Table Of ContentModern Accountancy
Volume I
Third Edition
Modern Accountancy
Volume I
Third Edition
Mohammed Hanif
Sr. Professor of Accounting & Finance
St. Xavier’s College (Autonomous), Kolkata
Amitabha Mukherjee
Former Sr. Professor of Accounting & Finance
St. Xavier’s College (Autonomous), Kolkata
McGraw Hill Education (India) Private Limited
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Modern Accountancy (Volume I), 3e
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Preface
During the last few years a lot of changes have taken place in the world of accounting and finance,
particularly in India. The Companies Act, 2013 has already been implemented and accordingly different
professional institutes, and universities have changed their syllabi.
The business environment in India is changing at a very fast pace and is attracting foreign investors
as well as manufacturers. In the third edition of Modern Accountancy, much emphasis has been given
to ‘Accounting Standards’ which have been thoroughly incorporated in relevant chapters. The company
related chapters have been revised meticulously as per the provisions of the Companies Act, 2013,
Companies Rules 2014 and 2015.
Special emphasis has been given to the following chapters:
∑ Company: Introduction and Issue of Shares
∑ Accounting for Bonus and Rights Issue
∑ Redemption of Preference Shares
∑ Issue and Redemption of Debentures
The updated edition also comprises enriched web resources. New chapters on ‘Accounting
Standards’ and ‘Goods and Services Tax’ can be accessed via www.mhhe.com/hanifma-vol1.
After teaching Financial Accounting to various professionals, undergraduate and postgraduate
students for the past three decades, we are convinced that there is a need for a book with balanced text
and problems. Multiple-choice questions have been included at end of each chapter to test conceptual
clarity. In addition, scores of unsolved problems have been provided, with guide to answers.
We would like to thank the readers for overwhelming support showered over the last 25 Golden
years. Utmost care has been taken to make it an error free book, but if you still find any error please
email us at [email protected]. All suggestions are welcome.
We specially thank Mr. S. Rangarajan for typesetting, formatting this book and bearing with us.
Our students have always been our source of inspiration and happiness. Curiously, they never cease
to raise good points and we have tried to incorporate their points in this book.
AuThorS
Preface to the First Edition
In today’s ‘hi-tech’ competitive world of real business, finance and accounting have assumed critical
importance. Accounting is not merely a reckoning of debit or credit or a narration of the profit and loss
of an organisation. It is much more. In any business venture, a correct analysis of the financial indicators
are crucial to successful decision making. This is only possible if the accounts are maintained and
recorded well, properly verified, are up-to-date and accurate, and the financial information is presented
neatly and without confusion. Even a small error in the presentation of a report could sometimes lead
to a wrong business decision. In Modern Accountancy we have attempted to provide comprehensive
and balanced coverage of the various accounting concepts and procedures in a clear and unambiguous
manner.
The book has been designed to serve as a self-sufficient text for a first course in accountancy. We
have assumed that the student has limited exposure to business accounting. As such, we have taken
special care to develop the subject gradually and to ensure that all business terms, concepts and practices
are lucidly explained and well illustrated.
From our experience of teaching accountancy to undergraduate students of commerce, we found that
it is extremely important to reinforce the theoretical principles with actual practice. For this purpose,
we have included about 500 fully solved problems interspersed within the text. In addition, nearly 350
unsolved problems have been graded with different levels of difficulty. While selecting problems to be
included in the book, we kept in mind two important factors: First, that the problems clearly illustrate
the concepts and procedures discussed earlier. Second, they serve as practice exercises for preparation
of various university and professional examinations in accountancy. For the latter case, a number of
problems that we have chosen have actually appeared in different examinations in the recent past.
We hope the addition of such a large number of problems would enable students acquire a clear and
thorough understanding of the principles, procedures and practices of accountancy, and also acquaint
them with the nature and type of problems they are likely to encounter in their examinations and later
in their professional career.
