Basic Accounts GD PI/Interview Answers - 1

For More Questions Click Here: Basic Commerce / Accounting Question in Interview.

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.

Click Here for: Other Basic Accounts GD PI/Interview Answers

Read More

Basic Accounts GD PI/Interview Answers

For More Questions Click Here: Basic Commerce / Accounting Question in Interview.


As many of them has asked for the answers for the post "Basic Commerce / Accounting Question in Interview.", i posted few answers for the basic Accounting Interview questions posed by an candidate, and will post the rest asap. 


What is the Personal Income Tax rate?

Income tax slabs for individual taxpayers to be as follows

Income upto     Rs 1.8 lakh Nil

Income above Rs 1.8 lakh and upto Rs. 5 lakh 10 per cent

Income above Rs.5 lakh and upto Rs. 8 lakh 20 per cent

Income above Rs. 8 lakh 30 per cent

Income tax slabs 2011-2012 for Women

Income upto     Rs 1.9 lakh Nil

Income above Rs 1.9 lakh and upto Rs. 5 lakh 10 per cent

Income above Rs.5 lakh and upto Rs. 8 lakh 20 per cent

Income above Rs. 8 lakh 30 per cent

Income tax slabs 2011-2012 for Senior citizen (Aged 60 years but less than 80 years)

Income upto     Rs 2.5 lakh Nil

Income above Rs 2.5 lakh and upto Rs. 5 lakh 10 per cent

Income above Rs.5 lakh and upto Rs. 8 lakh 20 per cent

Income above Rs. 8 lakh 30 per cent

Income tax slabs 2011-2012 for Very Senior citizen (Above 80 years)

Income upto     Rs 5 lakh Nil

Income above Rs.5 lakh and upto Rs. 8 lakh 20 per cent

Income above Rs. 8 lakh 30 per cent

What are Direct and Indirect Taxes? Give examples.

Direct Taxes: Personal Income Tax.
Indirect Taxes: Excise Duty, Value Added Tax(VAT).

Why does a Balance Sheet balance?

Balance sheet is a Financial Statement of an Firm. The Two sides of Balance sheet consist of Assets and Liabilities; the amount which is invested in the way of Capital is used for procurement of Assets.

Assets = Liabilities + Shareholders Equity

The company has to pay for buying assets by either borrowing (liabilities) or getting it from shareholders (shareholders' equity). So that make sense that both sides get equals.

Is loss an asset or a liability?

A loss to the firm is considered as an Asset not as a Liability, because there is no need to pay or return the money to anyone. It is assumed as amount to be recovered back(or Expenses) in the concern soon, so it is considered to be an Asset.

What are LIFO & FIFO? What are they used for?

LIFO stands for Last in, First Out, and FIFO as First in, First Out.

These concepts are used in accounting concern dealing with Inventories or Stocks mainly. Usually this process is used in the warehouse department, where the stock which comes First and those stocks are used to produce or to sell it that is called as FIFO method and when the product or good, which arrives last and sent out the process is called LIFO. LIFO and FIFO is based on the Time when it arrives and sent out.

What are Quick Assets?

Quick Assets are those assets which are in Cash, or which can be easily convertible to cash.  Stocks are an example for Quick Assets, as it can be convertible easily.

In accounting terms, Quick Assets = Current Assets - Inventories.

What is Quick Assets Ratio?

To Payoff the Current Liabilities (Debts), the firm make an ratio to know the current liquidity ratio, that is called as Quick Assets Ratio or Acid Test Ratio or Liquidity Ratio.

This is an commonly used tests for knowing short term financial stability.

Quick Assets Ratio = Cash + Securities + Accounts Receivable / Current Liabilities

Or

Quick Assets Ratio = Current Assets – Stock / Current Liabilities.

What is Amortization?

Amortization is an charge made on the assets, which works same as Depreciation. Basically Amortization is charged on the Intangible assets or writing off of loans. For Example, if the company purchases Equipment by taking the Loan, the Equipment is depreciated while the Loan amount is amortized.

What is Depreciation? What are the different methods of Depreciation? Which method is better and why?
Click Here: What is Depreciation? Reasons for Calculating Depreciation?
Click Here: What is the Need of Providing Depreciation?

Diminishing Balance Method is better than the Straight line Method, because it reduces the value of the assets more than the SLM and helps to make a provision from the profits before distributing it, instead of calling the money back again after distributing the profits to shareholders.

Do you know what N.P.V. discounting is?

N.P.V stands for Net Present Value, which deals with the cash inflow and outflow.

