Ignou solved assignment eco 02 2014 to 2015 (demo)

1 Prepared By Kumar Nirmal Prasad, M.Com, UGC – NET (Three Times), CMA (Final Intership); 9577097967
TUTOR MARKED ASSIGNMENT
Course Code : ECO - 02
Course Title : Accountancy – I
Assignment Code : ECO – 02/TMA/2014-15
Coverage : All Blocks
Maximum Marks: 100
Answer of Q.N.1.
Bank Reconciliation Statement
Business concern maintains the cash book for recording cash and bank transactions. The Cash book serves
the purpose of both the cash account andthe bankaccount. Itshowsthe balance of bothat the endof a period.Bank
alsomaintainsanaccount for eachcustomerinits book.All depositsbythe customerare recorded on the credit side
of his account and all withdrawals are recorded on the debit side of his account. A copy of this account is regularly
sent to the customer by the bank. This is called ‘Pass Book’ or Bank statement. It is usual to tally the firm’s bank
transactions as recorded by the bank with the cash book. But sometimes the bank balances as shown by the cash
book and that shown by the pass book/bank statement do not match. If the balance shown by the pass book is
different from the balance shown by bank column of cash book, the business firm will identify the causes for such
difference. It becomes necessary to reconcile them. To reconcile the balances of Cash Book and Pass Book a
statement is prepared. This statement is called the ‘Bank Reconciliation Statement.
How to Prepare Bank Reconciliation Statement:
To reconcile the bank balance as shown in the pass book with the balance shown by the cash book, Bank
ReconciliationStatementisprepared.Afteridentifyingthe reasonsof difference,the BankReconciliationstatementis
prepared without making change in the cash book balance. We may have the following different situations with
regard to balances while preparing the Bank Reconciliation statement. These are:
1. Favourable balances
(a) Debit balance as per cash book is given and the balance as per pass book is to be ascertained.
(b) Credit balance as per pass book is given and the balance as per cash book is to be ascertained.
2. Unfavourable balance/overdraft balance
(a) Credit balance as per cash book (i.e. overdraft) is given and the balance as per pass book is to be
ascertained.
(b) Debit balance as per pass book (i.e. overdraft) is given and the balance as per cash book is to be
ascertained.
The following steps are taken to prepare the bank reconciliation statement:
(i) Favourable balances: When debit balance as per cash book or credit balance as per pass book is given:

(a) Take balance as a starting point say Balance as per Cash Book.
(b) Add all transactions that have resulted in increasing the balance of the pass book.
(c) Deduct all transactions that have resulted in decreasing the balance of pass book.
(d) Extract the net balance shown by the statement which should be the same as shown in the pass book.
In case balance as per passbookis takenas startingpointall transactions thathave resultedinincreasing the
balance of the Cash bookwill be added andall transactionsthat have resultedindecreasing the balance of Cash book
will be deducted. Now extract the net balance shown by the statement which should be the same as per the Cash
book.
(ii) Unfavourable Balance/Overdraft: Sometimes a businessman withdraws excess amount from the bank
account and the closingbankbalance of a monthis a debitbalance.Thisbalance amountiscalled‘overdraft balance’
as per Pass Book. This is shown in the cash book as a credit balance. Overdraft balance is to be shown in the minus
columnof statementasthe starting point.The otherstepsshall remainthe same asmentionedabove. The following
illustration helps to understand dealing with the unfavourable balance as per cash book and pass book.
Illustration.1. On December 31, 2013, the cash book of the M/s. X shows the credit balance Rs.6, 500.
ChequesamountingtoRs.3,500 depositedintobankbutwere notcollected by the bank. Firm issued cheques of Rs.
1,000 whichwere notpresentedforpayment.Therewasadebitinthe pass bookof Rs.200 forinterestandRs.400 for
bank charges. Prepare Bank Reconciliation Statement.
Solution: Bank Reconciliation of M/s. X as on 31st
Dec, 2013
Particulars Plus(Amount) Minus(Amount)
Overdraft as per cash book
1. Cheque issuedbutnotpresentedforpayment
2. Cheque depositedbut notcreditedbybank
3. Bank chargesand Interestcharged
Overdraft as per pass book
1,000
9,600
6,500
3,500
600
10,600 10,600
Illustration.2. Prepare Bank Reconciliation Statement of M/s. X on 31st
Dec, 2013, from the following
information:
Overdraft as per pass book 16,500,
Interest on overdraft 1,600,
Insurance premium paid by the bank 800,
Cheques deposited but not yet credited 5,500,
Cheques issued but not present for payment 6,000,
Wrongly credit to firm account by the bank 1,000
Solution: Bank Reconciliation of M/s. X as on 31st
Dec, 2013

