Tag: Financial Reporting

Osmania University Hyderabad BCOM Notes

Accounting Standards Osmania University B.com 6th Semester Notes

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Unit 1 Introduction: {Book}
Introduction to Accounting, Concept of Accounting Theory VIEW VIEW VIEW
Role of Accounting theory VIEW
Classification of Accounting Theory VIEW
Deductive and inductive approach in theory formulation VIEW
Accounting Principles VIEW
Accounting Concepts and Conventions VIEW
Accounting Standard: Concept, Evolution VIEW VIEW

 

Unit 2 Standards Relating to Financial Reporting & Disclosure {Book}
Ind AS-101: First time adoption of Indian Accounting Standards VIEW
Ind AS-1: Presentation of Financial Statements VIEW
Ind AS-7: Cash Flow Statements VIEW VIEW
Ind AS-8: Accounting Policies, Changes in Accounting Estimates and Errors VIEW
Ind AS-10: Events after the Balance Sheet Date VIEW
Ind AS-24: Related Party Disclosures VIEW
Ind AS- 34: Interim Financial Reporting VIEW
Ind AS-105: Non-Current assets held for sale and discontinued operations VIEW
Ind AS- 108: Operating Segments VIEW

 

Unit 3 Standards Providing Guidance on Financial Statement Items {Book}
Ind AS-2: Inventories VIEW
Ind AS-11: Construction contracts VIEW
Ind AS-12: Income taxes VIEW
Ind AS-16: Property, Plant and Equipment VIEW
Ind AS-17: Leases VIEW
Ind AS-18: Revenue VIEW
Ind AS-20: Accounting for Government Grants and Disclosure of Government Assistance VIEW
Ind AS-23: Borrowing Costs VIEW
Ind AS-38: Intangible Assets VIEW

 

Unit 4 Standards Relating to Business Acquisitions and Consolidations {Book}
Ind AS-28: Investments in Associate and Joint Ventures VIEW
Ind AS-103: Business Combinations VIEW
Ind AS-110: Consolidated Financial Statements VIEW
Ind AS-111: Joint Arrangements VIEW
Ind AS-112: Disclosure of interest in other entities VIEW

 

Unit 5 Financial Reporting {Book}
Financial reporting Concept VIEW
Development in Financial reporting objectives VIEW
True Blood Report (USA) VIEW
The Corporate Report (UK) VIEW
Stamp Report (Canada) VIEW
Objectives of Financial Reporting VIEW
Qualities of Financial Reporting VIEW
Recent trends in Corporate Reporting in India VIEW

 

Osmania University Hyderabad BCOM Notes

Financial Accounting-2 Osmania University B.com 2nd Semester Notes

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Unit 1 Bills of Exchange {Book}
Bills of Exchange Definition VIEW
Distinction between Promissory note and Bill of exchange VIEW
Accounting Treatment of Trade Bills VIEW
Books of Drawer and Acceptor VIEW
Honor and Dishonor of Bills VIEW
Renewal of Bills VIEW
Retiring of Bills under Rebate VIEW
Accommodation Bills VIEW
Unit 2 Consignment Accounts {Book}
Consignment Meaning, Features VIEW
Proforma invoice, Account sales, Del credere commission VIEW
Accounting treatment in the Books of the Consignor and the Consignee VIEW
Valuation of Consignment stock VIEW
Treatment of Normal and Abnormal Loss VIEW
Invoice of Goods at a Price higher than the cost price VIEW
Unit 3 Joint Venture Accounts {Book}
Joint Venture, Meaning, Features VIEW
Difference between Joint Venture and Consignment VIEW
Accounting Procedure VIEW
Methods of Keeping Records for Joint Venture Accounts VIEW
Method of Recording in co-ventures books VIEW
Separate Set of Books Method VIEW
Joint Bank Account VIEW
Memorandum Joint Venture Account VIEW
Unit 4 Accounts from Incomplete Records {Book}
Single Entry System Meaning, Features, Defects VIEW VIEW
Difference between Single Entry and Double Entry Systems VIEW
Books and Accounts maintained VIEW
Ascertainment of Profit VIEW
Statement of Affairs VIEW
Conversion method VIEW
Unit 5 Accounting for Non-Profit Organizations {Book}
Non-Profit Organization Meaning, Features VIEW
Receipts and Payments Account VIEW
Income and Expenditure Account VIEW
Balance Sheet VIEW

