JAIIB important topics

1. DBF/JAIIB – Nov 2017
18th Nov 17
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2. Important Topics
1. Rule of 72 and 69
2. Trial Balance
3. Types of Errors
4. Ratio Analysis
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3. Important Topics
6. Capital & Revenue expenditure / Receipt , Deferred revenue
expenditure
7. GAAP –
6. Accounting Concepts and Conventions
7. Accounting Standards
8. BRS – Bank Reconciliation Statement
9. Depreciation and its types
10. Sum of digits methods
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4. Important Topics
11. Terminologies
1) Direct Quote
2) Indirect Quote
3) Limited liability
4) Unlimited liability
5) Holding company
6) Subsidiary company
7) Shares issued at discount, par, premium
8) Under subscription, over subscription
9) Sweat equity – issued to employees
10) Forfeit of shares
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5. Important Topics
11. Terminologies
11. Cost of goods sold
12. MoA, article of association,
13. Floatation of public company
14. Overhaul of machine
15. Fictitious asset
16. Capital Reserves
17. Capital Redemption Reserves
18. Bonds and types of bonds
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6. Important Topics
11. Capital Classification
 Authorized
 Issued
 Subscribed
 Called up
 Paid up
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7. Important Topics
 Rule of 72 and 69
 http://accountsclass.com/what-is-rule-of-72/
 http://accountsclass.com/what-is-rule-of-69/
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8. Important Topics
 Trial Balance
 http://accountsclass.com/what-is-trial-balance-and-trial-balance-problems
/
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9. Important Topics
1. Ratio Analysis
1. Current Ratio
2. http://accountsclass.com/what-is-current-ratio/
3. Debt to Equity Ratio
4. http://accountsclass.com/what-is-debt-to-equity-ratio/
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10. Important Topics
Types of Errors
1. Clerical Errors
1. Errors Of Omission –
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
2. Errors Of Principle
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11. Important Topics
Types of Errors
1. Clerical Errors
1. Errors Of Omission –
Cash paid to the suppliers has been entered in the payment side of the cash book but it will
not be entered in the debit side of the suppliers account.
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
2. Errors Of Principle
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12. Important Topics
Types of Errors
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission –
Entered wrongly, partially or incorrectly - purchase of Rs.430 may be entered in the Purchase a/c as Rs.340
- Wrong casting or carry forward of a subsidiary book. Casting refers to the process of totalling the
daybooks periodically. A mistake in relation to totalling is called ‘error in casting’(the total of a page may
be Rs.235 and carried forward to the next page as Rs.325) - purchase of goods from Mr. Raj for Rs.1000 is
debited to his account [instead of crediting]
3. Compensating Errors
4. Errors Of Duplication
2. Errors Of Principle
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13. Important Topics
Types of Errors
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission
3. Compensating Errors –
Debit of one account is neutralized by an over credit in some other account to the same extent –
if tax paid Rs.2, 500 is debited in Tax a/c as Rs.3, 000 and interest received Rs.3, 500 is credited
in the interest a/c as Rs.4, 000, the excess debit of Rs.500 in tax a/c is compensated by an excess
credit of Rs.500 in interest a/c.
4. Errors Of Duplication
2. Errors Of Principle
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14. Important Topics
Types of Errors
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
Entering 2 times
2. Errors Of Principle
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15. Types of Errors
1. Clerical Errors
1. Errors Of Omission
2. Errors Of Commission
3. Compensating Errors
4. Errors Of Duplication
3. Errors Of Principle -
Wrong allocation between capital and revenue expenditure, or wrong valuation of assets.
For example, debiting the wage account instead of machinery account for the wage paid to the mechanics
used for the installation of machine and debiting the customer's account instead of cash account for the cash
sales made
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16. GAAP
 GAAP - Generally Accepted Accounting Principles.
 http
://accountsclass.com/what-are-gaap-generally-accepted-accounting-principles
/
 Accounting concepts and conventions
 http://accountsclass.com/accounting-concepts/
 MCQs - http://accountsclass.com/mcq-5-accounting-concepts-and-conventions
/
 Accounting Standards
 http://accountsclass.com/what-are-accounting-standards/
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17. BRS
 http://accountsclass.com/what-is-bank-reconciliation-statement-brs
/

