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What is meant by Depreciation?

Depreciation simply means a steady decrease in the value of asset. Often it is studied in relation to the time period over which such decrease in the value has occurred. Therefore, often it is also...

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How interest and dividends are disclosed in statement of cash flows?

This often confuse students who are studying Statement of Cash Flows that what is the correct way of disclosing or presenting interest paid or received and dividends paid or received during the period....

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How a loan repayment is disclosed in statement of cash flows?

First things first, a loan can be repaid in number of ways for example in cash, by handing over certain asset or converting debt to shares etc. But if the repayment does not involve cash outflow then...

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What transactions are adjusted in profit or loss to prepare statement of cash...

Statement of Cash Flows or Cash Flow Statement can be prepared using two methods; direct method or indirect method. As under indirect method, income statement or statement of comprehensive income is...

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Which method is preferable to prepare Statement of Cash Flows?

International Accounting Standard (IAS) 7 Statement of Cash Flows give entity the choice to choose freely in selecting the method to prepare statement of cash flows. Moreover, IAS 7 does not bound...

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How a liability paid in kind or by issuing shares is disclosed in statement...

Most of the time entities pay out their liabilities, whether short term or long term, in cash. And by cash it means either in hard cash or by issuing cheque or using cash equivalents. Sometime company...

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How preparing statement of cash flows is different under IFRSs and GAAPs?

One of the key benefits of statement of cash flows or cash flow statement is its comparability. This is due to the fact that although we have difference accounting frameworks in the world even then...

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What is meant by ‘net of’ in accounting or tax and other business related...

The expression ‘net of’ represents the exclusion of something from a particular sum. For example net of tax means the resultant amount which is exclusive of tax or in other words the amount we get...

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What is ‘Declining balance to Straight line crossover’ method of depreciation?

Majority of the students studying accounting, either at initial stages or experienced in accountancy academics, are familiar with two of the most renowned depreciation methods used by entities to...

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What is french straight line method of depreciation?

French straight line depreciation method is not completely a new method to calculate depreciation. Rather it is more of a derivation or extended version of usual straight line method accounting...

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What is the difference between Purchase ledger and Purchase account?

Quite a basic question in fact. A lot of students realize about these concepts as soon as they start studying Auditing especially when they have to apply different audit procedures where these basic...

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What type of accounts are maintained under Purchases ledger?

i-ask! | Have a question? Ask Tutor! What type of accounts are maintained under Purchases ledger? What entries are posted in purchase ledger? Also what is the difference between purchases ledger and...

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What are different causes of Depreciation?

Here are some of the reasons or causes of depreciation: Physical loss Any damaging change in the physical features of the asset or  in the productivity, efficiency or effectiveness of the asset either...

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What is the difference between General Journal and General Ledger?

Journals, also known as Books of Prime Entry or Books of Original Entry are the first books of accounting in which transactions are recorded in a chronological order following certain rules and...

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What is Depreciation?

Depreciation basically signifies a steady decline in the value of asset. Generally it is studied in terms of the period of time that such decline in the value took place. Therefore, it is also...

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Why amortisation of goodwill is not permissible?

Before IFRS 3 was introduced, entities were allowed to amortize goodwill. However, after it was introduced back in 2004-2005, amortization of goodwill was strictly prohibited and entities were required...

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How Goodwill is an asset?

If we look for the answer to the question that why goodwill is an asset, then there is no specific explanation given in two of the renowned accounting frameworks i.e. IFRSs and US GAAPs. Although, the...

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What is meant by Economic benefits and how they flow to the entity?

It is easy to understand that entities around the world hold different sets of machinery, plant, equipment, building, land and other kinds of assets through which it offers products or services to its...

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Why impairment of goodwill is not reversed?

First of all we must be clear that goodwill is an intangible asset that entities can recognize in their financial statements but only such goodwill that is acquired in business combination. Internal...

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Is Residual value of the asset calculated on Present value or Future value...

One of the reasons for charging depreciation against the historical cost of the asset, revalued amount or simply carrying value of asset is that asset’s book value should be reduced to such residual...

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What factors are considered in determining useful life of intangible asset?

Determining useful life of an intangible asset is not as easy as a tangible asset as most often intangible assets are of such nature that are unique and have no similar asset in the market through...

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How WWF and WPPF amounts are calculated?

The provisions regarding calculation of Worker’s Welfare Fund are given in section 4 of Worker’s Welfar Fund Ordinance, 1971. Whereas, the provisions related to calculation of Worker’s Participation...

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What is revenue recognition and accounting treatment for goods sold or sent...

Before we discuss the recognition principle and accounting treatment for sales under sale or return conditions. First lets have ourselves clear about what is meant by sale or return? Under sale or...

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What is meant by Sale or Return?

Buying and selling arrangements between sellers and buyers may take different forms and sales contracts can have some unusual terms agreed between the parties. However, one of the common arrangements...