Osmania University Hyderabad BCOM Notes

Financial Accounting-1 Osmania University B.com 1st Semester Notes

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Unit 1 Accounting process {Book}
Financial Accounting: Introduction, Definition, Evolution VIEW
Financial Accounting Scope VIEW
Financial Accounting Functions VIEW
Financial Accounting Advantages and Limitations VIEW
Users of Accounting Information VIEW
Branches of Accounting VIEW
Accounting Principles, Concepts and Conventions VIEW VIEW
Accounting Standards Meaning, Importance VIEW
List of Accounting Standards issued by ASB VIEW
Accounting System, Types of Accounts VIEW
Accounting Cycle VIEW
Journal VIEW VIEW
Ledger VIEW
Trial Balance VIEW VIEW

 

Unit 2 Subsidiary Books {Book}
Subsidiary Books Meaning, Types VIEW
Purchases Book, Purchases Returns Book, Sales Book, Sales Returns Book VIEW
Bills Receivable Book, Bills Payable Book VIEW
Cash Book: Single Column, Two Column, Three Column VIEW
Petty Cash Book VIEW
Journal Proper VIEW

 

Unit 3 Bank Reconciliation Statement {Book}
Bank Reconciliation Statement Meaning, Need VIEW
Reasons for differences between Cash book and Pass book balances VIEW
Favourable and over Draft balances VIEW
Ascertainment of correct cash book balance VIEW
Preparation of Bank Reconciliation Statement VIEW

 

Unit 4 Rectification of Errors and Depreciation {Book}
Capital and Revenue Expenditure VIEW
Capital and Revenue Receipts Meaning and Differences VIEW VIEW
Differed Revenue Expenditure VIEW
Errors and their Rectification VIEW
Types of Errors VIEW
Suspense Account VIEW
Effect of Errors on Profit VIEW
Depreciation (AS-6): Meaning Causes VIEW
Difference between Depreciation, Amortization and Depletion VIEW
Objectives of providing for depreciation VIEW
Factors affecting depreciation VIEW
Accounting Treatment of depreciation VIEW VIEW
Methods of depreciation:
Straight Line Method VEW
Diminishing Balance Method VIEW

 

Unit 5 Final Accounts {Book}
Final Accounts of Sole Trader: Meaning, Uses VIEW
Preparation of Manufacturing Account VIEW
Preparation of Trading Account VIEW
Preparation of Profit & Loss Account VIEW
Balance Sheet Adjustments VIEW VIEW
Closing Entries VIEW
Management Notes

Private placements of Shares

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Private placement, the issue is placed directly with a few selected small number of investors. This is also known as non-public offering. Typical investors include large banks, mutual funds, insurance companies and pension funds. The private placement does not have to be registered with the Securities and Exchange Commission.

Private placements are much cheaper than IPOs. However, this method cannot be used for large issues because a small group of investors will have limited risk appetite. Also, these issues are not traded in the secondary market, as opposed to IPO securities, which once listed are traded in the secondary market. This makes it difficult for investors to liquidate these securities.

The term private placement refers to the sale of securities to a small number of private investors to raise capital. These private investors include mutual fund investors, banks, insurance companies and etc. Private placements are different from public issue since in the latter one the shares are sold in the open market to anyone willing to buy them whereas in private placements of shares the shares are sold to specific investors.

Private placement is a method of raising capital in which securities are sold directly to a selected group of investors rather than through a public offering. This targeted approach allows companies to raise funds from a specific set of investors, often institutions or high-net-worth individuals, without the need for public registration. Private placements are regulated by securities laws, and the process involves meticulous planning, compliance, and negotiations between issuers and investors.

Private placement is a valuable tool for companies seeking to raise capital efficiently while maintaining a degree of confidentiality. It provides flexibility in structuring deals, selecting investors, and tailoring terms to meet specific needs. While private placements may not be suitable for all companies, they offer a strategic avenue for raising capital, attracting strategic partners, and fueling growth in a controlled and efficient manner. Companies considering private placements should carefully assess their capital needs, regulatory obligations, and strategic goals before engaging in this form of capital raising.