18. Capital Classification
 Authorized Capital
 Issued Capital
 Subscribed Capital
 Called up Capital
 Paid up Capital
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19. Share Capital, the company should specifically state:
– Authorized capital
– 1 crore shares of Rs.10 each 10,00,00,000
– Issued capital
– 25 lac shares of Rs.10 each 2,50,00,000
– Subscribed capital
– 24 lac shares of Rs.10/- each 2,40,00,000
– Called up
– 24 lac shares-Rs.5 each called 1,20,00,000
– Less calls in arrears
– 50000 shares of Rs.2 each 1,00,000
– Paid up capital 1,17,50,000
– Forfeited shares account 1,50,000

20. Depreciation
Depreciation MCQs
http://accountsclass.com/1070-2/
Depreciation types
 Straight Line Method: This method is suitable for asset depreciate for lapse of time, such as
patents.
 Diminishing Value Method: In this method annual depreciation is calculated on the opening
balance of the Asset Account and it reduces year by year. This method is suitable for
exhausting and costly assets like plant and machinery.
 Depletion Method: This method is applicable for assets of wasting nature and also for
intangible assets such as mines, patents, copyrights etc.
 Sinking Fund Method: According to this method the amount of depreciation is invested in
interest earning securities.

21. Depreciation
 Sum of the years digit method
 Machine Hour Rate Method: This method is used for machines where
productivity is relevant in their performance and in the case of machines with
high cost.
 Revaluation Method: In the assets are revalued each year. The method is
normally adapted to charge depreciation on numerous inexpensive fixed
assets like small tools, live stock. Excess of the opening over the closing
inventory thus gives the periodic depreciation expenses.
 For example, if the value of tools at the beginning of the year was Rs. 8,000, during
the year tools worth Rs. 6,000 were purchased more and when at the end
revaluation was undertaken it amounted to Rs. 11,000. The amount of depreciation
for the year shall be as under:
 (Rs. 8,000 + Rs. 6,000) - Rs. 11,000
 =Rs. 14,000 - Rs. 11,000
 = Rs. 3,000
 Insurance policy method: In this method annual depreciation amount is
invested as the payment to an insurance policy as premium.

22. Terminologies – Company Accounts
 Limited liability
 Unlimited liability
 Holding company
 Subsidiary company
 Shares issued at discount, par, premium
 Under subscription, over subscription
 Sweat equity – issued to employees
 Forfeit of shares
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23. Subsidiary Books
 Subsidiary Books are those books of original entry in which
transactions of similar nature are recorded at one place and in
chronological order. In a big concern, recording of all transactions
in one Journal and posting them into various ledger accounts will
be very difficult and involve a lot of clerical work.
 This is avoided by sub-dividing the journal into various subsidiary
journals or books. The subdivisions of journal into various subsidiary
journals for recording transactions of similar nature are called as
‘Subsidiary Books.’
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24. Types of Subsidiary Books
a) Purchases Day Book – for recording credit purchase of goods only. Cash purchase or
assets purchased on credit are not entered in this book.
b) Sales Day Book – for recording credit sales of goods only. Assets sold or cash sales are not
recorded in this book.
c) Purchases Returns Book – for recording the goods returned to the suppliers when
purchased on credit.
d) Sales Returns Books – for recording goods returned by the customers when sold on credit.
e) Bills Receivable Book – for recording the bills received [Bills Receivables] from customers
for credit sales.
f) Bills Payables Book – for recording the acceptances [Bills Payables] given to the suppliers
for credit purchases.
g) Cash Book – for all receipts and payments of cash.
h) Journal Proper – for recording any transaction which could not be recorded in the
above-mentioned subsidiary books. For example, assets purchased or sold on credit and
opening entry etc., are entered in this book
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25. 25
Cash Book
• It is a special journal where all cash receipts and cash payments are
recorded
• Types of cash book:
– Single column cash book – Only cash column
– Two column cash book- Cash with discount columns
– Three column cash book – Cash, Bank and Discount columns
Date Particula
rs
Cash Date Particulars CashDis-
count Bank
Dis-
count
Bank
DR CR

