State with reasons your opinion regarding accounting treatment of the following transactions appearing in the books of account of Valley Finance & Savings Co. Ltd. (one-year old company) for financial year 2060/61

Auditing and Assurance Revision Questions and Answers

a. Rs.10 lacs were paid to Info-Tech Solutions (P) Ltd. for supply and installation of accounting software.
Answer
Rs.10 lacs paid Valley Finance & Saving Co. Ltd. to Info-Tech Solutions (P) Ltd. for supply and installation of an accounting software in the first year of operation can be treated in the books of account in the following manner:

(a) As the benefit from the use of accounting software is likely to extend for several years, the company can adopt an accounting policy to treat it as deferred revenue expenditure and write – off the total amount during say five years in equal annual installments.
Or,
(b) Rs.10 lacs spent on acquisition and installation of accounting software may be treated as expenses for the year and charged to the profit & loss account in the first year of its operation.

b. Share underwriting charges of Rs.6 lacs was paid to the issue manager‟s Venture capital Markets Ltd.
Answer
Share underwriting charges of Rs.6 lacs paid Valley Finance & Savings Co. Ltd. to the issue managers Venture Capital Markets Ltd. may be included in the preliminary expenses and written – off during the specified number of years as per accounting policy adopted the company.

c. Company registration charges, legal charges, administration and other expenses totaling Rs12 lacs was incurred during the first six months prior to commencement of business the company.
Answer
Company registration charges, legal charges, administration and other expenses totaling Rs.12 lacs incurred the company during the first six months prior to commencement of business should be treated as preliminary expenses and written- off during the specified number of years as per accounting policy of the company.

d. Rs. 4 lacs remained unclaimed several applicants who were not allotted any shares the company.
Answer
Applicants for shares of Valley Finance & Saving Co Ltd. who were not allotted any shares should make their claim for refund as soon as possible. Where the applicants fail to claim refund of their application deposit within a reasonable time the company should take steps to refund the deposits to the unsuccessful applicants. Nevertheless, so long as the application deposits remain in custody of the company, pending their refund to the concerned persons/parties, the unclaimed amount should be reflected under the head of current liabilities in the balance sheet.



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