Features of Private Placement:

  1. Limited Investor Pool:

Private placements involve a restricted number of investors. This targeted approach allows issuers to negotiate terms with a select group, often chosen based on their strategic alignment with the company’s goals.

  1. Exemption from Public Registration:

Unlike public offerings, private placements are exempt from the rigorous public registration process. This exemption is provided under various securities regulations, such as Regulation D in the United States or the SEBI (Securities and Exchange Board of India) guidelines in India.

  1. Negotiable Terms:

Issuers and investors have more flexibility in negotiating the terms of the private placement. This includes aspects such as pricing, the structure of securities, and any covenants or conditions attached to the investment.

  1. Diverse Securities:

Private placements can involve a variety of securities, including equity, debt, convertible securities, or preferred shares. The choice of security depends on the company’s capital needs and the preferences of investors.

  1. Customized Agreements:

The terms and conditions of private placement agreements are often customized to suit the specific needs of both parties. This flexibility allows for tailoring the investment structure to align with the company’s strategy.

  1. Confidentiality:

Private placements offer a level of confidentiality that is not present in public offerings. Companies can raise capital without disclosing sensitive information to competitors or the broader market.

Regulatory Framework for Private Placement:

While private placements offer flexibility, they are subject to regulatory oversight to protect the interests of investors. The regulatory framework varies by jurisdiction, but common elements:

  1. Accredited Investors:

Many jurisdictions restrict private placements to accredited investors, who are deemed to have the financial sophistication to understand and assess the risks associated with these investments.

  1. Exemptions from Registration:

Private placements are exempt from the full registration requirements that public offerings must undergo. However, issuers must comply with specific regulations governing private placements.

  1. Disclosure Requirements:

While private placements provide confidentiality, issuers are still required to provide certain disclosures to investors. These disclosures may include financial statements, risk factors, and other relevant information.

  1. Limited Marketing and Solicitation:

The solicitation of investors in a private placement is limited compared to public offerings. Issuers must be cautious in their approach to avoid violating regulations related to marketing and advertising.

  1. Resale Restrictions:

Investors in private placements may face restrictions on selling their securities in the secondary market. These restrictions help maintain the private nature of the placement.

Advantages of Private Placement:

  1. Efficiency and Speed:

Private placements are generally faster and more cost-effective than public offerings. The absence of extensive regulatory reviews and public registration processes accelerates the capital-raising timeline.

  1. Selective Investor Engagement:

Issuers can choose investors strategically, targeting those with industry expertise, strategic alignment, or specific financial capabilities.

  1. Flexibility in Terms:

The negotiated nature of private placements allows issuers to tailor terms and conditions to meet the specific needs and goals of both the company and investors.

  1. Confidentiality:

Private placements offer a level of confidentiality, allowing companies to raise capital without divulging sensitive information to the public.

  1. Strategic Alignment:

By selectively choosing investors, companies can attract strategic partners who bring not just capital but also industry knowledge, networks, and expertise.

  1. Lower Costs:

The costs associated with private placements are generally lower than those of public offerings due to reduced regulatory requirements and marketing expenses.

Challenges and Considerations:

  1. Limited Capital:

Private placements may not be suitable for companies seeking significant amounts of capital, as the investor pool is restricted.

  1. illiquidity for Investors:

Investors in private placements may face challenges in selling their securities, as these transactions are often subject to restrictions.

  1. Regulatory Compliance:

Companies must navigate complex regulatory requirements to ensure compliance with securities laws. Failure to comply can result in legal consequences.

  1. Market Perception:

Companies choosing private placements may miss out on the visibility and market perception that comes with a public offering.

  1. Negotiation Complexity:

Negotiating terms with a select group of investors can be complex, requiring skilled negotiation and legal expertise to strike a mutually beneficial deal.

Provisions as per Companies Act

(1) A company may, subject to the provisions of this section, make a private placement of securities.

(2)  A private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as “identified persons”), whose number shall not exceed fifty or such higher number as may be prescribed [excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option in terms of provisions of clause (b) of sub-section (1) of section 62], in a financial year subject to such conditions as may be prescribed.

(3) A company making private placement shall issue private placement offer and application in such form and manner as may be prescribed to identified persons, whose names and addresses are recorded by the company in such manner as may be prescribed.

