Generally accepted accounting principles

Generally Accepted Accounting Principles
Let us imagine a situation where you are a proprietor and you take copies of your books of
account to five different accountants. You ask them to prepare the financial statements on the
basis of the above records and to calculate the profits of the business for the year. After few
days, they are ready with the financial statements and all the five accountants have calculated
five different amounts of profits and that too with very wide variations among them. Guess in
such a situation what impact would it leave on you about accounting profession. To avoid this, a
generally accepted set of rules have been developed. This generally accepted set of rules
provides unity of understanding and unity of approach in the practice of accounting and also in
better preparation and presentation of the financial statements.
Accounting is a language of the business. Financial statements prepared by the accountant
communicate financial information to the various stakeholders for decision-making purpose.
Therefore, it is important that financial statements prepared by different organizations should be
prepared on uniform basis. Also there should be consistency over a period of time in the
preparation of these financial statements. If every accountant starts following his own norms and
notions for accounting of different items then there will be an utter confusion. To avoid
confusion and to achieve uniformity, accounting process is applied within the conceptual
framework of ‘Generally Accepted Accounting Principles’ (GAAPs). The term GAAPs is used
to describe rules developed for the preparation of the financial statements and are called
concepts, conventions, postulates, principles etc. These GAAPs are the backbone of the
accounting information system, without which the whole system cannot even stand erectly.
These principles are the ground rules, which define the parameters and constraints within which
accounting reports are generated. Accounting principles are basic norms and assumptions on

which the whole accounting system has been developed and established. Accountant also
adheres to various accounting standards issued by the regulatory authority for the standardization
of accounting policies to be followed under specific circumstances. These conceptual
frameworks, GAAPs and accounting standards are considered as the theory base of accounting.
ACCOUNTING CONCEPTS
Accounting concepts define the assumptions on the basis of which financial statements of
abusiness entity are prepared. Certain concepts are perceived, assumed and accepted in
accounting to provide a unifying structure and internal logic to accounting process. The word
concept means idea or notion, which has universal application. Financial transactions are
interpreted in the light of the concepts, which govern accounting methods. Concepts are those
basic assumptions and conditions, which form the basis upon which the accountancy has been
laid. Unlike physical science, accounting concepts are only result of broad consensus. These
accounting concepts lay the foundation on the basis of which the accounting principles are
formulated.
Accounting principles
“Accounting principles are a body of doctrines commonly associated with the theory and
procedures of accounting serving as an explanation of current practices and as a guide for
selection of conventions or procedures where alternatives exits.”Accounting principles must
satisfy the following conditions:
1. They should be based on real assumptions;
2. They must be simple, understandable and explanatory;
3. They must be followed consistently;

4. They should be able to reflect future predictions;
5. They should be informational for the users.
Accounting Conventions
Accounting conventions emerge out of accounting practices, commonly known as accounting
principles, adopted by various organizations over a period of time. These conventions are
derived by usage and practice. The accountancy bodies of the world may change any of the
convention to improve the quality of accounting information. Accounting conventions need not
have universal application.
The terms ‘accounting concepts’, ‘accounting principles’ and ‘accounting conventions’ have
been used interchangeably to mean those basic points of agreement on which financial
accounting theory and practice are founded.
STEP BY STEP GUIDE TO CONVERT LLP TO PRIVATE LIMITED COMPANY
While considering the scope of expansion of business, the shortcoming of the existing structure
may act as hindrance whereas remarkable benefits offered by another type of organization which
draws the attention of the promoters to consider the option to change from one business type to
another. An LLP can be converted into Private Limited Company by complying with the
Provisions prescribed in this regard. The conversion of the LLP into Private Limited Company is
combined with various factors such as the transfer of Goodwill of the LLP to the company, main
operations of the LLP etc. Indian Companies Act, 2013 has introduced Section 366 providing
that any Partnership Firm, Limited Liability Partnership, cooperative society, society or any
other business entity formed under any other law consisting of seven or more members may at

any time register under Companies Act, 2013 as an unlimited company, or as a company limited
by shares, or as company limited by guarantee. Procedure in this regard is provided under The
Companies (Authorized to Register) Rules, 2014. The conversion of Limited Liability
Partnership into Private Limited Company with share capital can be processed in following way:
Requisites to be complied before applying for conversion: The Primary condition for the
conversion of LLP into Private Company is seven or more members in the LLP at the time of
conversion. Where at the time of conversion, the number of Partners is not as per the limit
prescribed, required procedure is to be followed to fulfill this requirement before commencing
the procedure of Conversion. After ensuring the required number of members in the LLP, the
consent of majority of Partners is required to be accorded by conducting General Meeting of
Partners for the proposed conversion of LLP into Private Limited Company. Consent of Secured
Creditors of the LLP shall also be accorded for the Conversion. In addition to above, a notice
seeking any objection for the proposed conversion is to be given in News Papers (One English
and one in vernacular language). DSC and DIN of the proposed Directors: In case, where the
proposed directors in the company do not hold Director Identification Number (DIN), one shall
apply for the same in e-from DIR - 3 by submitting requisite Documents along with a
Certification from Practicing Professional. Procedure of Conversion: Application for Name
Approval: Before making an application for Incorporation of Private Limited Company, an
application seeking name approval for the proposed company shall be made with the Ministry of
Corporate Affairs by filing e-form INC-1. The intention of the conversion of LLP into Private
Limited Company shall be expressed in the form by providing required information.The name
once approved, will be valid for 60 days from the receipt of approval from the Ministry. Filing of
e-Form URC-1: E-Form URC - 1 is prescribed for Application by a company for registration

