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
Here Cost of the machinery = purchase price + installation expenses = 10,00,000 + 1,00,000 = Rs.11,00,000
Depreciation = 10% per annum = (11,00,000) × 10% = Rs. 1,10,000

The goods are consigned from one place to another. After receiving the goods by consignee, the goods are stored by the consignee before selling them to customers. It is natural that some loss to the goods may take place within that period. The goods may be lost, destroyed or damaged either in transit or in consignee’s store. The loss which is caused by unavoidable reasons is known as normal loss. For examples shrinkage, evaporation, leakage and pilferage. Such losses form part of cost of goods and no additional adjustment is required for this purpose. The normal loss is borne by goods units. The quantity of such loss is to be deducted from the total quantity sent by the consignor. The following formula may be used for the valuation of unsold stock.

Value of closing inventory = (Total value of goods sent/Net quantity received by consignee) X unsold quantity

Net quantity received = Goods consigned quantity - Normal loss quantity.
Here 1,000 Kg. of Mangoes were consigned to a wholesaler, the cost being Rs. 3 per kg. plus Rs. 400
freight. Loss of 15% of Mangoes is unavoidable i.e. the normal loss and 750 kgs were sold.
Total value of goods sent = 1,000 × 3 + 400 = Rs. 3,400
Net quantity received by the consignee = 1,000 – 15% of 1,000 = 850 kgs
So the remaining inventory is 100 kgs
Value of closing inventory = (3,400/850) × 100 = Rs. 400

. The goods are consigned from one place to another. After receiving the goods by consignee, the goods are stored by the consignee before selling them to customers. It is natural that some loss to the goods may take place within that period. The goods may be lost, destroyed or damaged either in transit or in consignee’s store. The loss which could be avoided by proper planning and care are abnormal loss. They are like theft, riots, accidents, fire, earthquake etc. These losses could occur in transit or in consignee’s store and solely to be borne by consignor.

The abnormal loss should be adjusted before ascertaining the result of the consignment. The valuation of abnormal loss is done on the same basis as the unsold stock is valued.

Here 1,000 typewriters costing Rs. 250 each are sent on consignment basis and Rs. 10,000 is spent for
freight etc., 20 typewriters are damaged in transit beyond repair.

The cost of the consignment of 1,000 typewriters = 1,000 × 250 + 10,000 = Rs. 2,60,000

The amount of loss = the cost of the 20 typewriters = (2,60,000/1,000) × 20 = Rs. 5,200

Consignment is the act of consigning, which is placing any material in the hand of another, but retaining ownership until the goods are sold or person is transferred. Consigning goods at invoice price aims to achieve the following merchandising objectives:
1. Increase turnover
2. Push old stocks
3. Clear old inventory for new ones
4. Promote another goods (tie up with consigned goods), and
5. Save storage space (producer/distributor pass storage/handling cost to wholesaler/retailer)
Here cost of goods sent on consignment = 1,80,000
Profit = 20% of invoice price
Let the invoice price be x
So profit = 20% of x
And cost of goods = x – 20% of x = 0.8x = 1,80,000
So invoice price = x = 1,80,000/0.8 = Rs. 2,25,000

Consignment is the act of consigning, which is placing any material in the hand of another, but retaining ownership until the goods are sold or person is transferred. A joint venture takes place when two parties come together to take on one project.

Here A bought goods of the value Rs. 10,000 and consigned them to B to be sold on joint venture .

Here the cost of goods sent on consignment = Rs. 10,000 which is the cost of consignment.

A draws bill on B for 80% of the cost of consignment, thus the amount of the bill drawn will be = 80% of 10,000 = Rs. 8,000.

Sometimes, acceptor of a bill finds himself unable to meet his acceptance on the due date. So he may approach the drawer of the bill before the maturity date arrives, to cancel the old bill and draw a new bill with extended date. The acceptor in this case will of course have to pay interest for the extended period.

