheet.

3)Automatic double entry not possible: Users have to adopt formulas or other means to complete the double
entry.

4) Reports are not automatically formatted and generated: The reports are not automatically formatted and
generated, they have to be controlled by users. Each time a report has to be printed, settings have to be checked
and data range has to be set.

Q) ERP ( Enterprise Resource Planning)

An ERP Enterprise Resource Plann9ing is an integrated software package that covers accounting in all parts
or departments of a business enterprise.

Advantages and Disadvantages of ERP Package

Advantages of ERP Packages are
a) Large volume of information’s are available through such package.
b) It is an integrated package so it reduces the possibility of duplication of data entry.
c) It is generalized package which covers most of the common functionalities of any specific module.
d) Reports or ERP are standardized across industry and are generally acceptable to the user.
e) Various reports are available in such package. These reports are standardized and generally acceptable to the
use.

Disadvantages of ERP
a) It is less flexible in which user may have to modify their business procedure at times to be able to effectively
use the ERP.

b) Implementation is very difficult: Many of the consultants doing he implementation of the ERP may not be
able to fully appreciate the business procedure to be able to do a good implementation of an ERP.

2
 ABHYAAS CA ACADEMY, Ph:84999 46555
Vijayawada 77998 59135

It is very expensive: ERP are normally priced at an amount which is often beyond the reach of small and
medium size organization. However, there are some ERP coming into the market which are moderately priced
and may be useful to the small businesses.

c) It is very complex software: Generally an ERP package has large number of options to choose from.
Further the parameter settings and configuration market it a little complex for the common users.

Q) Outsourcing of Accounting function

When some business function or process is entrusted to a third party to perform on behalf of any particular
business enterprise, it is known as outsourcing. The trend of outsourcing is growing day by day in each and every
field of a business, however is is more in case of finance and accounting. The consideration for doing this is to
save cost and to utilize the expertise of the outsourced party. Under this, the third party maintains the accounting
software and the client data, it also does the processing and hands over the report from time to time.

Advantages of Outsourcing
a) Concentration on core Activities: The organization able to save time to concentrate is core area of business.
b) Third Patty Expertise utilization: Organization is able to utilize expertise of the third party;
c) Cost Saving: Storage and maintenance cost of the data is in the hand of professional people.

Disadvantages:
Security and Confidentiality: For outsourcing one has to hand over sensitive datas and other important
business information to third party, it might endangers security and confidentiality.

Inadequate services provided: Third party providing services might not be able to perform it with perfection.

Cost: Eventually the cost of outsourcing may go higher than what has been estimated.
Delay in operation: The third party service providers are catering to number of clients thereby processing as per
priority basis.

Consideration for Choice of Outsourcing of Vendor:

a) The amount of services provided and whether the same matches with the requirements
b) The reputation and background of the vendor
c) The comparative costs of the various propositions
d) The assurance of quality.

Average Due Date:

Average due date is that date on which a person can pay all the amounts due from him without loss or gain of
interest. If the sum is paid early, the person making the payment loses interest but the other party gains. But a
date can be arrived at on which all payments can be made so that no party loses or gains by way of interest. Such
a date will be known as Average Due date.

Account Current:
If two parties have number of transactions between themselves, they will exchange statements confirming the
amounts involved. Usually, such statements are merely a copy of the ledger account for the period concerned.
But one party may calculate interest due to or due by the other party. The statements then will include not only
the amount of transactions but also interest involved. Such statement is called Account Current. Account is
normally exchanged between the following parties.
a) Merchants buying and selling goods on credit to each other
b) Supplier and customer when payments are irregular
c) Principal and Agent
d) Lender and borrower
e) Broker and his client
f) Head office and its branch
h) Consignor and Consignee.

Red –Ink Interest:

Sometimes, the due date of the transaction fall beyond the date of settlement i.e the date on which account
current is prepard, in such a case the days are counted from the settlement date to the date of transaction. These
days are written with a negative sign in the days column or with a positing sign on the opposite side where the
transaction does not appears.The products were written with Red Ink . So that interest on such products is called
Red-interest Interest. This Red Ink interest is treated as negative interest.

