MGT101 Modules 10-11

Mgt101 module 10, 11,12 · Module 10 ·  Fixed assets

Fixed asset also known as long life assets, tangible assets or property, plant and equipment. Fixed assets cannot easily converted into cash.

 Type of fixed assets

Land

Building

Machinery

Furniture

Equipment

 Deprecation

Depreciation is an accounting method of allocating the cost of tangible assets over its useful life. Depreciation represents how much of an asset value has been used.

 Calculating method of depreciation

1. Straight line method

Depreciable Amount Useful Life = depreciation

2. Reducing balance method

Residual Value cost 100 = depreciation in %

3. Service hour method

Total Estimated Hours Depreciable Amount = Depreciation Rate Per Hour

4. Units output/produced method

Total Estimated Output Depreciable Amount = Depreciation Rate Per Unit

5. Sum of years’ digit method

We simply divide assets value on its useful life = depreciation of year

 Trade in allowance

When an old asset is exchanged with a new asset the seller of new asset will offer an allowance while receiving payment for selling asset in consideration of the exchange of old asset. Such allowance is known as “trade in allowance”.

Module 11

 Ledger account

Ledger is an account that used to store bookkeeping entries for balance sheet and income statement. There are three type of ledger;

1. General
2. Debtor
3. Creditor

 Formats of Debtors and Creditors Control Accounts

While preparing Debtors Control Account, it must be noticed that its debit side should show the items that will cause increase in debtors’ balance and items in credit side will cause a decrease in debtors’ balance.

In the same way items that will cause increase in creditors balance are put in its credit side and items that will cause decrease in creditors balance are put in the debit side of Creditors Controls Account.

 Control account

An account in the ledger for which a corresponding subsidiary ledger has been created. In accounting control account also known as an adjustment account.

 Journalizing

Posting all transaction from journal to ledger is called journalizing.

 Bookkeeping

Bookkeeping is a process of recording all financial transaction made by a business. In bookkeeping we recording, classifying, and organizing all financial transaction.

Module 12

 Rectification or error

While performing in financial accounting classifying, recording, posting and reporting, there could be some instances of errors and omissions in the presence of which the financial statements do not present reliable and fair results of the economic phenomena of the entity. These errors and omissions need to be corrected according to the accounting rules.

 Types of error

1. Those errors that do not cause a difference in trial balance agreement
2. Those errors that do cause a difference in trial balance agreement.

 Reasons of error

1. Error of omission
2. Error of commission
3. Error of principle
4. Error of original entry
5. Compensating error

Error of omission

When financial information is completely omitted for recording in the books of original entry. sales invoice of Rs.1000 issued before closing date but not recorded in the books of original entry.

Error of commission

When correct accounting effect (Dr/Cr) is given in the wrong accounting head but the main head remains correct e.g. purchase of computer Rs.5000 for office was wrongly debited to the furniture account.

Error of principle

When correct accounting effect (Dr/Cr) is given in the wrong accounting head as well as the wrong main head e.g. purchase of computer Rs.5000 for office was wrongly debited to the stationery account. (both accounts belong to different main heads, like computer belongs to Asset and stationery belongs to Expense.