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Doubt regarding accounts

Venkat (Article assistant ) (43 Points)

02 August 2012

Hi every body, This is Venkat. I am a article assistant. I have a doubt on accounts i.e.

1. What is the difference between Eepense and Expenditure/ is the same. Please clarify.

2. At the time of Amalamation, we have to prepare the accounts for the both companies, I have a doubt on Vendor company accounts i.e. if any profit comes from the Relisation account and the vendor company have both eqity and preference share holders, what is the base of apportionment of profit between Equity and Preference.

Thanks & Regards

veNKat..

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9 Replies

Vineet Kumar Sharma (Chartered Accountant) (316 Points)
Replied 02 August 2012

Difference between Expenses and Expenditure:-

Expense is relatively smaller term as compared to Expenditure. Expenses are those amounts whose benefit is utilized in that financial year. It is also known as Revenue Expenditure.

However, Expenditure is much wider concept. It includes not only Revenue Expenditure but also Capital Expenditure.

3 Like

Tejash Fafadia (Article) (78 Points)
Replied 02 August 2012

PROFIT OR LOSS ON REALISATION WHICH ACCRUES TO VENDOR COMPANY SHOULD GO TOTALLY TO EQUITY SHARE HOLDERS .. PREF.SHARE HOLDERS HAVE NO SHARE IN WHATEVER PROFIT OR LOSS ON REALISAION...

AND FOR ANSWER ON EXP. V/S EXPENDITURE , I TOTALLY AGREE WITH VINEET KUMAR.

1 Like

Venkat (Article assistant ) (43 Points)
Replied 03 August 2012

Ok Boss (Tejash Fafadia)may be your answer correct. But the company you ahve to pay the profit on reliasation account also because it comes from total of business of the Company i.e. assets and liabilities, if we suppose to arrive the profit/loss in normal Business thaen you have to pay the preference devidend to preference holders. So at the time amalgamation whatever profit we are getting that also given to them. That's my point. Please clarify

Venkat (Article assistant ) (43 Points)
Replied 03 August 2012

Dear Vineet Kumar Sharma,

Based on your clarification the expenditure means not for one year, it's more than one year like capitalaised expenditure. Then what about the Deferred revenue expenditure, Is the same or different.

thanks & regards

veNKat

Tejash Fafadia (Article) (78 Points)
Replied 03 August 2012

if the pref.divident is unpaid for the year, then it should be paid as per the fixed rate of dividend fixed for them....

and the remaining of the profits get transferred in totality to equity holders...

while in case of loss, no case of pref.div. and total of loss should be borne by equity holders...

1 Like

CA Anushree jain (CA) (1531 Points)
Replied 03 August 2012

the reason for paying amount of profit to equity shareholders only and not preference shareholders is that equity shareholders are the ultimate owner and paid divident at no fixed rate and in cases of losses they are not even given divident

whereas preference shareholders are mixed concept of owner and debter they are given priority at the time of declaring divident and always given at fixed rate

so the owner i e equity s/h are given that profit as during bad times they beared losses and not preference s/h

1 Like

Vineet Kumar Sharma (Chartered Accountant) (316 Points)
Replied 03 August 2012

Totally agreed with Tejash Fafadia in relation with Division of Profit on realisation to Equity Shares only.

However, if you have issued Preference Shares with Participation Right (i.e. Participating Preference Shares), then only, they are entitled to participate in such surplus bt, only upto some extent as notified earlier (i.e. at the time of its issuance).

1 Like

Vineet Kumar Sharma (Chartered Accountant) (316 Points)
Replied 03 August 2012

Dear Venkat, as regard question about Deferred Revenue Expenditure, First of all, i waana told you that Expenditure includes term Expenses. Hence, if you uses the word expenditure, it constitute Revenue Expenditure (Expenses) & Capital Expenditure too. Deferred Revenue Expenditure such as Advertisement gives you benefit for more than year in which it incurs, hence, categorised as an Expenditure.

Venkat (Article assistant ) (43 Points)
Replied 10 August 2012

Dear Anushree ,

I am aggreed with your answer, But if in Purchasing Company the preference share holders get more than their nominal value fpr purchased consideration. ( just assuned). Then what is the treatment for that if Vendor Company get a profit/if loss.

Purchase consideration is both for Equity and Preference, then why the quation raised for the no share of profit for Preference share holders.

Thanking you