Average Clause:
This clause is a clause in the Fire insurance policy. Under Average clause, if the amount of policy is less than
the value of the subject of matter of insured, the insurer will be liable for only that portion of loss which the policy
amount bears in respect of the subject matter. The fire insurance policies often include an average clause for
discouraging the under insurance.

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 ABHYAAS CA ACADEMY, Ph:84999 46555
Vijayawada 77998 59135

Self Balancing Ledgers: Self balancing ledger is a system to abbreviate( shorten) the trial balance. It
helps to eliminate the problem of locating errors and also helps in finding out the area where the errors
lie under this method, the main ledger is divided into sales ledger, purchase ledger and general ledger.
There is a separate proving of the accuracy of each ledger. All the creditors and debtors are represented
in one account. Under this system, each ledger is self balancing.

Advantages of Self Balancing System:

1) A number of book keepers can work on different ledgers.
2) Arithmetic accuracy of each ledger can be provided independently.
3) Interim accounts can be prepared without personal ledger to be balance.
4) The total amount due from debtors and total amount payable to suppliers and creditors is readily available.
5) Each ledger is a suitable size.
6) A complete trial balance can be prepared without balancing subsidiary ledgers, thus facilitating the quick
assessment.
7) Since error can be localized, delay in detection in minimized, there by saving labour and time of the book
keepers.

Sectional Balancing System:

Sectional balancing ledger is a system of self balancing of a section of the group or ledgers. Under this method,
the main ledger i.e the general ledger is designed for the self-balancing. For this purpose, two personal accounts
are opened in the main ledger

1) Total Debtors accounts: it is the sum total of the debtors accounts in the debtors ledger.
2) Total Creditors ledger: It is the sum total of all the creditor accounts in the creditors ledger. In the sectional
balancing system, only a section of the total system is self balancing.

Difference between Sectional and Self balancing system:

1) Under Sectional balancing system only one trial balance is prepared in General ledger while under self
balancing system, separate trial balance is prepared in each ledger.

2) Under Sectional balancing system Total debtors account and Total credtors are memorandum accounts and not
the part of double entry system but under self balancing system adjustment accounts are the parts of the double
entry system.

3) Under Sectional balancing system, arithmetical accuracy of Sales ledger and Bought ledger can be checked by
preparing Total Debtors and Total creditors A/c while under self balancing arithmetical accuracy of each ledger
can be checked by preparing trial balance of each ledger.

4) Under sectional balancing system, Total Debtors a/c and Total creditors a/c are opened in General Ledger
while
under Self balancing system, adjustment accounts are opened in General ledger, Sales and bought ledger.

May 2014
Define Average Due Date. List out the various instances when Average Due Date can be used.
(a) Average Due Date is the date which a Debtor can pay all the amounts due to another person without resulting
in gain or loss of interest for either of contracting parties (or)
(b) Average Due Date is the mean of multiple due dates on which if the payment is made there is no gain / interest
loss for the Debtor or Creditor.
(c) Average Due Date = Base Date ± Sum of Product
Sum of Amount
• Base Date represents assumed date for calculation purpose (earliest due date)
• Sum of Products = Amount × Days

2. Average Due Date is applicable in case –

(a) When the loan is taken in single instalment payment is made in multiple instalment.
(b) When the loan is taken in multiple instalment, payment is made in multiple installment.

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DOUBLE ACCOUNT SYSTEM

Double account system is the name given to the system of preparing the final accounts of certain statutory
companies and corporations formed by special Acts, of Parliament, usually public utility concerns such as
electricity companies, railways, water supply companies, gas companies etc. Double account system is not a
special method of keeping accounts but only a special method presenting final accounts kept under normal
double entry system. In double account system, the balance sheet is split into two parts. The first part is called
Receipt and Expenditure on Capital A/c which contains particulars of fixed assets and fixed liabilities and the
same is presented in account form. The second part is called General Balance Sheet which contains the remaining
assets and liabilities including reserves and profit and loss account balance.

PROFESSIONAL ACCESS Ph:98494 19306

Vijayawada
Sub :Advanced Accounts
Topic:Theory
GOVERNMENT ACCOUNTS
In Government accounting, cash basis of accounting is followed. the ultimate object of commercial companies
to make a profit, but the object of the government is to administer the country and to render services to the public.

