The concept of 'Fund Based Accounting' refers to the accounting whereby receipts and income relating to a particular fund are credited to that fund any payments and expenses are debited to it. Credit balance of te Fund Account is show on the liabilities side of the Balance Sheet.

Format Cash Flow from Operating Activities

For the calculation of Proposed Dividend during the current year the proposed dividend account is to be prepared as follows:

Proposed Dividend Account

For the calculation of Provision for Taxation made during the current year the provision of Taxation account is to be prepared as follows:

Provision for Taxation Account

The type of plan that is time bound and linked with measurable outcomes is 'Objective'. The objectives define in quantitative terms the specific desired results that are to be achieved within a given period of time.

Interest on capital is an expense to the firm and is debited to the profit and loss appropriation account. Interest is payable to the partners and hence, the partner's capital account is credited with the amount of interest. In case of loss, no interest will be allowed on capital.

Average Profit Method: Under this method goodwill is calculated on the basis of the average profit of previous years. The average profit is multiplied by the number of year’s purchase.

Goodwill = Average Profit x Number of Years Purchase

Example: Calculate goodwill at twice the average profits of last four years’ profits. The profits of the last four years were:

1. Rs. 27,000

2. Rs. 39,000

3. Rs. 16,000 (Loss)

4. Rs. 40,000

Solution: Total Profit for last four years = Rs. 27,000+ Rs. 39,000-Rs. 16,000+Rs. 40,000 = Rs. 80,000

Average Profit = Rs. 80,000/4 = Rs. 20,000.

Goodwill = Rs. 20,000 x 2 = Rs. 40,000.

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Called-up capital According to Section 2(15) of the Companies Act, 2013, ‘called-up capital’ means such part of the capital, which has been called for payment. Thus, it means the amount of nominal (face) value called-up by the company to be paid by the shareholders towards the share capital.

Sacrificing ratio is the ratio where the old partners give their consent to forego their share of gains into the new partner. The forego (sacrifice) by a partner is equivalent to:

Sacrificing ratio is computed during the time of addition or admission of a new associate partner. It is the portion in which old partners forego their share to the new associate.

A new partner is needed to :

• Recompense the old partners for their forfeiture of share in the gains of the enterprise for which he gets in a supplement amount known as goodwill or premium

This ratio is normally given as consented among the partners which can be the old ratio, equal amount of sacrifice or a defined ratio. The difficulty appears where the ratio in which the novice partner obtains his share from the old partners is not defined. Rather, the NPSR (new profit sharing ratio) is provided. In such a scenario, the sacrificing ratio is to be functioned out by subtracting each associate partner’s new share from his old share.

Paid-up share capital According to Section 2(64) of the Companies Act, 2013, ‘paid-up share capital’ or ‘share capital paid-up’ means the amount that the shareholder has paid and the company has received against the amount ‘called up’ against the shares towards share capital.

1. In order to issue the shares at a price less than the face value, the company has to get permission from the relevant authority. For seeking permission, they should call and upon a general meeting and discuss and authorize the matter in that meeting.
2. There is a cap on the rate of discount. A company cannot issue any shares at more than 10% discount.
3. The company should issue the shares within 60 days of receiving permission from the relevant authority. In certain cases, the company can extend this time frame after getting permission in the permission.
4. The company cannot issue these shares before passing of 1 year from the date of commencement of business.
5. The shares must belong to the same class of shares which are already available in the market. For example, if the has previously issued Equity shares then this time also, the company has to issue Equity shares only.
6. Also, the company has to acquire the sanction by the Central Government after getting approval from the general meeting.

Face Value

In case of a public limited company the liability of the shareholder is to pay up to the Face value of shares. The company can at any time ask the shareholders to pay the unpaid calls on the shares.  In case of loss, shareholders are not liable to pay more than the nominal value of shares.Hence, its said that the liability of the shareholders is limited to the unpaid calls or nominal value of the shares.

Liability of a shareholder is limited to ……………… of the shares allotted to him 

Face value

Employee Stock Option Plan or ESOP is wherein company issues shares to its employees at a price that is lower than the market price. Employee gets an option to execute the offer with an objective of motivating employees to perform better and promote a sense of ownership.

Employee Stock Option Plan or ESOP is wherein company issues shares to its employees at a price that is lower than the market price. Employee gets an option to execute the offer with an objective of motivating employees to perform better and promote a sense of ownership.