Advanced

Accountancy
Volume II
Other books by the same authors published by Vikas

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For B.Com., M.Com., CA, CS & ICWA Examinations

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Seventh Revised & Enlarged Edition, 2008
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 Advanced
Accountancy
Volume II

TENTH REVISED & ENLARGED EDITION

Dr S N MAHESHWARI
DIRECTOR GENERAL
DELHI INSTITUTE OF ADVANCED STUDIES, DELHI-110085
(Formerly, Principal, Hindu College, Delhi University &
Professor & Dean, Faculty of Commerce and Business Management, Goa University)

Dr S K MAHESHWARI
PROFESSOR
DIVISION OF ACCOUNTANCY AND LEGAL ENVIRONMENT,
MARSHALL UNIVERSITY,
HUNTINGTON (WV), USA

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Advanced Accountancy (Volume-II)

ISBN: 978-81259-3092-1

First Published 1984

Tenth Edition 2009
Reprinted several times
First Reprint 2015

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Copyright © Authors, 1984, 2009

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Printed in India.
 To
Aikansh, Sidharth, Saransh & Sneham
With Love
 Preface to the Tenth Edition

We feel indeed privileged to place before the esteemed readers the Tenth Revised and Enlarged Edition of
our book “Advanced Accountancy—Volume-II”. The heart-warming response given by the readers to
each new edition of the book is really a matter of great satisfaction and pleasure for us.
The new edition, besides maintaining the PLUS features of the Ninth Edition, viz., simplicity of
style, exhaustive text with plenty of illustrative material, helpful questions and problems for self-study,
has certain additional welcome features. These include the following:
• The book now covers all the more exhaustively the course content requirements of students
appearing at B.Com, M.Com and MBA examinations of different Indian universities and the
examinations conducted by different professional institutes, viz., Institute of Chartered
Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) and the Institute
of Cost and Works Accountants of India (ICWAI).
• Since the publication of the last edition, a number of developments have taken place in the
corporate accounting world, viz.,
— Enactment of the Companies (Amendment) Act 2006 and amendments in Schedule VI
to the Companies Act.
— Issue of Accounting Standard Interpretations for AS 7, AS 17, AS 18, AS 21, AS 22,
AS 23, AS 25 and AS 29.
— Issue of three new Accounting Standards AS 30, AS 31 and AS 32. This has taken the
total number of Accounting Standards, issued by the Institute of Chartered Accountants
of India, to 32.
— Withdrawal of AS 15: Accounting for Retirement Benefits in the Financial Statements
of Employers, w.e.f. December 6, 2006 and applicability of AS 15 (Revised 2005):
Employee Benefits, w.e.f. December 7, 2007.
— Issue of Guidance notes on ESOP and decision of Institute of Chartered Accountants
of India regarding convergence of Indian Accounting Standards with International
Financial Reporting Standards w.e.f. April 01, 2011.
— Enactment of the Reserve Bank of India (Amendment) Act 2006 and the Banking
Regulation (Amendment) Act 2007.
— Revision of norms regarding classification of advances and making provisions in case
of banking companies.
— Enactment of The Finance Act, 2008.
— Amendment to Bonus Issue Guidelines by SEBI effective from Feb. 3, 2009.
All these amendments have been incorporated at appropriate places in the book.
• Exhaustive illustrations and problems have been incorporated on Buy-back of Shares in the
chapter “Shares and Share Capital”. Basic details of Accounting Standard 15 (Revised 2005)
have been incorporated in the chapter “Company Final Accounts”.
 Preface to the Tenth Edition viii

• The text matter in several chapters has been considerably strengthened.

• A new chapter on “Accounting for Financial Instruments” has been added in Section III of the
book. This deals with Accounting for Equity index options and Equity stock options etc. keeping
in view the requirements of CA Final students.
• Three new concepts — Lean accounting, Forensic accounting and International accounting —
have been added in the Chapter “Recent Developments in Accounting” in Section III of the
book. This is expected to create inquisitiveness among the students to learn more about these
innovative modern concepts.
• The examination-oriented approach of the book has been further sharpened and enhanced.
We are confident that with all these PLUS features the readers will find the revised edition of the
book all the more useful and rewarding for them. Constructive and helpful suggestions for the improvement
of the book will be gratefully acknowledged.

A-2/156, Paschim Vihar Dr S N Maheshwari

New Delhi-110063 Dr S K Maheshwari
 Preface to the First Edition

I am pleased to place before the esteemed readers the much awaited book Advanced Accountancy, Vol. II. The
encouraging response to my books Advanced Accountancy, Vol. I and An Introduction to Accountancy, is a
matter of great satisfaction and privilege for me. The delay in bringing out this volume was due to reasons
beyond my control and I express my sincere apology to the esteemed readers for the inconvenience caused to
them.
Advanced Accountancy, Vol. II is a companion volume to the book Advanced Accountancy, Vol. I. It
consists of three sections. Section 1 deals with general accounting principles applicable to Company Accounts.
Here, topics such as Issue and Redemption of Shares and Debentures have been explained with complete
clarity and simplicity of exposition. Section 2 explains preparation of Final Accounts relating to certain specific
types of companies such as banking and insurance, besides simplifying in a lucid style the intricacies involved
in the consolidation of accounts of a Group. Section 3 is meant to give the students a bird’s eye view of
Management Accounting—a growing and challenging branch of accounting. Here, besides funds flow and
cash flow analysis, popular topics such as financial statements analysis and inflation accounting have been
explained.
Throughout the development of the book, it has been my endeavour to tailor its approach, subject matter
and presentation according to the requirements of its users—mainly students. The language has been kept
simple and the entire discussion has been built on a logical and coherent outline. Particular care has been taken
to explain those complex and intricate points which really trouble students. The text matter is accompanied with
adequate illustrative material and exhaustive working notes. At the end of each chapter unsolved problems
with detailed answers have been given for recapitulation and better grasp of the subject. Questions from latest
university and professional examinations have been incorporated to make the students familiar with the latest
examinations’ trends. The book, thus in its present form, covers exhaustively the course contents of the
students preparing for B.Com, M.Com, CA, ICWA and Company Secretaries examinations.
Constructive and helpful suggestions for improvement in the book will be gratefully acknowledged.

July, 1984 Dr S N Maheshwari

 Contents

Preface to the Tenth Edition vii

Preface to the First Edition ix

Section 1: Company Accounts

1. INTRODUCTORY 1.3
Learning Objectives 1.3
Introduction 1.3
Meaning and Definition of a Company 1.3
Essential Characteristics of a Company 1.4
Meaning of Corporate Accounting 1.4
Kinds of Companies 1.5
Formation of a Company 1.8
Allotment of Shares 1.12
Key Terms 1.13
Test Questions 1.13

2. SHARES AND SHARE CAPITAL 1.15

Learning Objectives 1.15
Shares 1.15
Share Capital 1.16
Accounting Entries 1.18
Undersubscription 1.24
Oversubscription 1.24
Calls in Advance 1.26
Calls in Arrears 1.27
Issue of Shares at Premium 1.28
Issue of Shares at Discount 1.31
Forfeiture of Shares 1.33
Surrender of Shares 1.40
Issue of Two Classes of Shares 1.46
Right Shares 1.50
Underwriting 1.52
Lien on Shares 1.57
Alteration of Share Capital 1.59
Creation of Reserve Capital 1.61
Buy-back of Shares 1.61
Redemption of Preference Shares 1.70
Key Terms 1.82
Test Questions 1.82
Practical Problems 1.84
 Advanced Accountancy Vol-2

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