Statutory Provisions for Private Placement of Securities:

Private Placement of Securities is covered under Section 42 of the Companies Act, 2013 and Companies (Prospectus and Allotment of Securities) Rules, 2014. Private Placement is defined as any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through Private Placement Offer-cum-Application.

To whom can a Private Placement offer be made:

Private Placement Offer can be made to a prospective investor or any person who intends to invest a specific amount of funds in the Company against issue of securities. Offer to subscribe for the securities of a Company under Private Placement cannot be made to more than 200 persons in a Financial Year. If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, same shall be deemed to be an offer to the public.

Advertisement:

No advertisements, media marketing or distribution channels or agents to be used by the company to inform the public at large about such an issue.

Procedure:

Following procedure should be followed by the Company intending to issue securities under Private Placement:

  • Calling for the meeting of the Board of Directors of the Company to offer securities on Private Placement Basis.
  • Passing of Board Resolution for issue of shares under Private Placement to specified persons and calling for Extra-Ordinary General Meeting of the Company to take members approval.
  • Filing form MGT-14- Board Resolution for issue of shares under Private Placement.
  • Issuing notices to the shareholders for Extra-Ordinary General Meeting of the Company as per timelines or with shorter consents.
  • Passing Special Resolution in the Shareholders meeting for issue and allotment of shares under Private Placement.
  • Sending Offer cum Application Letters in form PAS-4 to identified persons within 30 days of recording the names of the identified persons. Such Offer cum Application Letters can be sent in electronic mode (emails) or by post.
  • Receiving allotment amount in a separate bank account within the offer period as mentioned in the Offer cum Application Letter.
  • The Company shall allot shares to the applicants who has subscribed for the same through application letter and deposited the subscription amount within the offer period.
  • After Closure of Offer Period call a Board Meeting and pass Resolution for Allotment of Securities to the entitled subscribers.
  • Filing of return of allotment in Form PAS-3 within 15 days from the date of the allotment i.e. After passing Board Resolution for allotment
  • Make sure the securities are allotted within 60 days of the receipt of Application amount by the Company.
  • Stamp Duty on allotment shall be paid @ 0.10% through channels as available in respective states. e.g. In Mumbai it can be paid to ESBTR or GRASS MAHAKOSH site
  • The Company will be allowed to utilize the money raised through Private Placement only after Return of Allotment in Form PAS-3 is filed with the Registrar of Companies.
  • Record of Private Placement should be maintained by the Company in prescribed Form PAS-5.
  • The Company should update its Registrar of Members in a proper manner upon completion of allotment.
Management Notes

International Trade Laws Objectives Set 2

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  1. The exchange of goods and services are known as …………………………
  • Domestic Trade
  • International Trade
  • Trade
  • None of these.

 

  1. Which of the following is not considered as factors of production?
  • Land
  • Labour
  • Money
  • Capital

 

  1. Trade between two countries is known as ………….
  • External
  • Internal
  • Inter-regional
  • None of Above

 

  1. International Trade is most likely to generate short-term unemployment in:
  • Industries in which there are neither imports nor exports
  • Import-competing industries
  • Industries that sell to domestic and foreign buyers.
  • Industries that sell to only foreign buyers

 

  1. Free traders maintain that an open economy is advantageous in that it provides all the following except:
  • Increased competition for world producers
  • A wider selection of products for consumers
  • Relatively high wage levels for all domestic workers
  • The utilization of the most efficient production methods

 

  1. Which of the following is not a benefit of international trade?
  • Lower domestic prices
  • Development of more efficient methods and new products
  • A greater range of consumption choices
  • High wage levels for all domestic workers

 

  1. Which is not an advantage of international trade:
  • Export of surplus production
  • Import of defence material
  • Dependence on foreign countries
  • Availability of cheap raw material

 

  1. Trade between two countries can be useful if cost ratios of goods are …………..
  • Equal
  • Different
  • Undetermined
  • Decreasing

 

  1. Foreign trade creates among countries ………………
  • Conflicts
  • Cooperation
  • Hatred
  • Both a. and b.

 

  1. All are advantages of foreign trade except ………….
  • People get foreign exchange
  • Cheaper goods
  • Nations compete
  • Optimum utilization of countries’ resources

 

Q.2. Fill in the blanks.

