Basic Accounts GD PI/Interview Answers - 1

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Does dividend reduce profits?
No, only the operating and adminstartive expenses reduces the profit margin so as the bottom line(profit). Paying Dividend decision is taken(at the time of appropriation of funds) after knowing what the profit is and based on which either part/whole profit can be declared as divideds to its shareholders or it can be retain same partially/whole in the company and reinvested in the company itself. Paying dividends only reduces the amount carried forwarded to reserves and surplus.

What is the highest rate of Depreciation under Income Tax and for what items?
Few of them are, 100% depreciation is allowed for machinery acquired for water supply project or water treatment system and used for infrastructure facilities. Air, water pollution control equipments, Books.

Does depreciation reduce profit?
Yes, the Net profit gets reduced since the law allows the depreciation amount can be considered as an expenses and charged in expenses column of income statement, because of which the profit reduces though there is no cash outflow from the company.

What is Current Ratio?
What is the ideal Current Ratio? Why?
In simple, its the assets available with the company to meets its future short term obligations(liabilities)
It is calculated by CURRENT ASSETS/CURRENT LIABILITIES, Ideally it should be 2:1 ratio. It means the company has assets twice its liabilities, it should be twice because the assets cannot be turned into liquid cash immediately, so if the assets are twice the chances of converting few assets are higher than another.

What is Capital and Revenue Expenditure?
Any expenses which are incurred for short term gain is Revenue expenditure(example., stationery, or any item which the gain can be obtained for less than an year) and expenditure which sustains for longer period of time let say more than 2-3 is capital expenditure(example., Machinery, Building)

What would happen if a company pays a lower dividend?
Company perspective: It can retain the profits and reinvest and increase the shareholder value(market price)
Investors Perspective: It discourages the new investors to invest in that particular stock/company.
Both are applicable in different scenario.

What is Fiscal Deficit?
What is Budget Deficit?This link should answer this question:
Meaning and Difference between Budget and Fiscal Deficit with Examples?

Where does Goodwill appear in a Balance Sheet? Why?
Goodwill is an Intabgible asset gained by the company throught its operation over an period of time. In other words its the monetary figure what the company has earned as Brand Value/Equity from its customers. It is shown in the Asset side of the Balancesheet.

Can the captain of the vessel dump the goods in the middle of the sea?
Yes, the captain can dump it when he feels than the ship is overweighed and its can be sunked. The sales of goods act and Indian contact act permits it.

What is the difference between Excise Duty and Customs Duty?
Excise Duty

Can depreciation be on fixed assets only?
Yes.

As depreciation is to fixed assets, what is the same analogous to debtors?
Provision for Bad Debts.

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