Owner’s capital refers to the sum of the business resources owned by the business owners. It is calculated
through the subtraction of assets from liabilities. When a business pays all its debts, the amount remaining
belongs to the business owner and it is the one that is referred to as Owners Capital or Owners Equity.
Formulas of closing capital :
closing capital =
opening capital + profit OR
opening capital + profit + additional capital – drawings OR
closing assets - closing liabilities
here opening capital = 300000
capital introduction during the year = 200000
drawings = 1500 × 12 = 18000
closing capital = 450000
profit/(loss) for the year = closing capital-opening capital-capital introduced during the year + drawings = 4,50,000 – 3,00,000 – 2,00,000 + 18,000 = Rs. (32,000) loss.

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 company forfeited 1,000 shares of Rs.10 each held by Mr. John for non-payment of allotment money of Rs. 4 per share. The called-up value per share was Rs. 8. So the amount debited to share capital will be = number of shares forfeited × called up value per share = 1,000 × 8 = Rs. 8,000

Money paid to MTNL Rs. 10,000 is one time payment for installation and this amount will be give benefit for more than one accounting period. Therefore, this will be treated as an asset.

Building improvements are capital events that materially extend the useful life of a building or increase
the value of a building, or both. A building improvement should be capitalized as a betterment and recorded
as an addition of value to the existing building .
Expenditures to be capitalized as improvements to buildings include
• Additions to buildings, such as expansions, extensions, enlargements, etc.
• Installation or upgrade of plumbing and electrical wiring.
• Installation or upgrade of window or door frames, upgrading of windows or doors, built-in closets and cabinets, etc.
• Interior renovation associated with casings, baseboards, light fixtures, ceiling trim, etc.
• Exterior renovation, such as installation or replacement of siding, roofing, masonry, etc.
Here Mohan renovates some of the old cabins to increase some space. The amount spent for such
renovation will be capitalized and thus the amount to be charged to profit and loss account will be NIL.

Closing inventory means the value and quantity of inventory on hand at the end of an accounting period.

Here goods purchased = Rs. 1,00,000

Sales = Rs. 90,000

Gross profit margin = 20% on sales = 20% of 90,000 = Rs. 18,000

Closing inventory = opening in ventory + purchases + gross profit – sales = Nil + 1,00,000 + 18,000 – 90,000 = Rs. 28,000

A transaction relating to bank has to be recorded in both the books i.e. Cash Book and Pass Book but sometimes it happens that a bank transaction is recorded only in one book and not recorded simultaneously in other book this causes difference in the two balances. To reconcile the balances we prepare bank reconciliation statement. A Bank reconciliation is a process that explains the difference between the bank balance shown in an organisation’s bank statement, as supplied by the bank, and the corresponding amount shown in the organization’s own accounting records at a particular point in time

XYZ & Company employs a team of ten workers who were paid Rs.1,000 each in the yearending 31st
December, 2010. So the total amount of salaries for the year 2010 will be = 10 × 1,000 = Rs. 10,000. At
the start of year 2011, the company raised salaries by 10%. Thus the salaries for the year ended 31st
december 2011 will be = 10,000 + 10% of 10,000 = 11,000.

Gross profit is a company’s revenue minus its cost of goods sold. Gross profit is a company’s residual profit after selling a product or service and deducting the cost associated with its production and sale.Cost of goods sold is the direct costs attributable to the production or purchase of the goods sold by a company. It excludes indirect expenses such as distribution costs and sales force cost.

Cost of goods sold in the above case = opening inventory + purchases + carriage-closing inventory = 2,50,000 + 2,00,000 – 50,000 = Rs. 4,00,000.

Gross profit = sales-cost of goods sold = 5,00,000 – 4,00,000 = Rs. 1,00,000

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. 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 = 5,00,000 Profit = 25% of cost price Invoice value = 5,00,000 + 25% of 5,00,000 = Rs. 6,25,000

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