  1. International Trade means trade between …………………. (Provinces/ Countries/ Regions)
  2. Two countries can give from foreign trade if ………… are different. (Effect/ Tariff/ Cost)
  3. ………….. encourages trade between two countries. (Different tax system/Reduced tariffs/ National currencies)
  4. Drawback of protection system is ……… (Consumers have to pay higher prices/ Producers get higher profits/ Quality of goods may be affected/ All above)
  5. ………….. is a drawback of free trade. (Prices of local goods rise/ Govt. looses incomes from custom duties/National resources are underutilized)
  6. International trade is possible primarily through specialization in production of …… goods. (All/ One/ Few)
  7. A country that does not trade with other countries is called …… country. (Developed/ Closed/ Independent)
  8. Policy of Protection in trade ……… (Facilitates trade/ Protects foreign producers/ Protects local producers/ Protects exporters)
  9. The largest item of Indian import list is ……….. (Consumer goods/ Machinery/ Petroleum/ Computers)
  10. Trade between two states in an economy is known as …… (External/ Internal/None)

 

SET 2

Q.1. Multiple Choice Questions.

  1. Who among the following enunciated the concept of single factoral terms of trade?
  • Jacob Viner
  • G.S.Donens
  • Taussig
  • J.S.Mill

 

  1. ‘Infant industry argument’ in international trade is given in support of:
  • Granting Protection
  • Free trade
  • Encouragement to export oriented small and tiny industries
  • None of the above

 

  1. Terms of trade that relate to the Real Ratio of international exchange between commodities is called:
  • Real cost terms of trade
  • Commodity terms of trade
  • Income terms of trade
  • Utility terms of trade

 

  1. The main advantage in specialization results from:
  • Economies of large-scale production
  • The specializing country behaving as monopoly.
  • Smaller Production runs resulting in lower unit costs.
  • High wages paid to foreign workers.

 

  1. Net export equals ……
  • Export * Import
  • Export + Import
  • Export – Import
  • Exports of service only

 

  1. A tariff ………………….
  • Increase the volume of trade
  • Reduces the volume of trade
  • Has no effect on volume of trade
  • Both a. and c.

 

7. Terms of Trade of developing countries are generally unfavourable because …….

  • They export primary goods
  • They import value added goods
  • They export few goods
  • Both a. and b.

 

  1. Terms of Trade a country show ……………
  • Ratio of goods exported and imported
  • Ratio of import duties
  • Ratio of prices of exports and imports
  • Both a. and c.

 

  1. Terms of trade between two countries refer to a ratio of …..
  • Export prices to import prices
  • Currency values
  • Export to import
  • Balance of trade to Balance of payments

 

10. Rich countries have deficit in their balance of payments ……..

  • Sometimes
  • Never
  • Alternate years
  • Always

 

Q.2. Fill in the blanks.

  1. BOP means balance of Receipts and payments of …… (all banks/ State bank/ Foreign exchange by a country/ Government)
  2. Favourable trade means exports are ……. than imports. (More/ Less/ Neutral)
  3. Net barter terms of trade is also known as …. Terms of trade.(Commodity/ Income/Utility)
  4. ….. is not a factor affecting TOT. (Reciprocal demand/ Size of demand/ Price of demand)
  5. If tariff is higher, then the imports will …… (Increase/ Decrease/ Same as before)
  6. ……. has given the concept of reciprocal demand. (Mills/ Adam/ Ricardo)
  7. ……… is the curve, which expresses the total demand for one good (imports) in terms of the total supply of another good (exports). (Offer/ Official / Corporate)
  8. Balance of payment is prepared by an economy ……. (Yearly/ Monthly/ Weekly)
  9. …….. kinds of accounts are included in BOP. (2/ 3/4)
  10. …….is not a type of disequilibrium in BOP. (Cyclical/ Seasonal/ Frictional/ Disguised)

 

SET 3

Q.1. Multiple Choice Questions.