The objects of Government accounting can be summarises as a) Providing information about revenues b)
providing information about expenditure c) providing information about loans and deposits d) information about
cash availability.

In order to facilitate control, the Constitution of India provides for maintenance of the following accounts.

a) Consolidation fund b) Public Account c) Contingency Fund

These funds are accounts are maintained separately for the Government of India and each State Government.
A brief explanation of the three are as follows.

a) Consolidated Fund: It comprises of the following

i) All revenues received by the Government
ii) All loans raised by the Govt. by issue of treasury bills, loans, or ways and means advances.

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b) Public Account: Government accounts are kept in three parts. Part III is concerned with public
account. Through this account, all transactions relating to Debts ( other than those included in the
consolidated fund) Deposits and Advances are such in respect of which government incurs liability to
repay. The moneys received or has a claim to recover the amounts paid. Recoveries of Advances,

Disbursements from this fund is made as per rules of the government.

Ex a) Provident Fund account

b) Deposits received from Panchayats for custody with the Govt.

c) Contigency Fund:
The contingency fund may be central Government and or state government. This is in the nature of an
imprest. The fund is kept under the disposal of the President of India or Government of State as the case may
be. This fund is utilised to meet some unforseen expenses pending authorisation of such expenses by
Parliament or State legislative as the case may be.

Some terms used in Government accounts:

a) Treasury: It is a term adopted from British financial system. A treasury may be defined as ` pay office of
the Government. A district treasury receives money and pays money on the authority of the different government
offices situated in the district. All Government offices have to work only through Government. Treasury unless
specifically authorized to deal directly with a bank. The treasury unless renders complete detailed accounts
of receipts and payment to the Accountant General of the state. In the beginning, when the number of banks was
not much, the government used to keep it own treasury. Cash was received and disbursed there. Thus the
treasury itself was also of the nature of a bank.

b) Public Accounts Committee:

This is a committee of parliament or of state legislature to scrutinize expenditure of public monies by the
executives branch of the government. No minister can be a member of this committee, nor a member of the
party in power. In other words it consists of the opposition members who are to check whether the
expenditures have been made according to the form and norms laid down by the legislature.

Any deviation reported to Comptroller and Auditor General of India also is brought to the notice of the House.
But a scrutiny by the Public Accounts Committee is, at best, in the nature of a post-mortem. The commissions
of the government are brought into focus after they have been committed. Yes, it helps build public opinion
about the government, which is very important in a parliamentary system.

Areas in which different accounting policies may be adopted:

The following are the areas in which different accounting policies may be adopted by different enterprises.

a) Methods of depreciation, depletion and amortization

b) Valuation of inventories
c) Valuation of fixed assets
d) Valuation of investments
e) Treatment of Retirement benefits
f) Treatment of goodwill
g) Treatment of expenditure during construction
h) Treatment of contingent liabilities
i) Translation of foreign currency items.
PROFESSIONAL ACCESS Ph:98494 19306
Vijayawada
Sub :Advanced Accounts
Topic:Theory

Is Government accounting totally different from commercial accounting State your opinion with reasons.

The primary objective of commercial accounting is to ascertain the profit or loss of an enterprise for a given
period and to find out the position of assets and liabilities at the end of the financial year. Against this,
government accounts are designed to enable government to determine how much money it needs to mobilise
inorder to maintain its necessary activities at the proper standard of efficiency. It is thus clear that the purpose
of government accounting is totally different from that of commercial accounting. Broad differences between
government accounting and commercial accounting are as follows.

1) Financial statements: Every Commercial enterprise prepares a profit and loss a/c and a Balance sheet. But
in case of government accounting following two statements are generally prepared.

i) Government A/c: to show the net result of all income and expenditures including expenditure on capital
account.

ii) Statement of balancing accounts -to show whether the government owes or has to receive money.

2) Method of Accounting: Government accounts are maintained on cash basis as against commercial

6
 accounting in which accounts are normally maintained on mercantile basis.

3) System of Accounting: In commercial Accounting double entry system of account is followed. On the
other hand, mass of government accounts are kept on single entry. There is however a portion of accounts
which is maintained on double entry basis.

4) Classification of accounts: In commercial accounting, accounts are broadly classified into i) Personal ii)
Real iii) Nominal accounts.