26. Technical terms
 Cost of goods sold
 Moa, article of association,
 Floatation of public company
 Overhaul of machine
 Fictitious asset
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27. Cost of goods sold
 Cost of goods sold is the accumulated total of all costs used to
create a product or service, which has been sold.
 COGS = Beginning Inventory + Purchases Made During the
Reporting Period - Ending Inventory.
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28. Overhaul of machine
 Process of restoring and maintaining an equipment, machine, or
system in a serviceable condition. Overhaul involves (1) partial or
complete disassembly of the item, (2) inspection to detect
damaged, defective, or worn parts, (3) repair or replacement of
such parts, and (4) reassembly, testing, and trial-run prior to
returning the item to its full operating level
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29. Memorandum of Association
(MOA)
 Memorandum of Association (MOA) is the supreme public
document which contains all those information that are required for
the company at the time of incorporation. It can also be said that,
a company cannot be incorporated without memorandum. At the
time of registration of the company, it needs to be registered with
the ROC (Registrar of Companies).
 It contains the objects, powers and scope of the company, beyond
which a company is not allowed to work, i.e. it limits the range of
activities of the company
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30. Articles of Association (AOA)
 Articles of Association (AOA) is the secondary document, which
defines the rules and regulations made by the company for its
administration and day to day management. In addition to this the
articles contain the rights, responsibilities, powers and duties of
members and directors of the company. It also includes the
information about the accounts and audit of the company
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31. Fictitious asset
 Asset created by an accounting entry (and included under assets in
the balance sheet) that has no tangible existence or realizable value
but represents actual cash expenditure
 Preliminary expenses(cost involved for the issue of shares/debentures
at the time of establishment), discount on issue of shares, debit
balance in the profit and loss
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32. Floatation, free float, public float
 Public float or free float represents the portion of shares of a
corporation that are in the hands of public investors as opposed to
locked-in stock held by promoters, company officers, controlling-
interest investors, or government.
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33. Wasting assets
 A wasting asset is a property or security that has a limited life and
loses value over its life.
 Mines, oil wells quarries
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34. General Reserves
 When any amount is kept separate by a company out of its profit
for future purpose then that is called as general reserves. In other
words the general reserves are the retained earnings of a company
which are kept aside out of company’s profits to meet future known
or unknown obligations. General reserves are the part of Profit and
Loss Appropriation Account
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35. Capital Reserves
 Any profit that arises in a company in special circumstances is
called capital reserves. In other words, any profit or gain that arises
other than routine business activities is treated as capital reserves.
Example
 Profit prior to incorporation of company:-
 Profit on sale of fixed assets :-
 Premium of issue of shares :-
 Premium of issue of debentures:-
 Profit on purchase of a business:-
 Profit on redemption of debentures:- .
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36. Capital reserves
 Any profit that arises in a company in special circumstances is called capital reserves. In other words, any profit or
gain that arises other than routine business activities is treated as capital reserves.
 Example
 Profit prior to incorporation of company:- Every limited company is legal and independent entity and does not
come in to existence till the certificate of incorporation is received from the registrar of companies. But any profit
earned by the company before its incorporation, shall be treated as capital reserves.
 Profit on sale of fixed assets :- Any company who sells any fixed assets and earns any profit on sale of the fixed
assets, shall be treated as capital reserves.
 Premium of issue of shares :- When shares are issued at a price of more than its face value then the extra money
received is called share premium. This share premium is also transferred in capital reserves account.
 Premium of issue of debentures:- When Debentures are issued at a price of more than its face value then the extra
money received, shall be transferred in capital reserves account.
 Profit on purchase of a business:- When any company purchases any existing business and the purchase price is
less than its net assets of the business firm then the difference between purchase price and net assets value, shall
be treated as capital reserves account.
 Profit on redemption of debentures:- When any profit is earned by a company at redemption of debenture then
this profit also shall be transferred to capital reserves account.
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37. Capital redemption reserve
 It is a reserve created when capital is redeemed.
 When shares are redeemed or bought back, the company is
required to either replenish the capital by issuing fresh shares in lieu
of the redeemed or bought back shares or to transfer their funds to
an account called the Capital Redemption Reserve (CRR)
 https://www.quora.com/What-is-the-logic-behind-the-creation-of-the-capital-
redemption-reserve
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38. 38
BRS - Causes of differences between cash book & pass book
Causes & position
of cash book
Effect in cash book (Debit balance) Effect in Pass book (credit
balance)
Cheques issued but not presented
for payment
Would immediately appear on the
credit side.
Balance would come down
No entry till it is presented for
payment
Cheques deposited into the bank
but not yet credited
Would immediately appear on the
debit side.
Balance would go up.
No entry till the cheques are
cleared.
Bank charges
Interest on overdraft
Amount paid by the bank on SI.
Dishonour of cheque deposited.
No entry till the customer gets the
intimation.
Debited in the pass book
immediately.
Balance would come down.
Interest credited by bank
Amount collected by bank on SI.
Direct credits recd by bank
No entry till the customer gets the
intimation.
Credited in the pass book
immediately.
Balance would go up.
Clerical Errors Over casting, under casting, wrong
entries etc
Wrong entries, wrong balancing
etc

