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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

This Study Material has been prepared by the faculty of the Board of Studies. The objective of the Study
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© THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

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Edition : September, 2021

Website : [Link]

E-mail : bosnoida@[Link]

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Price (All Modules) : `

Published by : The Publication Department on behalf of The Institute of Chartered

Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg,
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© The Institute of Chartered Accountants of India

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CONTENTS
MODULE 1
CHAPTER 1 : Theoretical Framework
CHAPTER 2 : Accounting Process
CHAPTER 3 : Bank Reconciliation Statement
CHAPTER 4 : Inventories
CHAPTER 5 : Concept and Accounting of Depreciation
CHAPTER 6 : Accounting for Special Transactions

MODULE 2
CHAPTER 7 : Preparation of Final Accounts of Sole Proprietors
CHAPTER 8 : Partnership Accounts
CHAPTER 9 : Financial Statements of Not-For-Profit Organizations
CHAPTER 10 : Company Accounts

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DETAILED CONTENTS: MODULE – 2

CHAPTER 7 : PREPARATION OF FINAL ACCOUNTS OF SOLE PROPRIETORS .............................. 7.1–7.76

Unit 1 : Final Accounts of Non-Manufacturing Entities

Learning Outcomes...................................................................................................................................... 7.1

Unit overview ............................................................................................................................................... 7.1
1.1 Introduction .................................................................................................................................... 7.2
1.2 Preparation of Final Accounts ......................................................................................................... 7.3
1.3 Trading Account ............................................................................................................................. 7.5
1.4 Profit and Loss Account ................................................................................................................ 7.13
1.5 Certain Adjustments and their Treatments ..................................................................................... 7.24
1.6 Balance Sheet .............................................................................................................................. 7.29
1.7 Sequence of Accounting Procedure or the Accounting Cycle ......................................................... 7.34
1.8 Opening Entry .............................................................................................................................. 7.35
1.9 Provisions and Reserves .............................................................................................................. 7.44
1.10 Limitations of Financial Statements ............................................................................................... 7.47
Summary ................................................................................................................................................... 7.48
Test Your Knowledge ................................................................................................................................. 7.48
Unit 2 : Final Accounts of Manufacturing Entities ........................................................................................

Learning Outcomes.................................................................................................................................... 7.60

Unit Overview ............................................................................................................................................ 7.60
2.1 Introduction .................................................................................................................................. 7.60
2.2 Purpose........................................................................................................................................ 7.60
2.3 Manufacturing Costs ..................................................................................................................... 7.61
2.4 Design of A Manufacturing Account ............................................................................................... 7.62
Summary ................................................................................................................................................... 7.68
Test Your Knowledge ................................................................................................................................. 7.68
CHAPTER 8: PARTNERSHIP ACCOUNTS ........................................................................................ 8.1–8.163
Unit 1 : Introduction to Partnership Accounts ...............................................................................................

Learning Outcomes...................................................................................................................................... 8.1

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Unit Overview .............................................................................................................................................. 8.1

1.1 Introduction: Why Partnership? ....................................................................................................... 8.2
1.2 Definition and Features of Partnership. ........................................................................................... 8.2
1.3 Limited Liability Partnership ............................................................................................................ 8.3
1.4 Distinction Between an Ordinary Partnership Firm and An LLP ........................................................ 8.4
1.5 Main Clauses in A Partnership Deed ............................................................................................... 8.5
1.6 Powers of Partners ......................................................................................................................... 8.7
1.7 Accounts ........................................................................................................................................ 8.8
1.8 Profit and Loss Appropriation .......................................................................................................... 8.8
1.9 Fixed and Fluctuating Capital ........................................................................................................ 8.12
Summary ................................................................................................................................................... 8.22
Test Your Knowledge ................................................................................................................................. 8.23
Unit 2: Treatment Of Goodwill In Partnership Accounts

Learning Outcomes.................................................................................................................................... 8.32

Unit Overview ............................................................................................................................................ 8.32
2.1 Goodwill ....................................................................................................................................... 8.33
2.2 Methods for Goodwill Valuation ..................................................................................................... 8.34
2.3 Need for Valuation of Goodwill ...................................................................................................... 8.41
2.4 Valuation of Goodwill in Case of Admission of a Partner ................................................................ 8.41
2.5 Accounting Treatment of Goodwill in Case of Admission of a New Partner ..................................... 8.43
2.6 Accounting Treatment of Goodwill in Case of Change in Profit Sharing Ratio ................................. 8.48
2.7 Accounting Treatment Of Goodwill in Case of Retirement or Death of a Partner ............................ 8. 50
Summary ................................................................................................................................................... 8.53
Test Your Knowledge .................................................................................................................................. 8.54
Unit 3 : Admission of a New Partner ..............................................................................................................

Learning Outcomes.................................................................................................................................... 8.60

Unit Overview ............................................................................................................................................ 8.60
3.1 Introduction .................................................................................................................................. 8.61
3.2 Revaluation Account or Profit and Loss Adjustment Account .......................................................... 8.61
3.3 Reserves in the Balance Sheet ..................................................................................................... 8.69

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3.4 Computation of New Profit Sharing Ratio ....................................................................................... 8.71

3.5 Hidden Goodwill ........................................................................................................................... 8.81
Summary ................................................................................................................................................... 8.87
Test Your Knowledge ................................................................................................................................. 8.87
Unit 4 : Retirement of a Partner ......................................................................................................................