Government accounts are kept in three parts . Part -Consolidated Fund Part II Contingency Fund Part III Public
Account.

5) Classification of Financial Statements: One of the most distinctive features of the system of government
accounts in India is the minute elaboration with which the financial transactions of government under
both receipts and payments, are differentiated and classified. Government expenditure in India is classified
into a five tier system.

Sectors, Major heads, Minor heads, sub-heads and Detailed heads of accounts. In case of commercial
accounting, no such elaborate details are provided.

Q) Write short notes on Supplementary Grant

It is the amount granted in the Annual Budget proves inadequate, any further amount granted against a
subsequent request is a Supplementary grant. For example, the amount originally granted for flood relief may
prove to be insufficient, when a supplementary grant may be disbursed.

Q) Finance accounts of Central Government

The Finance Accounts of the Central Government consists of the accounts of Central Government
including transactions of Civil Ministries. Defence Services, Posts & Telegraphs and Railways. The
First Part of Finance Accounts comprises a statement in respect of revenue. Capital Debt, deposits, Suspense
and Remittance transactions and Contingency Fund. Part II comprises details of these transactions and other
related statements.

Q) Votable and Non votable items

Expenditure which are charged to the Consolidated fund regardless of legislative approval are called non-
votable items. Other items are votable expenditure thereon can be incurred only after sanction of Parliament.

Q) Conceptual Framework of accounting

A conceptual frame work of accounting prescribes the nature, functions andlimits of frinancial accounts
and financial statements. It provides guidance in developing accounting standards and assists users of accounts
in interpreting information in financial statements.

PROFESSIONAL ACCESS Ph:98494 19306

Vijayawada
Sub :Advanced Accounts
Topic:Theory

Q) Appropriation Act
After demand is passed by the legislature, Appropriate Bill is introduced to provide for the appropriation
of Consolidated Fund of India or State or Union Territory having separate legislature for money required to
meet grants made by legislature. No money can be withdrawn from the Consolidated Fund until the Appropriate
Bill is passed. The sum is authorized in the Appropriation Act or intended to cover all the charges including
the liability of past years to be paid during a financial year or to be adjusted in accounts of that year. Any
unspent amount lapses and is not available in the following year.

Q) Mode of Classification of services in the Central Budget.

In the Capital Budget Government services are classified into i) General Services ii) Social services iii)
Economic services and iv) Grants in aid and contribution. General services are further classified into i)
Administrative services ii) Defence services iii) Services of debts and iv) Fiscal services Classification
enhance the usefulness of the budgetary practice.

Q) Indian Audit and Accounts Department

It consists of all establishments engaged in the preparation of accounts and the audit of such accounts of
the central and state government. The department is headed by the Comptroller and Auditor General of India
( CAG). The Indian Audit and Accounts Department (IAAD) is also entrusted with accounts-keeping and audit of

7
the transactions of civil public works and forest departments. This department conducts the railway accounts
through the Director of Railway Audit. It also conducts the audit of defence accounts through the Principal
Director of Audit, Defence services.

Under Section 319 of Companies Act, 1956 audit of commercial companies owned by Central and State
Governments is also undertaken by IAAD in select cases. Statutory Auditors of Government Companies are
also appointed by CAG.

Q) Slip System of posting in Bank Accounts

This system is used in the case of banking companies in this entries in the personal ledgers are made directly
from vouchers, instead of being posted from day book, pay in slips and cheques are used as slips. This become
the basis of most of the transactions directly recorded in the account of the customers. Lot of time and labour. Of
the bank staff is saved, because the slips are filled in by the customers themselves. The vouchers entered into
different personal ledgers are summarized on summary sheets every day, total of which are posted to the different
control accounts which are maintained in general ledger.

Q) Double Voucher System

For the transactions not involving cash, two vouchers are prepared by the bank one debit voucher and the
other credit voucher. This system of maintaining two vouchers are called double voucher system. The vouchers
are sent to different clerks who make entries in book under their charge.

Q) Explain the advantages of preparing a separate Trading and Profit & Loss A/c for each department of a
business. or Advantages of Departmental Accounting.