  1. The first classical theory of International Trade is given by …………………..
  • Keynes
  • Adam Smith
  • Friedman
  • Heckscher-Ohlin

 

  1. In classical theory of International Trade, the exchange of goods and services takes on the basis of ………….. system?
  • Barter
  • Money
  • Labour
  • capital

 

  1. If capital is available in large proportion and labour is less, then that economy is known as ……………..
  • Capital Intensive
  • Labour Intensive
  • Both a. and b
  • None of above

 

  1. In Heckscher Ohlin theory, what is assumed to be same across the countries?
  • Transportation cost
  • Technology
  • Labour
  • capital

 

  1. Opportunity cost is also known as ……………………
  • Next Best alternative
  • Transformation cost
  • Both a. and b
  • None of above.

 

  1. Factor proportions theory is also known as the
  • comparative advantage theory
  • laissez faire theorem.
  • HeckscherOhlin theorem
  • product cycle model.

 

  1. Trade between two countries can be useful if cost ratios of goods are:
  • Equal
  • Different
  • Undetermined
  • Decreasing

 

  1. According to Hecksher and Ohlin basic cause of international trade is:
  • Difference in factor endowments
  • Difference in markets
  • Difference in political systems
  • Difference in ideology

 

  1. The theory explaining trade between two countries is called:
  • Comparative disadvantage theory
  • Comparative cost theory
  • Comparative trade theory
  • None of the above

 

  1. David Ricardo presented the theory of international trade called:
  • Theory of absolute advantage
  • Theory of comparative advantage
  • Theory of equal advantage.
  • Theory of total advantage

 

Q.2. True or False.

  1. Absolute advantage theory is given by Adam Smith.

True

  1. Ricardo has supplemented Absolute advantage theory.

 True

  1. Heckscher and Ohlin have given comparative cost advantage theory of International Trade.

False

  1. Multilateral trade means one country comes into trade with more than one country.

True

  1. Opportunity cost means unforgiving cost.

False

  1. Modern theory of International Trade is given by Ricardo.

False

  1. 2×2×2 model of International Trade is known by Heckscher Ohlin model.

True

  1. Transformation cost is also known as opportunity cost.

True

  1. Gravity model of trade was first used by Jan Tinbergen.

True

  1. Adam Smith advocated free trade and specialized.

True

 

Set 4

Multiple Choice Questions.

  1. GATT was made in the year ………………..
  • 1945
  • 1947
  • 1950
  • 1951

 

  1. The new world Trade organization WTO., which replaced the GATT came into effect from____
  • 1ST January 1991
  • 1st January 1995
  • 1st April 1994
  • 1st May 1995

 

  1. 5 banks of BRICS nations have agreed to establish credit lines in ….. currencies.
  • Legal
  • Plastic
  • Crypto currency
  • National

 

  1. Where was the 11th meeting of BRICS Trade Ministers held from 13 Nov 2019 – 14 Nov 2019?
  • Shanghai
  • Beijing
  • Tokyo
  • Brasilia

 

  1. What is the name of the SAARC satellite to be launched on May 5, 2017?
  • South Asia Satellite
  • South Asian Association Satellite
  • South East Asia satellite
  • SAARC satellite

 

  1. Full form of SAFTA is ……………………..
  • South Asia Free Trade Agreement
  • South Asia Foreign Trade Agreement
  • South Asia Framework Trade Agreement
  • Both a and b

6. Which of the following commitments has not been made by India to WTO?

  • Reduction in tariffs
  • Increase in quantitative restrictions
  • Increase in qualitative restrictions
  • Trade related Intellectual Property Rights

 

  1. The European Union was formally established on …..
  • November, 1993
  • April, 1995
  • January, 1997
  • May, 1996

 

8. SAARC was established in …..

  • 1980
  • 1985
  • 1990
  • 1995

 

  1. NAFTA came into effect in …..
  • 1990
  • 1994
  • 1998
  • 2004

10. The dominant member state of OPEC is ……………..

  • Iran
  • Iraq
  • Kuwait
  • Saudi Arabia

 

Q.2. Fill in the blanks.