Particulars Plus(Amount) Minus(Amount)
Overdraft as per pass book
1. Interestonoverdraft
2. Insurance Premiumpaidbybank
3. Cheque depositedbutnotcreditedbybank
4. Cheque issuedbutnotpresentedforpayment
5. Wronglycreditedbybank
Overdraft as per cash book
1,600
800
5,500
15,600
16,500
6,000
1,000
23,500 23,500
Answer of Q.N.2.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967
EMAIL: KUMARNIRMALPRASAD@GMAIL.COM
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM
Answer of Q.N.3.
(a) Treatment of Outstanding Subscription
Subscription is received by the non-trading organisations from its members regularly each year. It is a
recurringreceiptof revenue nature andhence treatedasamain source of income. This is shown to the debit side of
Receipts and Payments Account and to the credit side of the Income and Expenditure Account. It is shown on cash
basis in the Receipts and Payments Account and on accrual basis in the Income and Expenditure Account i.e.,
outstanding subscription and advance subscription is to be adjusted.
Subscription can be outstanding both in the beginning and at the end of the accounting year. Outstanding
subscriptionatthe beginningisthatamountof subscriptionwhichdue inprevious year and not received in previous
year.Therefore,itisdeductedwhile ascertainingsubscriptionincomeduringthe currentyearand on the other hand,
it isshownonthe assetsside of openingbalance sheet.Again,Subscriptionoutstanding at the end is that sum which
is due in current year and yet not received. It is related to current year, therefore it is added while ascertaining
subscription income during the current year and on the other hand, and it is shown on the assets side of closing
balance sheet.
(b) Treatment of Donation:
In Income and Expenditure Account: It is the amount received from some person, firm, company or any
otherbodyby swayof a gift.It isshowninreceiptsandpaymentsaccountsof the year. If a donation is received for a

specificpurpose (donationforbuilding,donationforconductingspecific events–sports,annual day celebration etc.)
It is in the nature of a capital receipt credited to a separate Fund account and shown in the balance sheet. The non
trading concern has to fulfill the purpose for which the donation is received. If the donation is not for a specific
purpose,itisknownas a general donation.Generaldonationof abigamountiscapitalized and not shown as income
as it isnon-recurringinnature.Donationsof asmall amountmaybe expectedevery year. So this may be considered
as income during the year.
In Receiptsand Payments Account: Donationisshowninthe receiptsside of ReceiptsandPaymentsAccount
whether it is of general purpose or specific purpose.
(c) Legacy:
In Income and Expenditure Account: Itis the amountreceivedbythe nonprofit organizations as per the will
of a deceasedperson.It isa capital receiptandisshownonthe liabilitysideof the balance sheet,butif the amount is
small it may be treated as income and may be shown on the credit side income and expenditure account In the
absence of any specific information legacy must be preferably be capitalized and added with capital fund.
In Receipts and Payments Account: It is the amount which is received by organisations as per the will of a
deceasedperson.Itistreatedasa capital receiptandshownon the receiptsside of Receipts and Payments Account.
(d) Treatment of Tournament Fund:
In non trading concerns, Tournament funds are created for conducting tournaments. It a specific fund and
investedin specificsecuritiesbynon-tradingorganisations.The income derivedfromthe investment is added to that
fund and is not treated as income. Incomes are normally added with the fund. Again, expenditure incurred on
conducting tournament is deducted with tournament fund and is not shown as expense. For example:
Tournament Fund - 20,000;
Tournament fund investment - 15,000;
Interest on Tournament Fund Investment for the year - 2,000;
Expenditure on Tournament - 8,000.
Nowthe total Tournamentfund is Rs. 22,000 (20,000 + 2,000) the interestof Rs. 2000 isadded with the Prize
fund.The expensesincurredoutof fundare deductedfromthe funditself.Inthe previousexample the accumulated
Prize fund is Rs. 22,000. The Prize given for of Rs. 8,000 is deducted from the Prize fund and the balance fund of Rs.
14,000 will be shown in the Balance sheet.
Answerof Q.N.4.

Difference betweenProvisionsandReserves
1. Provision is made to meet known liability the amount of which cannot be ascertained with substantial
accuracy. Whereas, Reserve is created to meet unexpected losses and contingencies likely to arise in future.
2. Provisioncanbe usedonlyformeetingthe specificpurpose forwhichithasbeenmade. But, Reserve can
be used for any purpose unless it is created for a specific purpose.
3. Provisionisacharge onprofitsand reduces the amount of net profits. But, Reserves is an appropriation
of profits and reflects undistributed profits.
4. Provisionistobe made even if there are no profits. Whereas, Reserve is created only when there are
profits.
5. Provision creation is compulsory. But, Reserves creation is at the discretion of management with the
exception of debenture redemption reserve for which the Companies Act has made a provision in certain cases.
6. Provisionismeantformeetingexpectedlossesand cannotbe usedfordividenddistribution. But,
Reserves is a part of owner’s funds and can be used for distribution of dividends.
Answer of Q.N.5.

Ignou solved assignment eco 02 2014 to 2015 (demo)

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (8)

More from Kumar Nirmal Prasad

More from Kumar Nirmal Prasad (20)

Recently uploaded

Recently uploaded (20)

Ignou solved assignment eco 02 2014 to 2015 (demo)