Accounting Principles and Practice

In this accounting concept, assets are always recorded at acquisition cost or historical cost and that cost becomes the basis for all future accounting for the asset.

This accounting concept is used to calculate future value of present receiving.

According to the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), a company is defined as 'sick' when its accumulated losses erode 50% or more of its peak net worth. This 50% threshold is the legal criterion used to identify industrial sickness in India. The concept focuses on the extent of capital erosion rather than just absolute loss amounts. Companies meeting this threshold can be referred to BIFR for potential revival schemes.

Purchasing goods for cash merely converts one current asset to another. Selling goods on credit replaces cash with receivables. Converting debentures to equity affects non-current items. However, acquiring plant on account increases current liabilities without changing current assets, reducing the current ratio.

Profit earned prior to incorporation represents pre-incorporation earnings that legally belong to the company as it existed upon formation. Such profits are treated as capital reserve, not revenue reserve, because they arise from a period before the company's legal existence. Revenue reserves are created from post-incorporation trading profits distributable as dividends.

 Since in manufacturing concern, goods are produced by machine, it is a direct non-cash expense. Hence, it would be shown in debit side of manufacturing A/c.

 In this case, the amount of depreciation would be transferred to the debit side of Profit & Loss Account . No further adjustment is necessary, since the concerned asset would appear at the reduced value.

 The provisions are created for it. For ex; the provision of doubtful debts is not certain, as in,  how much the debtor would not be able to pay, but it is a contingency that some amount may not be paid by the debtors. So, a provision for doubtful debts is made.

 It is a sales returns as goods have come in. Suppose goods worth Rs 12,000 are sold to Mr C and he returns the goods worth Rs 1,000 to us, the goods worth Rs 1,000 are Returns Inwards as they have come in.

 In this method, the balance in the asset account would reduce to nil at the expiry of working life, as the depreciation is charged on original cost.

The accounting equation is Assets = Capital + Liabilities. Rearranging this gives Capital = Assets - Liabilities. Capital represents the owner's equity or net worth of the business. Drawings, credit, and expenses are distinct accounting concepts.

Because it comes under Trading a/c

Income represents the net result of revenue minus expenditure over a period. While revenue is the total inflow from business activities, income is what remains after deducting related expenses. Liabilities, assets, and dues are balance sheet items, not income statement components.

Using the accounting equation Assets = Capital + Liabilities: 100000 = 60000 + Liabilities. Therefore, Liabilities = 100000 - 60000 = 40000. This is a direct application of the fundamental accounting equation.