under section 366. Here, the word 'Company' includes LLP, which applies for registration under
Section 366 of Indian Companies Act, 2013.
Following Documents/information to be furnished for filing e-form URC-1
1)A list showing the names, addresses, and occupations of all persons named therein with details
of shares held by them respectively, classifying the shares held as cash or other than cash
separately, distinguishing, in cases where the shares are numbered, each share by its number,
who on a day, not being more than six clear days before the day of seeking registration, were
partners of the Limited Liability Partnership;
2. A list showing the particulars of persons proposed as the first directors of the company, their
names, including surnames or family names, the DIN, residential addresses and their interests in
other firms or bodies corporate along with their consent to act as directors of the company;
3. An affidavit from each of the persons proposed as the first directors, that he is not disqualified
to be a director under sub section (1) of section 164 and that all the documents filed with the
Registrar for registration of the company contain information that is correct and complete and
true to the best of his knowledge and belief;
4. A list containing the names and addresses of the Partners of the Partnership Firm or Limited
Liability Partnership Firm.
5. A Copy of LLP Agreement and Certificate of Registration duty verified by at least two
designated partners of LLP;
6. A statement specifying the following particulars: - The nominal share capital of the company
and the number of shares into which it is divided; The number of shares taken and the amount
paid on each share; The name of the company, with the addition of the word "Limited" or
'Private Limited" as the case may require, as the last word or words thereof; Written consent or

No Objection Certificate from all the secured creditors of the applicant. Written consent from the
majority of members whether present in person or by proxy at a general meeting agreeing for
registration under Section 366 of Indian Companies Act, 2013.
7. Statement of accounts of the company, prepared not later than 30 days preceding the date of
application duly certified by auditor, if applicable;
8. Declaration of two or more directors verifying the particulars of all members/partners; 9.
Copy of Newspaper advertisement;
10. No objection certificate from the concerned Registrar of Firms or Registrar of
Companies(LLP); 11. Declaration of two or more directors verifying the particulars of all
members/partners; Filing of other e-Forms: The company is required to file e-forms INC - 7,
DIR - 12, INC - 22, as linked forms along with e-form URC - 1. The attachments in these forms
are same as required while filing application of incorporation of normal companies such as MoA
- AoA, DIR - 12, INC - 9, etc. While drafting the MoA, the object of the company must include
the object of conversion of the LLP into Private Limited Company. After due verification of all
aspects of the application made for conversion of Limited Liability Partnership into Private
Limited Company, a Certification of Incorporation will be issued by the Registrar of Companies.
Once registration under section 367 of Indian Companies Act, 2013 is obtained, intimation in
this regards shall be given within 15 days of such registration to the concerned Registrar of
Companies (LLP) under which it was originally incorporated and registered.

THE CONCEPT OF ONE PERSON COMPANY (OPC)
One Person Company (OPC) is a new form of business which was introduced in India to enable
entrepreneurs doing business as sole proprietors to enter into a corporate framework. OPC is a
hybrid of sole proprietorship and company as forms of business. The minimum number of
persons required to form a company is two for a private company and seven for a public
company. An OPC is formed as a private company with just one person as the member. OPCs
nominate another person who will take over the business in case the owner of OPC dies. An OPC
can be started with a minimum paid up capital of Rs 1,000,000 and may either be a company
limited by share, a company limited by guarantee, or an unlimited company (Singh, 2013). This
concept was first introduced in the United Kingdom. Later, it spread to other parts of the world.
USA, Singapore, China, UAE are some of the countries, where one person companies can be
registered.
The OPC business model has certain advantages, which are not available to the sole
proprietorship business. The company status gives better credit worthiness to the business,
thereby offering more possibilities to raise finance. It widens the financial base for the business.
Loans are granted, based on the performance of the OPC and not on the owner’s background. In
India, loans are granted on priority basis to certain activities, determined by the Reserve Bank of
India. Normally, it includes agriculture, micro- and small-scale industries. If the OPC falls under
any of these categories, loan would be granted on priority basis to them, as well (The Institute of
Company Secretaries of India, 2014). As a company, OPC is a separate legal entity, which
means that the owner’s liability is limited. This is certainly the most significant advantage for the
proprietor. An OPC is also exempted from complying with many requirements, normally
applicable to other private limited companies, i.e. it does not have to conduct annual or

extraordinary general meetings. Only the resolution needs to be communicated by the member
and entered in the minutes book.
The sole proprietorship retail business would have several benefits if it it changed its legal form
and became an OPC. First of all, as it registers as a private company it widens its business
prospects. As a company, it can enter into joint ventures with domestic, as well as foreign firms.
The company form enhances its business status and it would be particularly helpful in getting
loans from banks and financial institutions. Having a strong financial base would help it acquire
franchises and enhance supply chain effectiveness.
CONCLUSION
The One Person Concept is yet to materialize in India, but once it does, it is expected to provide
an impetus to corporatization in the country. In the retail segment, where modern retailing is
intensifying, the OPC model would certainly provide the much needed thrust to small retailers.

Generally accepted accounting principles

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Generally accepted accounting principles