In case of business having several departments, it is the general practice to prepare a separate Trading and
Profit & Loss Account for each department at the end of the accounting year. Preparation of such an account has
the following advantages.

i) It enables the business to compare the performance of one department with that of another.

ii) It helps the business in formulating proper policies relating to the expansion of the business. New profitable
lines of production or trading can be taken up while the existing lines of production or trading which are
giving a loss can be closed down.

Q) Distinguish between Departmental and Branch Accounts.

1) Accounting Systems: Departmental accounts and branch accounts differ as regards the accounting systems
adopted by them. In case of Departmental Accounts, a Trading and Profit & Loss A/c is prepared for each
department at each place. While in case of branch accounts, the accounting system is different for a
dependent branch and an independent branch.

2) Apportionment of Expenses: In case of departmental accounts, there are several common expenses and hence
they have to be apportioned over the various departments on some appropriate basis. While in case of branch
accounts this problem does not arise since most of the expenses can directly be identified with specific
branches.
3) Need for Reconciliation: Elaborate
4) Invoicing of goods: Elaborate
5) Conversion Problem: No need in departmental accounts but in case of branch accounts the need for such
conversion arises.
PROFESSIONAL ACCESS Ph:98494 19306
Vijayawada
Sub :Advanced Accounts
Topic:Theory

EMPLOYEE STOCK OPTION PLAN:

According to Section 2(15A) of the companies Act, Employees Stock option means the option given to the
wholetime directors, officers or employees of a company which gives such directors, officers or employees the
benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined
price.

Now a days, under this scheme many companies (particularly software companies and construction engineering
companies) are offering equity shares to their employees at a concessional rate. The main aim of this scheme is to
retain good employees in the organization and involve them in the affairs of the company.

SEBI Guidelines:
a) No ESOS can be offered to employees of a company unless the shareholders of the company approve ESOS
by passing a special resolution.

b) ESOS would be open to all permanent employees of the company working either in India or outside India
and the directors of the company.

8
 c) The company shall not vary the terms of ESOS in any manner, which may be detrimental to the interest of
the employee.
d) Option granted to the employee shall not be transferable to any person.
e) No person other than employee to whom the option is granted shall be entitled to exercise the option.
f) There shall be minimum period of one year between the grant of options and vesting of option.

Accounting treatment of Employee Stock option:

In respect of options granted during any accounting period, the accounting value of the options shall be treated
as another form of employee compensation in the financial statements of the company.

The accounting value of options shall be

Number of options granted x ( market price – exercise price)

Value of option shall be amortised on a straight line basis over the vesting period:
Vesting period means the period during which the vsting of the option granted to the employee in
pursuance of ESOS takes place.

1) X Ltd granted 2000 options on 1st April, 2007. at Rs.50 when the market price was Rs. 150. The vesting
period is 2 years. You are required to
a) Calculate the value of options
b) Calculate the amount to be amortised every year
c) Pass necessary journal entries for the year 2007 and 2008.

2) PWC Ltd granted 1,500 options on 1st April, 2005 at Rs.80 when the market price was Rs.160. The vesting
period was 3 years. The maximum exercise period was 1 year. All the 1500 options were exercised by the
employees on 30th October 2008. Pass Journal.

3) HCL Ltd grants 1,250 options on 1-4-2005 at Rs.80 when the market price is rs.200 and the face value of the
share is Rs.10. The vesting period is 3 years. The maximum exercise period is one year. 450 options lapse on
1-5-2007, 800 options are exercised on 31st August 2008. Pass journal and prepare Deferred Employee
compensation Expense Account and Employee Stock option outstanding account and state how the items are to
be dealt in B/s.

Employee Stock Purchase Scheme:(ESPS)

Employee Stock purchase Scheme (ESPS) means a scheme under which the company offers shares to employees
as part of a public issue or otherwise. The following are SEBI Guide lines

a) Special resolution must be passed

b) An employee shall be eligible to participate in the ESPS
c) An employee who is a promoter or belongs to a promoter group shall not be eligible to participate in the
ESPS.
d) A director who either by himself or through his relatives or through any body corporate, directly or indirectly
hold more than 10% of the outstanding equity shares of the company shall not be eligible to participate in the
ESPS.
e) Share issued under ESPS shall be locked in for a minimum period of one year from the date of allotment.

