25 cardsCA Foundation
CA Foundation: Accounting Standards, Partnership & Mercantile Laws
Core concepts of accounting principles, partnership accounts, Indian Contract Act 1872, Sale of Goods Act, and Companies Act 2013 for ICAI CA Foundation.
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Accrual Concept vs Cash Basis of Accounting
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Terms in this deck (25)
1
Accrual Concept vs Cash Basis of Accounting
Accrual concept recognizes revenue when earned and expenses when incurred, regardless of cash receipt or payment. Cash basis recognizes transactions only when cash actually moves.
2
Prudence (Conservatism) Principle
Anticipate no future profits, but provide for all possible losses. Examples include valuing closing stock at lower of cost or net realizable value (NRV) and creating provisions for doubtful debts.
3
Capital vs Revenue Expenditure
Capital expenditure yields enduring benefits over multiple accounting periods (increases earning capacity, capitalized on balance sheet). Revenue expenditure maintains existing operations/assets and is charged to P&L.
4
Bank Reconciliation Statement (BRS): Timing Differences
BRS reconciles difference between Bank Book and Bank Passbook due to: cheques issued but not yet presented, cheques deposited but not yet cleared, direct debits/credits by bank.
5
Valuation of Inventory: AS 2
Inventories must be valued at the lower of historical cost and net realizable value (NRV). FIFO and Weighted Average Cost are permissible cost formulas; LIFO is not permitted under AS 2.
6
Depreciation: Straight Line Method (SLM) vs WDV
SLM: Equal depreciation charged every year on original cost. WDV (Written Down Value): Depreciation charged on diminishing book value at a fixed percentage; depreciation expense decreases annually.
7
Contingent Liability Definition & Disclosure
A possible obligation arising from past events whose existence will be confirmed only by uncertain future events outside the entity's control (AS 29). Disclosed in Notes to Accounts; not recognized in Balance Sheet.
8
Goodwill Valuation: Capitalization of Super Profits
(where Normal Profit ). .
9
Partnership: Sacrificing Ratio on Admission of Partner
. Used to share goodwill brought in cash by the newly admitted partner among existing partners.
10
Garner v. Murray Rule in Partnership Dissolution
Loss arising from the insolvency of a partner is a capital loss, which must be borne by the solvent partners in the ratio of their capitals as they stood on the date of dissolution (after adjusting for reserve/P&L, not realization loss).
11
Section 10 of Indian Contract Act 1872: Valid Contract
All agreements are contracts if made by free consent of parties competent to contract, for a lawful consideration and with a lawful object, and not hereby expressly declared to be void.
12
Consideration in Contract Law: Section 2(d)
When at the desire of the promisor, the promisee or any other person has done or abstained from doing, does or abstains, or promises to do. Key rule: Consideration must move at the desire of the promisor.
13
Doctrine of Privity of Contract
Only parties to a contract can sue and be sued on it; a stranger to contract cannot enforce it (e.g. Dunlop Pneumatic Tyre Co v Selfridge). Note: A stranger to consideration can sue if party to contract.
14
Coercion vs Undue Influence (Contract Act)
Coercion (Sec 15): Committing/threatening any act forbidden by IPC, or unlawful detaining of property. Undue Influence (Sec 16): One party is in position to dominate will of other and uses that position to obtain unfair advantage.
15
Fraud vs Misrepresentation (Sec 17 vs Sec 18)
Fraud requires intent to deceive (suggestio falsi, suppressio veri). Misrepresentation is innocent/unintentional false statement believed to be true. Both make contract voidable at option of aggrieved party.
16
Remedies for Breach of Contract: Hadley v. Baxendale
Damages recoverable: (1) Ordinary damages arising naturally from usual course of things; (2) Special damages within contemplation of both parties at time of contracting if special circumstances communicated.
17
Doctrine of Frustration of Contract (Sec 56)
An agreement to do an impossible act is void. If contract becomes impossible or unlawful after formation without fault of either party, the contract becomes void (e.g. destruction of subject matter).
18
Condition vs Warranty (Sale of Goods Act 1930)
Condition (Sec 12(2)): Stipulation essential to main purpose of contract; breach gives right to repudiate contract and claim damages. Warranty (Sec 12(3)): Collateral stipulation; breach gives right to damages only.
19
Doctrine of Caveat Emptor & Exceptions
'Let the buyer beware' (Sec 16). Buyer must inspect goods. Exceptions: buyer relies on seller's skill and judgement for specific purpose communicated, sale by description, sale by sample, fraud/latent defects.
20
Unpaid Seller's Right of Lien vs Stoppage in Transit
Lien: Right to retain possession of goods until price paid (requires actual possession). Stoppage in transit: Right to regain possession while goods in transit after buyer becomes insolvent.
21
Corporate Veil & Salomon v. Salomon Principle
A company is an independent legal entity separate and distinct from its members/shareholders (Salomon v Salomon & Co Ltd 1897). Corporate veil can only be lifted in cases of fraud, tax evasion, or enemy character.
22
Doctrine of Ultra Vires in Company Law
Any act done by a company beyond the powers given to it in the Objects Clause of its Memorandum of Association (MoA) is ultra vires and wholly null and void; it cannot be ratified even by unanimous consent of shareholders (Ashbury Railway).
23
Doctrine of Indoor Management (Turquand's Rule)
Persons dealing with a company are presumed to have read registered public documents (MoA, AoA), but are entitled to assume internal procedures and approvals have been complied with regularly (Royal British Bank v Turquand).
24
One Person Company (OPC) under Companies Act 2013
Section 2(62): A company that has only one person as a member. The sole member must be a natural person, Indian citizen, and resident in India, and must nominate another person in the MoA to act in case of death/incapacity.
25
Issue of Shares at Discount: Section 53 Prohibition
Companies Act 2013 strictly prohibits companies from issuing shares at a discount (any share issued at discount is void), except for Sweat Equity Shares issued under Section 54.
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