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What is Cost classification and in how many ways can we classify cost?

Cost classification is a simple process in which we group or categorize costs on the basis of common characteristics. Grouping costs on the basis of their nature, form, source or any other attribution...

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What is Source document?

In the business world buyers and sellers interact to exchange goods and services and other transactions like payment. A diligent accountant keeps the record of all such important transactions about...

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What is Credit note and when is it used?

A credit note is a source document providing evidence that a credit entry has been made in the financial records for specific reason which is explained on the face of this business document. Credit...

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What is meant by Temporary accounts?

Temporary account is in simple words are such accounts that are maintained only until the end of particular accounting period (which can of any length of time i.e. a week, a month, two months, a...

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What is the difference between depreciation account and accumulated...

Capital assets also known as fixed assets are simply such assets which are used over a period longer than one year. Although real cash outflow takes place for the whole price at the time of acquisition...

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What is a non-cash expense?

Non-cash expenses are such expenses that do not involve real cash outlay or against which no real cash outflow has taken place at least in the period in which such expense has been reported. And as...

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Is Accumulated depreciation an expense account or an asset account?

Before this question is answered specifically it will be good if we clear an important connected concept of historical cost. According to historical cost concept, assets are recognized and reported in...

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Is Sales tax included in the cost of the asset?

General rule is that everything paid specifically for the asset will form part of the cost of the asset purchased by the entity i.e. any cost incurred specifically towards the asset until it is brought...

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Can we depreciate asset below residual value?

Main purpose of depreciation is to reduce the value of asset over its useful life in such a systematic way that such reduction corresponds with the rate at which benefits are rendered from the assets....

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What is Continuous stocktaking?

Stocktaking is simply physical checking or counting of inventory held by the entity and by continuous stocktaking it means inventory counts that are undertaken on regular basis. Continuous stocktaking...

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What is the difference between Cash basis and Accrual basis accounting and...

Accrual basis of accounting is one of the underlying assumption for preparing financial statements under International Accounting Standards. IASB Framework clearly demanded the financial statements to...

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What is the accounting treatment for sale of fixed asset?

First important thing to understand is that the tern fixed asset or non-current assets are such resources of assets which are not bought or sold as main activity of the business and are distinct from...

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What is Retail Price method of inventory valuation?

Inventory is an important asset entity holds and its valuation is critical as it not only affects figures in statement of financial position but also profit calculation. There are several methods to...

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What is meant by Accounting concepts and principles?

Accounting is one of the vital tools to collect financial information pertaining to business activities. The same information is used in economic decisions users make. The apex of accounting or...

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What is the difference between accounting concepts accounting principles and...

These three are definitely different but connected and their connection is critical in accounting. Under International Financial Reporting Standards (IFRSs) IASB Framework sets out accounting concepts...

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What is Journal and how many types of journals are in accounting?

These are the first formal books in which information regarding transaction is recorded . For the same reason they are also named as books of prime entry or books of original entry or  day books. While...

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What is Accrual basis of accounting?

According to accrual concept or accrual principle or accrual basis of accounting revenues and expenses are recorded in books of accounts when they are earned or incurred and not when they are received...

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What is Matching principle in accounting?

Accounting principle that requires costs to be recognized after matching with the revenues earned associated with such costs i.e. the amount of costs recognized must be on equal footings with the...

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How fixed assets are revalued if fair value cannot be determined using market...

IAS 16 Property, Plant and Equipment (IAS 16) recognizes the fact that fair value of every asset may not be determined using market value basis. Although it is recommended and hardly the case where...

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What is Depreciated replacement cost?

Depreciated replacement cost is an optimised form of replacement cost method to make the estimate more realistic by adding the aspect of depreciation to a simple replacement cost concept for valuation...

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How to account for change in residual value of fixed asset?

International Accounting Standard (IAS) 16 recognizes that residual value of asset may increase or decrease as a result of revaluations or future assessments of non-current asset. IAS 16 recognizes...

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What is work in process or work in progress inventory?

Work in process inventory is such asset that is still in the process of completion and not yet ready to be categorised as finished goods.In a manufacturing concern raw materials are converted to...

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What is age, aged, ageing or aging analysis?

Age analysis is simply a time-based analysis with reference to due date to determine either how much time is left until due date or how much time has passed since due date. Most of the time age or aged...

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What is meant by Carriage inwards and its accounting treatment?

Carriage inwards, transportation inwards, transport inwards, freight inwards or shipping cost are the cost borne by the buyer of the goods for moving the goods from supplier’s place to his own place...

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How to account for Temporary Investment Incomes on funds from Specific...

It is a usual practice that if entity has borrowed funds to finance a qualifying asset then they might be invested temporarily until the funds are needed. This gives rise to a question if these...

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What is ABC Analysis?

ABC analysis is one of the known inventory classification methods available in which inventory is categorized in three classes A, B and C where A being most important, B being important and C being...

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