39. BRS
Particulars
Balance as per cash book (+debit -credit)
ADD
•Interest credited by bank
•Direct credits received by bank
•Amount deposited but not recorded in cash book
Deduct
•Bank charges
•Interest on overdraft
•Dishonor of cheque deposited.
Adjusted Balance as per cash book (+debit or- credit)
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40. Important Topics - Calculation of forward rates
 Accounting equation
 Rectification of error
 Company accounts
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41. Important Topics
Terminologies
• Direct quote – The price of one unit of foreign currency in terms of local
currency.
– Us$ 1 = Rs.49.
• Indirect quote - The price of the local currency in terms of foreign
currency. (upto 1.8.93)
– Rs.1/- = $0.0200
• Some basic rate Arithmetic:
– Cross rate – Rate of Euro arrived through US $.
– Eg. 1 us$ =0 .70 euro 1 us $ = Rs.45.50 1 euro=?
– Value date –date when actual exchange of currency takes place.
•
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42. Bonds
• Bonds are negotiable promissory notes issued by Public/Pvt sector
companies, Govt or Govt agencies.
• They are debt instruments carrying a fixed rate of interest.
• They can be traded in the market.
• Bond terminologies:
– Face value – amt borrowed. Amount on the bond.
– Coupon rate – (interest rate mentioned on the instrument)
– Maturity – issued for a specified period. Date of maturity.
– Redemption value – the value which one gets on maturity.
– Market value - Price at which the bond is bought or sold.
– YTM - Its the rate of return wherein the present value of the promised cash flows
is equal to the purchase price.
•
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43. Types of bond
• Fixed rate bonds-interest rate constant throughout the period.
• Floating rate notes – Linked to reference rates such as LIBOR, MIBOR
etc.
• Zero coupon bonds – issued at a discount and redeemed at par.
• High yield bonds (junk bonds)- high risk and rated below investment
grade by credit rating agencies.
• Convertible bonds –option to convert to shares.
• Inflation-indexed bonds-both principal and interest is indexed to
inflation.
• Perpetual bonds – no maturity dates.
• Government bonds.(treasury bonds)
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44. Golden rules of accounting
 http://accountsclass.com/golden-rules-acounting/
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45. • Adjusting entries –
– Entries made for adjustment of receivables and payables for the
year in the final accounts.
• Closing entries –
– Entries made for transfer of all revenue items (income and
expenditure) to Trading and profit and loss account are called
closing entries.
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46. Capital and Revenue Expenditure
 http://accountsclass.com/capital-expenditure-revenue-expenditure
/
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47. Distinction between capital and revenue expenditure
Capital expenditure Revenue expenditure
Amount spent is usually large Amount spent is relatively small
The purpose is to improve o
enhance business or productive or
earning capacity
The purpose is to maintain the fixed
assets in good working condition,.
Benefit - Long duration Short duration
Non recurring Recurring
Shown is balance sheet Shown is profit and loss account
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48. Accounting Equation
 Assets = Capital + Liabilities
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49. Bank Balance Sheet - schedules
 http://accountsclass.com/format-of-bank-balance-sheet-format-of-banking-companie
/
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