Found 1748 Articles for Growth & Empowerment

Let us understand what are capital receipts and revenue receipts, before learning about their differences.Capital receiptsThese are the non-recurring income received by the company and come under investing and financial activities.They are generated from issue of shares, government’s grants, insurance claims, bank loans or loans from financial institutions, issue of denatures etc. Capital receipts reduce an asset or will increase a liability.Revenue receiptsThese are recurring income received by the company. This comes under business activities and benefits are enjoyed in the current period only.These are generated from services rendered, interest and rent received, discount from creditors/suppliers, sale of scrap etc.ComparisonThe ... Read More

Let us consider different scenarios about capital and revenue and therefore, understand their categorisation respectively. Proprietor contributed the amount as his capital.Nature − Comes under capital receipt.Reason − Benefits of this contribution is for a long period of time. Amount realized by selling old furniture.Nature − Comes under capital receipt.Reasonv Purchasing furniture comes under capital expenditure; sale of furniture comes under capital receipt. Acquiring fixed assets by borrowing money from banks.Nature − Capital receipt.Reasonv Benefits enjoyed by business for a long time. Money received from a debtor who was previously written off as bad.Nature − Revenue receipt.Reason − Previously written off account treated as revenue expenditure, amount received from the ... Read More

First, let us understand about the capital payments.Capital PaymentsCapital payments are payments of capital expenditures of a company, which are made into cash.In other words, capital payments are non-recurring payments which are paid in cash and are part of the capital expenditures. These payments are made in installments or at once.Capital payments include the following −Payment which is made to purchase an asset/assets.Share capital and debentures redemption.Repayment of proprietors in long drawing.Goodwill payments etc.ExampleSuppose a company purchases a product from a vendor. Moreover, the vendor sent a team of professionals at the time of installation and invoiced the company with ... Read More

Let us understand what a sole trader and a partnership are, before learning about their differences.Sole traderAn individual who owns and runs the total business is known as sole trader. In simple words, a sole trader has to look after his/her own resources to run their business.He/she has to apply for a license before starting their business. Chance of liability is unlimited, so he/she should have a cautious approach.Motivation, secrecy, freedom of trade selection etc. are the characteristics of sole proprietorship. Main objectives are creating own opportunities, helping large business, productive use of funds etc.PartnershipIt is a legal relationship between ... Read More

Let us understand what a lease agreement and a rent agreement are, before learning about their differences.Lease agreementAccording to section 105 of transfer of property Act, 1882 “lease is defined as transfer of a right to enjoy a property, made for a certain time, express or implied or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops/service or any other thing of value, to be rendered periodically or on specific occasions, to the transferor by the transferee, who accepts the transfer on such terms”.The conditions for rent agreement as a lease are ... Read More

Let us estimate the total income of the project by using percentage of completion method, if revenue estimated is $300000, estimated costs is $60000 and costs to date is $7000.SolutionThe solution is as follows −Step 1 -Percentage of completion = costs to date / estimated cost of project = 7000/60000 = 11.67 % (rounded to two digits)Step 2 -Total income (estimated) = revenue estimated – estimated costs = $300000 – 60000 = $240000Step 3 -Income recognition = percentage of completion * total income (estimated) = 11.67% * $240000 = $28008Percentage of completion method accountingLet’s say, the business has a project, ... Read More

Let us consider two examples for the percentage of completion method.Example 1Calculate by using percentage of completion method, if estimated cost of project is $700000 and costs to date are $85000, total revenue estimated = $2000000).SolutionThe solution is as follows −Step 1Percentage of completion = costs to date / estimated cost of project = 85000/700000 ⇒ 12.14 % (rounded to two digits)Step 2Revenue recognition = percentage of completion * total revenue estimated = 12.14% * 2000000 ⇒ $ 242800Step 3Income recognition = recognized revenue – costs to date = 242800 – 85000 ⇒ $157800Example 2A construction is building a maintenance facility and the ... Read More

In this method, all the revenues are recognized based on the percentage of work completed over a period of time through a cost to cost method.Journal entriesThe journal entries for the percentage of completion method are as follows −ParticularsDebitCreditIncurring costsConstruction in progressCash or accounts payableBillingAccounts receivableConstruction in progress (Bill)Receiving paymentsCashAccounts receivablePeriod end adjustments for revenueConstruction expenseConstruction in progressConstruction revenueCompleting the projectConstruction in progress (Bill)Construction in progressExampleConsider the following table for understanding how to write journal entries. Here, all numbers are used for understanding purposes only.Particulars2001 ($ IN MILLION)2002 ($ IN MILLION)2003 ($ IN MILLION)Cumulative cost incurred ($)4915Total cost (estimated) $151515Billings3105Collected2115SolutionThe ... Read More

The percentage of completion method recognizes all the revenue and profit associated with long-term projects on proportion/percentage of work completed.In this method, revenue is recognized yearly. Sellers can recognize gain/loss in a project in every accounting year. This method estimates stages of project completion or estimates costs of remaining costs. This method falls in IFRS 15.The formula for the percentage of completion method is as follows −Revenue (to recognized) = percentage of completed work * total contract valueTypesThe types of the percentage of completion method are as follows −Cost to cost methodPercentage of work completed = total expenses incurred (accounting ... Read More

In this method, all revenue and expenses will not be recognized, until the completion of the contract. If there is any unpredictability in collecting funds from customers, then this method is used. This method is easy to determine and simple.Journal entriesThe journal entries for completed contract method are as follows −ParticularsDebitCreditIncurring costsConstruction in progressCash or accounts payableBillingAccounts receivableConstruction in progress (Bill)Receiving paymentsCashAccounts receivableRecording revenueConstruction in progress (Bill)Construction revenueRecording expenseConstruction costConstruction in progressExampleConsider the following table for understanding how to write journal entries −Particulars199519961997Cumulative cost incurred ($)2000000500000012000000Total cost (estimated) $120000001200000012000000Billings200000040000007000000Collected100000050000007000000SolutionThe journal entries by using the completed contract method for the above-mentioned ... Read More