The difference between the present value of cash inflows and the present value of cash outflows. 

This is used for capital budgeting for profit analyzing for the future project which is to be undertaken now.

Follow the Link for the Answers:
1) Basic Accounts GD PI/Interview Answers
2) Basic Accounts GD PI/Interview Answers - 1

Read More

Limitations of Ratio Analysis?

Though Ratio analysis is a powerful tool for analyzing the financing position of a firm, it suffers from the following limitations.


a) As ratios are calculated based on the historical data or past performance, they may not necessarily  provide the correct information that is useful in decision-making.


b) As there are no particular standards or rules of thumb for all the ratios, it is difficult to interpret accurate results.


c) In order to draw correct interpretations, a single ratio may not be helpful.  For this purpose, a number of ratios are to be calculates which is likely to confuse the financial analyst than to help him in making any meaningful conclusions.


d) Changes in the accounting procedures by the firms may mislead the ratio analysis. For example, a change in the methods of valuation inventory from FIFO(First In First Out) to LIFO(Last In Last Out) increases the cost of sales and decreases the value of closing stock. This results in unfavorable Stock Turnover Ratio and Gross Profit Ratio.


e) In Inflationary conditions, the accounting data of several years cannot be compared and therefore analysis based on such data is not accurate.


f) As Ratio analysis is purely quantitative in nature, other aspects such as managerial efficiency, employee performance cannot be interpreted.


g) Comparison of ratios of one firm to the other in an industry is not possible due to their differences in sizes, accounting procedures etc.


h) As changes in price is not considered while calculating ratios, this may adversely affect the interpretations.


What is Ratio Analysis? Different types of Ratios?

Read More

What is Ratio Analysis? Different types of Ratios?

Ratio Analysis are considered as a powerful tool among the various tools of financial statement analysis.  It facilitates a company in ascertaining its financial health i.e., its financial performance whether it is gaining profits or suffering losses.


Main Purpose of Ratio Analysis are in ascertaining the financial performance of a concern.
a)  Liquidity Ratio of Ratio Analysis, facilitates to identify whether the company has enough capability to meet short term obligations/requirements.  Current and Quick Ratios reveal  the comparison between Current Assets and Current Liabilities suggest for necessary decision making.


b) The Profitability Ratios like Gross Profit Ratio, Net Profit Ratio and Operating Ratio give a picture of profitability position of the concern.


c) Long term solvency and the leverage ratios such as Debt-Equity Ratio and Interest Coverage Ratio convey a firms ability to meet the interest cost repayments schedules of its long-term obligations and show the proportions of debt and equity in financing of the firms.


d) Activity Ratios such as Inventory Turn Over Ratio, Debtor Turnover Ratio, Working Capital  Turnover Ratio measure the efficiency with which the resources of a firm have been employed.


Though Ratio analysis is a powerful tool for analyzing the financing position of a firm, it suffers from the following limitations.

Read More

Why Net Income different from Net Cash in Financial Statement?

While viewing a company's Financial statement, one may get an doubt why there is an difference in Net income and Net Cash when both of them sound the same meaning.  But its not!!


Net Income is the balance amount obtained after deducting the Operating Expenses and Cost of Goods Sold(Trading Expenses) from the Net Revenue(Sales - Sales return) earned by the company in the Financial year(One year typically). Where as Net Cash in the cash balance or readily available cash in the business which is totally liquid.


Why the Net cash and Net Income amount figure Differs?
The Main reason for the difference in the amount is because of the accounting concept the company uses. When the company uses the "Accrual accounting concept", it take both the Cash and Credit sales in account, irrespective of cash received on credit sales or not. 


Which means, the company will take its credit sales as actually Sales, even it dint received the cash from the customers. When such event occurs, for example, the INCOME STATEMENT Shows in this way.


Net Sales(Includes Credit Sales of $5000)   -   $10,000
Less: COGS and Operation Expenses            -     $2,000
-----------------------------------------------------------------------
NET INCOME                                                 -    $8,000    
-----------------------------------------------------------------------       
Well in the CASH FLOW STATEMENT, only those transaction are taken where actual cash Inflow or outflow occurs, not all transactions. The Cash Flow shows in this way.


Net Cash Sales                                                       -   $5,000
Less: COGS and Operation Expenses                -   $2,000
----------------------------------------------------------------------

NET CASH                                                            -  $3,000    

----------------------------------------------------------------------

Now, I hope you understood why there is an change in amount figures.

Read More