4) Y Ltd issued 1,000 shares on 1-4-2008 under SSPS at Rs.50 when the market price is Rs.150 and the face
value is Rs.10. Pass Journal.
5)

CA IPCC SUGGESTED ANSWERS of Accounts (Gr – 1) Nov, 2009

12
(ii). As per Accounting Standard-14, what are the conditions which must be satisfied for an
amalgamation in the nature of merger ?
Ans. Following conditions must be satisfied for an amalgamation in the nature of merger company
1. All assets and liability of transferor be comes assets and liabilities of transferee company.
2. Share holder holding not less than 90% of the face value of equity shares of transferee company
be comes shareholder of transferee company.
3. Consider action to the equity share holders of transferor company is satisfied by issue of equity
shares of transferee company but cash can be paid for fraction shares.
4. Business of transferor Company is intended to be carried out by the transferee company.
5. No adjustment is to be made in the book value of assets and liabilities of transferor company
except that adjustments can be made so that same accounting policy are insured by transferor as
well as transferee company.

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(iii). What do you mean by Customised Accounting Software ?
Ans. CUSTOMISED ACCOUNTING SOFTWARE
A customised accounting software is one where the software is developed on the basis of
requirement specifications provided by the organisation. The choice of customised accounting
software could be because-of the typical nature of the business or else the functionality desired to be
computerised is not available in any of the pre-packaged accounting software. An organisation
desiring to have an integrated software package covering most of the functional area may have the
financial module as part of the entire customised system. A feasibility study is first made before the
decision to develop a software is made. The life cycle of a customized accounting software begins
with the organisation providing the user requirements. Based on these user requirement the system
analyst prepares a requirement specification which is given for approval by the user management.
Once the requirement specification is approved, the designing process begins. Development, testing
and implementation are the other components of the system development life cycle.
(iv). Rose Ltd. had made an investment of Rs. 500 lakhs in the equity shares of Nose Ltd. On
10.01.2009. The realisable value of such investment on 31.03.2009 became Rs 200 lakhs as
Nose Ltd, 0lost a case of patent rights. Rose Ltd follows financial year as accounting year. How
will you recognize this reduction in Financial statements for the year 2008-09.
Ans. As per AS-13 “Accounting for investment” Valuation for long term investment is as follows :
(i). It is usually carried/valued at cost
(ii). If there is a decline in value of investment and, if such decline is not temporary, then
carrying amount of investment is reduce by the amount of such decline.
(iii). The resultant reduction in carrying amount is charged to the profit and loss a/c. This
reduction amount is reversed when there is a rise in the value of investment but such
rise in value should not be temporary.
If the investments held pose Ltd. is long term investment the cost price of this investment is
Rs.500/- lakh. As on 10.01.2009. Realisable value of such investment on 31.3.2009 become 200/-
lakhs. It seems that the decrease is long term in nature. Therefore Value of investments shall be Rs.
200 lcas.
If the investments held by rose Ltd. is other investment. In that case as per AS-13 “Accounting
for Investment” the valuation of such Investment will be at “cost” or fair value whichever is lower.
Cost of shares of Nose Ltd. = 500 Lacs
Fair Value of Shares of Ltd. = 200 Lacs
. Value of Investments as on 31.3.09 = 200 Lacs.
(v). A company provided Rs. 10,00,000 for dividend payment. Is the Corporate Dividend Tax payable
in this case? If yes, please compute corporate Dividend Tax assuming rate of 15% plus surcharge
of 10% and disclose as it would appear in profit and Loss Account of the Company.
Ans. It

4) A company has its share capital divided into shares of Rs.10 each. On 1 st April, 2008 it granted 10,000
Employee stock options at Rs.40 when the market price was Rs. 130. The options were to be exercised between
16th December 2008 and 15th March 2008. The employees exercised their options for 9,500 shares only, the
remaining options lapsed. The company closes its books on 31 st March every year. Show Journal.

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4) A company has its share capital divided into shares of Rs.10 each. On 1 st April, 2008 it granted 10,000
Employee stock options at Rs.40 when the market price was Rs. 130. The options were to be exercised between
16th December 2008 and 15th March 2008. The employees exercised their options for 9,500 shares only, the
remaining options lapsed. The company closes its books on 31 st March every year. Show Journal.

11