Sum of the years’ digits depreciation method, like reducing balance method, is a type of accelerated depreciation technique that allocates higher depreciation expense in the earlier years of an asset’s useful life.
Calculation of depreciation under this method can be summarized in the following 4 steps:

Step 1: Calculate the sum of the years’ digits in an asset’s useful life
Here the asset is having a useful life of 6 years, the sum of the years’ digits will be calculated as follows:
Sum of years’ digits = 6 + 5 + 4 + 3 + 2 + 1 = 21

Step 2: Calculate the depreciable amount
Depreciable amount, as with all depreciation methods, is equal to:
Asset’s cost of acquisition or construction including any subsequent capital expenditure
Less: Estimated residual value or scrap value at the end of the asset’s useful life
Here depreciable amount = 1,26,000

Step 3: Calculate the un-depreciated useful life
Un-depreciated useful life is equal to the number of years in the asset’s useful life that have not yet been
subjected to depreciation.
Hence, for an asset that has a useful life of 6 years, the un-depreciated useful life to be used in calculating
depreciation shall be 6 years in the first year of depreciation, 5 years in the second year and so on.

Step 4: Calculate depreciation using the sum of years’ digits & un-depreciated useful life
Depreciation using the sum of the years’ digits method can be calculated using the following formula:
Depreciation expense = (un-depreciated useful life/ sum of the years’ digits) × depreciable amount
Thus Depreciation for the fourth year under sum of digits method will be = 3/21 × 1,26,000 = Rs. 18,000.

Fixed installment or straight line method depreciates cost evenly throughout the useful life of the fixed
asset.
Straight line depreciation is calculated as follows:
Depreciation per annum = (Cost – Residual Value) / Useful Life
Where:
Cost includes the initial and any subsequent capital expenditure.
Residual Value is the estimated scrap value at the end of the useful life of the asset. As the residual value
is expected to be recovered at the end of an asset’s useful life, there is no need to charge the portion of
cost equaling the residual value.
Useful Life is the estimated time period an asset is expected to be used from the time it is available for
use to the time of its disposal or termination of use.
Here Cost of the machinery = Rs. 10,00,000
Add: Installation charges = 1,00,000
Total cost of the machine = 11,00,000
Depreciation/year = 11,00,000 × 20% = Rs. 2,20,000

Salaries for the year ending 31st Dec 2009 = 10 × 1,000 = Rs. 10,000
Raise in salary = 20%
So salaries for the year ending 31st Dec 2010 = 10,000 + 20% of 10,000 = Rs. 12,000.

A company may issue shares without cash to the promoters of the company for the services rendered by them by debiting goodwill account. Here 2,000 shares of Rs. 100 each were issued to a promoter of the company for their legal services, rendered in the formation of the company. For this, company credited Share Capital Account and debited Goodwill account by Rs. 2,00,000.

Goods are normally sent on cost price to the consignee but some time the consignor makes the invoice at the selling price i.e. proforma invoice price. The idea is that consignee should not know the actual cost of the goods. In such cases the entries are made by the consignor in his books at the invoice price.
Here the goods are sent to the consignee at cost + 25% Cost of goods sent = Rs. 10,00,000
Let Invoice value of the goods sent = 10,00,000 + 25% of 10,00,000 = 12,50,000

We know that Credit sales = closing receivables + cash received from receivables + bad debts + return
inwards – opening receivables
Thus closing receivables = credit sales – cash received from receivables – bills received from customers – bad debts – return inwards + opening receivables
Credit sales = total sales – cash sales = 90,000 – 20,000 = 70,000
Thus closing receivables = 70,000 – 20,000 – 10,000 – 3,000 – 1,000 + 20,000 = Rs. 56,000

Debenture is a certificate/instrument acknowledging a debt. It is issued generally by a public company to individuals/institutions who lend it money (invest in their debentures). For an investor investing in a debenture is just like investing in a fixed deposit with the difference that while he can withdraw the amount invested in a fixed deposit any time he/she likes with a loss of interest.. He cannot do so with a debenture. The amount invested on a debenture will be repaid only on the expiry of the period for which the debenture has been issued. if the debentures were originally issued at a discount and redeemed at premium then the case of loss on issue of debentures arise.

Here A Co. issued Rs. 1,00,000 15% Debentures at 5% discount, redeemable at 10% premium after 10 years.

The discount on issue of debentures = 5% of 1,00,000 = Rs. 5,000
The premium on redemption of debentures = 10% of 1,00,000 = Rs. 10,000
Thus total loss on issue of debentures = 5,000 + 10,000 = Rs. 15,000

Total value of plant and machine purchased = Rs. 2,00,000
Payment made in cash = 65,000
Remaining amount to be paid by issue of 6%debentures = 1,35,000
Value per debenture after discount = Rs. 900
Thus number of shares to be issued = 1,35,000/900 = 150 debentures
Face Value of debentures issued = 150 × 1000 = Rs. 1,50,000.
Thus Discount amount will be = 1,50,000 – 1,35,000 = Rs. 15,000.

When the shares forfeited are reissued at discount, Bank account is debited by the amount received and Share capital account is credited by the paid up amount. The amount of discount allowed is debited to Share Forfeited Account. This is for adjusting the amount of discount so allowed from the amount forfeited at the time of forfeiture.

Now the amount of discount allowed on reissue of shares at the most can be equal to the forfeited amount on such shares. In that case the share forfeited account after reissue will show a zero balance. But in case, this amount of discount is less than the amount forfeited, the remaining forfeited amount will be profit for the company. This profit is a capital gain to the company and is transferred to Capital Reserve account.

In the above question discount on shares reissued = number of shares reissued × discount allowed per share = 15 × 15 = Rs. 225
Amount available for the reissued shares in shares forfeiture account = number of shares reissued × amount forfeited per share = 15 × (20) = Rs. 300

The surplus amount to be transferred to capital reserve account = 300 – 225 = Rs. 75

Securities premium is recorded in balance sheet under heading ‘reserves and Surplus’.