Learning Outcomes.................................................................................................................................... 8.96

Unit Overview ............................................................................................................................................ 8.96
4.1 Introduction .................................................................................................................................. 8.97
4.2 Calculation of Gaining Ratio .......................................................................................................... 8.97
4.3 Revaluation of Assets and Liabilities on Retirement of a Partner ...................................................8.100
4.4 Reserve.......................................................................................................................................8.102
4.5 Final Payment to a Retiring Partner ..............................................................................................8.103
4.6 Paying a Partner’s Loan in Instalment ..........................................................................................8.116
4.7 Joint Life Policy ...........................................................................................................................8.118
4.8 Separate Life Policy .....................................................................................................................8.123
Summary ..................................................................................................................................................8.129
Test Your Knowledge ................................................................................................................................8.130
Unit 5 : Death of a Partner ..............................................................................................................................

Learning Outcomes...................................................................................................................................8.139
Unit Overview ...........................................................................................................................................8.139
5.1 Introduction .................................................................................................................................8.140
5.2 Right of Outgoing Partner in Certain Cases to Share Subsequent Profits ......................................8.140
5.3 Amount Payable to Legal Representatives of Dead Partner ..........................................................8.141
5.4 Special Transactions in Case of Death: Joint Life Policy ...............................................................8.142
5.5 Special Transactions in Case of Death: Separate Life Policy ........................................................8.144
5.6 Special Transactions in Case of Death: Payment of Deceased Partner’s Share .............................8.145
Summary ..................................................................................................................................................8.156
Test Your Knowledge ................................................................................................................................8.156

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CHAPTER 9: FINANCIAL STATEMENTS OF NOT-FOR-PROFIT ORGANIZATIONS ........................... 9.1–9.42

Learning Outcomes...................................................................................................................................... 9.1

Chapter Overview ........................................................................................................................................ 9.1
1 Introduction .................................................................................................................................... 9.2
2. Nature of Receipts and Payments Account ...................................................................................... 9.2
3. Income and Expenditure Account .................................................................................................... 9.3
4. Balance Sheet ................................................................................................................................ 9.8
5. Educational Institutions ................................................................................................................. 9.23
Summary ................................................................................................................................................... 9.30
Test Your Knowledge ................................................................................................................................. 9.30
CHAPTER 10 : COMPANY ACCOUNTS .......................................................................................... 10.1–10.92
Unit 1: Introduction to Company Accounts ....................................................................................................

Learning Outcomes.................................................................................................................................... 10.1

Unit Overview ............................................................................................................................................ 10.1
10.1 Introduction .................................................................................................................................. 10.2
10.2 Meaning of Company .................................................................................................................... 10.2
10.3 Salient Features of a Company ..................................................................................................... 10.3
10.4 Types of Companies ..................................................................................................................... 10.4
10.5 Maintenance of Books of Account ................................................................................................. 10.6
10.6 Preparation of Financial Statements .............................................................................................. 10.7
Summary ..................................................................................................................................................10.13
Test Your Knowledge ................................................................................................................................10.14
Unit 2 : Issue, Forfeiture and Re-Issue of Shares

Learning Outcomes...................................................................................................................................10.17
Unit Overview ...........................................................................................................................................10.17
2.1 Introduction .................................................................................................................................10.18
2.2 Share Capital...............................................................................................................................10.18
2.3 Types of Shares ..........................................................................................................................10.21
2.4 Issue of Shares for Cash..............................................................................................................10.23
2.5 Subscription of Shares .................................................................................................................10.25
2.6 Shares Issued at Discount ...........................................................................................................10.31

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2.7 Shares Issued at Premium ...........................................................................................................10.31

2.8 Over Subscription and Pro-Rata Allotment....................................................................................10.34
2.9 Calls-In-Arrears and Calls-In-Advance..........................................................................................10.37
2.10 Interest on Calls-in-Arrears and Calls-in-Advance .........................................................................10.39
2.11 Forfeiture of Shares .....................................................................................................................10.41
2.12 Re-issue of Forfeited Shares ........................................................................................................10.46
2.13 Issue of Shares for Consideration other than Cash .......................................................................10.51
Summary ..................................................................................................................................................10.53
Test Your Knowledge ................................................................................................................................10.54
Unit 3 : Issue Of Debentures...........................................................................................................................

Learning Outcomes...................................................................................................................................10.62
Unit Overview ...........................................................................................................................................10.62
3.1 Introduction .................................................................................................................................10.63
3.2 Meaning ......................................................................................................................................10.63
3.3 Features of Debentures ...............................................................................................................10.63
3.4 Distinction Between Debentures and Shares ................................................................................10.64
3.5 Types of Debentures....................................................................................................................10.64
3.6 Issue of Debentures .....................................................................................................................10.66
3.7 Issue of Debentures as Collateral Security ...................................................................................10.78
3.8 Issue of Debentures in Consideration other than for Cash.............................................................10.80
3.9 Treatment of Discount/Loss on Issue of Debentures .....................................................................10.82
3.10 Interest on Debentures ................................................................................................................10.83
Summary ..................................................................................................................................................10.85
Test Your Knowledge ................................................................................................................................10.86

© The Institute of Chartered Accountants of India