  1. Headquarter of WTO is in ………….. Geneva/USA/Germany.
  2. Before WTO, ……………… was working instead of that. GATY/ GATR/ GATT.
  3. …………….. round negotiations initiated the establishment of WTO. Uruguay/ Urdun/ Urbuny .
  4. India had joined WTO in the year …………. (1995/ 1996/ 1997)
  5. In …………….. , SAARC was established. (1985/ 1986/ 1987)
  6. The first SAARC summit was organized at …….. (Dhaka/ Kathmandu/ Nepal)
  7. ……..is not a country in SAFTA. (India/ Nepal/ Pakistan/ USA)
  8. ……… countries are member of OECD. (34/ 35/ 36)
  9. ………… is not a country under OECD. (Norway/ Canada/ China)
  10. ………….. are the member states of European Union. (28/ 29/30)
Management Notes

Proceeds of the sale of Investments

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When a company sells an investment, it results in a gain or loss which is recognized in income statement. A gain on sale of investment arises when the (disposal) value of an investment exceeds its cost. Similarly, a capital loss is when the value of investment drops below its cost.

Accounting treatment of a disposal of investment depends on:

  • The nature of the investment i.e. whether it is a share of common stock, preferred stock, a bond, etc.,
  • The extent of the investment i.e. the percentage holding, and
  • The initial recognition and continuing accounting of the investment.

Investments in shares of common stock are accounted for using either the fair value through profit and loss, fair value through other comprehensive income, equity method or consolidation depending on the extent of ownership.

Management Notes

Accounting for Joint Ventures: Introduction, Meaning, Objectives

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An association of two or more persons or we may say temporary partnership combined for the carrying out a specific business, and divide profit or loss thereof in agreed ratio is called a Joint Venture. Concerned parties to joint venture are known as co-venturers. The liabilities of co-venturers are limited to their profit sharing ratio or as per agreed terms:

Suppose ‘A’ and ‘B’ undertake the job to develop a park for a consideration of Rs. 10,000/- Lacs. Since they come together for a work on a specific project, it will termed as joint venture and each of them (A and B) will be called as a co-venturer. Further, this venture will automatically terminate once the project is completed.

Major Features and Characteristics of Joint Venture

  • There is an agreement between two or more persons.
  • Joint venture is made for the specific execution of a business plan/project.
  • It is a temporary partnership without the use of a firm name.
  • Agreement for joint ventures is automatically dissolved as soon as specific project is over.
  • Profit & Share are shared on the same terms and conditions agreed upon. However, in the absence of any agreement, profit & share will be divided equally.

Salient Features of Joint Venture

  1. Agreement: Two or more firms come to an agreement, to undertake a business, for a definite purpose and are bound by it.
  2. Joint Control: There exist a joint control of the co-venturers over business assets, operations, administration and even the venture.
  3. Pooling of resources and expertise: Firms pool their resources like capital, manpower, technical know-how, and expertise, which helps in large-scale production.
  4. Sharing of profit and loss: The co-venturers agree to share the profits and losses of the business in an agreed ratio. The computation of the profit and loss is usually done at the end of the venture, however, when it continues for the long duration, the profit and loss is calculated annually.
  5. Access to advanced technology: By entering into joint venture firms get access to various techniques of production, marketing and doing business, which decreases the overall cost and also improves quality.
  6. Dissolution: Once the term or purpose of the joint venture is complete, the agreement comes to an end, and the accounts of the coventurers, are settled, as and when it is dissolved.

The co-venturers are free to carry on their own business, unless otherwise provided in the joint venture agreement, during the life of the venture.

Partnership and Joint Venture

There are following differences between partnership and joint venture −

  • Partnership always carried on with firm’s name, but for the joint venture, no such firm’s name is required.
  • The persons who run the business on partnership are called as partners and the persons who agreed to take the project as joint venture are called as co-venturers.
  • Normally, a partnership is constituted for a long period (including various projects), whereas joint venture is formed to complete a specific job/project.
  • Partnership is governed under the Partnership Act, 1932, whereas there is no enactment of such kind for the joint ventures. However, as a matter of fact in law, a joint venture is treated as a partnership.
  • There is no limit specified for the numbers of co-venturers, but the number of partners is limited to 10 under banking business and 20 for any other trade or business.
  • Liability of a partner is unlimited and may extent of his business and personal estate, whereas under joint venture, liabilities of co-venturers are limited to the particular assignment or project agreed upon.

