Write down the meaning of contingent liabilities.
Write down the meaning of contingent liabilities.
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Solution
A contingent liability is a liability that may or may not come into existence, depending on the outcome of an uncertain future event that is not wholly within the control of the entity.
- NAS definition: according to Nepal Accounting Standard, it is either a possible obligation arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control, or a present obligation arising from past events that is not recognized because an outflow of economic benefits is not probable or the amount cannot be measured with sufficient reliability.
- Reporting: it is recognized in the financial statements only when it is probable that a liability has been incurred and the loss can be reasonably estimated; otherwise it is merely disclosed in the footnotes. Product warranty and guarantee is the most common contingent liability that companies actually present as a liability.
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Practice
Describe the users of accounting information. Why do they need such information? Explain.
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2.
Long question Practice
An unadjusted trial balance of a company is given below
Particulars Debit (Rs.) Credit (Rs.) Cash 200,000 Bank 250,000 Discount Allowed 6,000 Machinery 200,000 Purchases 200,000 Debtors 80,000 Promotional expenses 20,000 Salary 60,000 Pre-paid rent 39,000 Share Capital 500,000 Creditors 45,000 Commission Received 10,000 Revenue/Sales 500,000 Total 1,055,000 1,055,000 Adjustment:
a. Closing stock Rs. 30,000
b. Prepaid rent expired was Rs. 39,000
c. Depreciation on Machinery at 15% per annum
Required:
i. Adjusted Trail balance
ii. Statement of Profit and Loss a/c as per NFRS
iii. Statement of Financial Position as per NFRS
iv. Statement of Cash flow Statement as per NFRS
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3.
Long question Practice
Following are the transaction a consultant agency during the month of Baishakh:
Baishakh 1: Collected Rs. 1,000,000 from owners of the agency in exchange of shares.
Baishakh 2: Deposited into bank Rs. 800,000
Baishakh 5: Paid 3 month's rent in advance Rs. 30,000
Baishakh 8: Purchased office equipment for Rs. 100,000 and paid 20% of cash and balance through cheque.
Baishakh 10: Billed to customers for service provided Rs. 200,000
Baishakh 12: Purchased office supplies Rs. 45,000
Baishakh 14: Received Rs. 190,000 after deduction of 5% discount from the customers billed on Baishakh 10
Baishakh 20: Paid Rs. 10,000 to the advertising company.
Baishakh 25: Paid electricity bill of Rs. 2,000.
Baishakh 30: Paid office salary Rs. 50,000 by issuing cheques.
Required:
a. Journal Entries for the above transactions
b. Triple Column Cash book
c. Cash, Bank, Accounts Receivable and Account Payable Account
d. Trial Balance
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Practice
What is cash flow statement? Why it is important for the organization?
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Define financial statement analysis. Explain the objectives of financial statement analysis.
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Long question Practice
(a) On 30th Poush 2079, the bank statement of Info-Tech Company showed a balance of Rs. 11,400 and cash book showed the balance of Rs. 10,000. Other data are:
A cheque of Rs. 2,100 deposited but recorded by bank as Rs. 1,200
A bill receivable of Rs. 5,000 and interest of Rs. 500 collected by bank only.
A customer's cheque for Rs. 2,000 was returned with the bank statement marked NSF
Bank service charge for the month Rs. 200
Deposit in transit of Rs. 6,000
Outstanding cheque Rs. 5,000 of the month.
Required: Bank Reconciliation statements as on 30th Poush 2079
(b) Differentiate between capital and revenue income.
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