Here A’s acceptance to B for Rs. 2,500 is discharged by a cash payment of Rs. 1,000 and a new bill is drawn for the balance plus Rs. 50 for interest.

Total amount of the old bill = 2,500
Amount paid in cash = Rs. 1,000
Amount due = Rs. 1,500
Interest on renewable = Rs. 50
So the amount of the new bill = 1500 + 50 = Rs. 1550

Sale or return basis is an arrangement by which a retailer pays only for goods sold, returning those that are unsold to the wholesaler or manufacturer. The customer do not pay for the goods until they confirm to buy. If they do not buy, those goods will return to us goods on the ‘sale or return’ basis will not be treated as normal sales and should be included in the closing inventory unless the sales have been confirmed by customer . When goods are sent on approval basis then at the end of the financial year the goods lying with customers will be valued at cost or market price whichever is less.

Here Mohan sent goods costing Rs. 3,500 at profit of 25% on sale to Sohan on sale or return basis of which Sohan return goods costing Rs. 800. At the year end the remaining goods were neither returned nor approved by him.

Here as No confirmation has been received from Sohan till 31st Dec, 2011. So the goods will be included in the closing inventory at cost or market price whichever is lower.

Cost of goods sent by Mohan = Rs. 3,500
Cost of goods returned by Sohan = Rs. 800
So cost of goods still lying with Sohan = 3,500 – 800 = Rs. 2,700

Average Profits Method:
Under this method goodwill is calculated on the basis of the average of some agreed number of past years. The average is then multiplied by the agreed number of years. This is the simplest and the most commonly used method of the valuation of goodwill.

Goodwill = Average Profits × Number of years of Purchase

Here goodwill is to be calculated on purchase of two years profit.

Profits of last three years are Rs. 43,000; Rs. 38,000 and Rs. 45,000

Average profit = (43,000 + 38,000 + 45,000)/3 = Rs. 42,000

Goodwill = 42,000 × 2 = Rs. 84,000

Share forfeiture is the process by which the directors of a company cancel the power of shareholder if he does not pay his call money when the company demands for it.
When shares issued at par are forfeited the accounting treatment will be as follows:

(i) Debit Share Capital Account with amount called up (whether received or not) per share up to the time of forfeiture.

(ii) Credit Share Forfeited A/c. with the amount received up to the time of forfeiture.

(iii) Credit ‘Unpaid Calls A/c’ with the amount due on forfeited shares. This cancels the effect of debit to such calls which take place when the amount is made due forfeited shares account will be credited by the amount which has been received in respect of forfeited shares.

Here Mr C paid application money @ Rs.2 per share but did not pay the allotment money so 30 shares held by him was forfeited.

Thus amount to be transferred to the shares forfeited account will be = 30 × 2 = Rs. 60

If any amount has been called by the company either as allotment or call money and a shareholder has not paid that money, this is known as calls in arrears.

If any call has been made but while paying that call, some shareholders paid the amount of the rest of calls also, then such amount will be called as calls in advance.

Calls in advance and calls an arrears are not entitled for any dividend declared by the company.

Here Equity share capital called up = Rs. 5,00,000

Calls in arrear = Rs. 40,000

Calls in advance = Rs. 25,000

Thus the dividend will be payable by the company on called up capital-calls in arrear which is Rs. 5,00,000 – 40,000 = Rs. 4,60,000

Dividend payable = 15% of 4,60,000 = Rs. 69,000

Sometimes it is decided by the existing partners to change their Profit sharing ratio. This change may result in gain to a few partners and loss to others. The partners who are going to gain due to this change in the profit sharing ratio should compensate the sacrificing partner/partners. Hence for this purpose a few adjustments have to be made in the books of the firm. A Change in the profit sharing ratio of the firm means that gaining partner is going to purchase from the sacrificing partner his share of profits. The gaining partner must compensate the sacrificing partner by paying the sacrificing partner the proportionate
share of goodwill which is equal to share gained by him.