Joint Venture and Consignment

Major differences between joint venture and consignment may be summarized as −

  • Relationship: The co-venturers of a Joint venture are the owners of a Joint venture, whereas relationship of a consignor and consignee is of owner and Agent.
  • Sharing of Profits: There is no distribution of profit between a consignor and consignee, consignee only gets commission on sale made by him. On the other hand, the co-venturers of a joint venture share profits as per the agreed profit sharing ratio.
  • Ownership of Goods: Ownership of the goods remains with the consignor. Consignor transfers only possession to the consignee, but every co-venturer of a joint venture is the co-owner of the goods/project.
  • Contribution of Funds: Investment is done by the consignor only. On the other hand, funds are contributed by all co-ventures in a certain agreed proportion.
  • Continuity of Business: In case of a joint venture, there is no continuity of the business once project is completed. On the other hand, if, everything goes smooth, consignment is a continuous process.

Accounting Records

To keep a record of the joint venture transactions, there are three following types of accounting methods:

  • When one of the Venturers keeps Accounts,
  • When Separate Books of Accounts are kept for the Joint Venture, and
  • When Separate Books of Accounts are not kept for the Joint Venture.

Let’s discuss each of them separately:

When one of the Venturers keeps Accounts

If one of the co-venturers is appointed to manage the joint venture, he is awarded an extra commission or remuneration out of the profit for his services.

Journal Entries

When share of investment received from other co-venturers Cash/Bank A/cDr

To Co-venturers A/c
When goods are purchased Joint Venture A/cDr

To Cash A/c (in case of cash purchase)

Or

To Creditors A/c (for credit purchase)
When expenses incurred Joint Venture A/cDr

To Cash A/c
When goods are sold Cash A/cDr

Or

Debtors A/cDr

To Joint Venture A/c
When commission allowed to working co-venturer Joint Venture A/cDr

To Commission A/c
In case of Profit balance of joint venture, account will be transferred to profit & Loss (own share of working co-venturer) and other co-venture’s personal accounts Joint Venture A/cDr

To Profit & Loss A/c

To Co-venturers personal A/c
In case of Loss Profit & Loss A/cDr

To Joint Venture A/c
On settlement of accounts All Co-venturer A/cDr

To Cash/Bank A/c

When Separate Books of Accounts are kept for the Joint Venture

Under this method, all co-venturers contribute their share of investment and deposit their shares in a Joint Bank account — newly opened for the specific purpose of the Joint Venture. They may use this bank account to make any kind of payments and to deposit sale proceeds or any other kind of receipts.

In addition to Bank account, a Joint venture account is also opened in the books to keep records of all transactions routed through this account.

This category of accounts is a personal account of the each co-venturer. Thus following three accounts are opened −

  • Joint Bank Account
  • Joint Venture Account
  • Personal account of co-venturers

When Separate Books of Accounts are not kept for the Joint Venture

It is of two types:

  • When all venturers keep separate accounts
  • Memorandum joint venture method

When all Venturers keep Separate Accounts:

  • Separate Joint venture account and personal accounts of other co-venturers are opened under this method of accounting.
  • Joint venture account is debited and bank account or creditor account is credited on the account of goods purchased or expensed.
  • Joint venture account is credited and a bank account or debtor account is debited in case of either cash sale or credit sale.
  • Each co-venturer debits joint venture account and credits personal accounts of other co-venturer on the account of either goods purchased or expensed by other co-venturers.
  • Joint venture account is credited and personal account of others co-venturer account is debited in case of sale made by other co-venturers.
  • Joint venture account is debited and commission account is credited if, commission is receivable, but if commission is receivable by other co-venturer, then the concerned co-venturer account will be credited instead of the commission account.
  • If unsold stock is taken, then goods account will be debited by crediting Joint venture account. On the other hand, if unsold stock is taken by any other co-venturer, then personal account of the co-venturer will be debited.
  • Balance in the joint venture accounts represents profit or loss and later that amount of profit or loss will be transferred to the personal accounts of co-venturers.

Note: Above transactions are possible only when all the co-venturers exchange information’s on regular basis.

Objectives of Joint Venture

  • To enter foreign market and even new or emerging market.
  • To reduce the risk factor for heavy investment.
  • To make optimum utilisation of resources.
  • To gain economies of scale.
  • To achieve synergy.

Joint ventures are primarily formed for construction of dams and roads, film production, buying and selling of goods etc.

The type of joint venture is based on the various factors like, the purpose for which it is formed, number of firms involved and the term for which it is formed.

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