In our endeavour to make the book more oriented towards students and fully meet their requirements,
some important topics have been dealt in greater depth. Based on our teaching experience and interaction
with students, we identified topics that students find difficult to understand and have given such topics
more elaborate treatment. These topics have also been profusely illustrated with solved problems. Some
of these topics include: Inventories, Depreciation, Partnership (six full chapters have been devoted
to this important topic), Redemption of Preference Shares and Debentures, and Company Accounts.
Preface to the First Edition
viii
Specialised areas like Accounting for Non-Trading Concerns, Cooperative Societies, and Municipalities
have also been discussed in sufficient detail.
We have taken sufficient care to ensure that the book meets the needs of a variety of students.
Undergraduate students of commerce (both B Com (Pass) and B Com (Hons)), those appearing for
professional examinations of the Institute of Chartered Accountants of India (ICAI), Institute of Cost
and Works Accountants of India (ICWAI), Institute of Company Secretaries (ICSI) and Institute of
Chartered Financial Analysts of India (ICFAI), and M Com students would benefit equally.
A number of colleagues and friends in the profession helped us in the preparation of this book. We
would like to express our gratitude to all of them. Mr. S. Rangarajan, Director, LOGS, took special
interest in the typesetting and formatting of the book. Much of the attractiveness of the presentation and
layout of the book is due to his untiring efforts.
While we have taken all possible care to see that the book has no errors, we would be grateful if any
mistakes or lacunae are pointed out. Suggestion for further improvement would be more than welcome
from both fellow teachers and students.
AuThorS
Brief Contents
1. Introduction to Accounting 1.1–1.10
2. Double Entry System 2.1–2.10
3. Accounting Cycle 3.1–3.44
4. Accounting Concepts and Conventions 4.1–4.8
5. The Trial Balance 5.1–5.18
6. The Cash Book 6.1–6.24
7. Bank Reconciliation Statement 7.1–7.36
8. Bases of Accounting 8.1–8.14
9. Inventories 9.1–9.28
10. Concept and Accounting of Depreciation 10.1–10.44
11. Reserves and Provisions 11.1–11.28
12. Capital and Revenue 12.1–12.8
13. Revenue Recognition 13.1–13.10
14. Bills of Exchange 14.1–14.52
15. Average Due Date and Account Current 15.1–15.20
16. Consignment Accounts 16.1–16.58
17. Joint Venture Accounts 17.1–17.34
18. Final Accounts of Trading Concern 18.1–18.108
19. Rectification of Errors 19.1–19.40
20. Manufacturing Account and Cost Statement 20.1–20.14
21. Non-profit Organisation 21.1–21.70
22. Incomplete Records 22.1–22.64
23. Accounting for Sale on Approval 23.1–23.12
Brief Contents
x
24. Insurance Claims 24.1–24.44
25. Self-Balancing Ledger 25.1–25.38
26. Profit and Loss Appropriation Account 26.1–26.40
27. Change in the Profit-sharing Ratio 27.1–27.20
28. Admission of a Partner 28.1–28.74
29. Retirement of a Partner 29.1–29.70
30. Death of a Partner 30.1–30.24
31. Accounting for Dissolution of the Firm 31.1–31.56
32. Amalgamation of Firms 32.1–32.26
33. Conversion of Partnership into a Limited Company 33.1–33.26
34. Accounts of Professional Firms 34.1–34.12
35. Accounting for Cooperative Societies 35.1–35.18
36. Accounting of Local Governments: Municipalities, Panchayats 36.1–36.18
37. Company: Introduction and Issue of Shares 37.1–37.82
38. Accounting for Bonus and Rights Issue 38.1–38.32
39. Redemption of Preference Shares 39.1–39.42
40. Issue and Redemption of Debentures 40.1–40.90
41. Introduction to Accounting Standard* 41.1–41.8
42. Goods and Services Tax*
*Chapters 41, 42 can be accessed at: www.mhhe.com/hanifma-vol1
