CMA Intermediate Financial Accounting Syllabus

Which body issues Accounting Standards in India, and which authority notifies them for companies?

The Institute of Chartered Accountants of India (ICAI) formulates them through its Accounting Standards Board; for companies they are notified by the Central Government on recommendation of the NFRA under the Companies Act, 2013.

What is the difference between Indian Accounting Standards (Ind AS) and AS?

Ind AS are converged with IFRS and are mandatory for specified (mainly larger/listed) companies; AS are the older Indian standards still applicable to companies not covered by Ind AS and to non-corporate entities.

Which standard deals with Disclosure of Accounting Policies, and what are its three fundamental assumptions?

AS 1 - Disclosure of Accounting Policies. The three fundamental accounting assumptions are Going Concern, Consistency, and Accrual.

Which Accounting Standard deals with Valuation of Inventories and what is its basic rule?

AS 2 - Inventories should be valued at the lower of cost or net realisable value (NRV).

Distinguish between Capital Expenditure and Revenue Expenditure.

Capital expenditure gives benefit over more than one accounting period and creates/improves an asset (shown in Balance Sheet); revenue expenditure benefits only the current period and is consumed (shown in P&L Account).

What is the difference between a Trading Account and a Profit & Loss Account?

The Trading Account shows gross profit/loss (sales less cost of goods sold and direct expenses); the Profit & Loss Account starts with gross profit and accounts for indirect/operating, financial and other incomes and expenses to arrive at net profit/loss.

Give the formula for Cost of Goods Sold (COGS).

COGS = Opening Stock + Purchases (net) + Direct Expenses - Closing Stock.

Give the formula for Gross Profit.

Gross Profit = Net Sales - Cost of Goods Sold (i.e., Net Sales - [Opening Stock + Net Purchases + Direct Expenses - Closing Stock]).

What is Net Profit and how is it derived from Gross Profit?

Net Profit = Gross Profit + Other/Indirect Incomes - Indirect (operating, administrative, selling, financial) Expenses. It is the final profit transferred to capital/reserves.

Name three items debited (charged) to the Profit & Loss Account.

Salaries, rent, depreciation, interest paid, discount allowed, bad debts, and administrative/selling expenses (any indirect expenses).

What is a Balance Sheet?

A Balance Sheet is a statement (not an account) showing the financial position of a business at a particular date, listing its assets, liabilities and capital; total assets always equal total liabilities plus capital.

Distinguish between Fixed Assets and Current Assets.

Fixed assets are held for long-term use in the business and not for resale (e.g., land, machinery); current assets are held for short-term and are convertible into cash within one year (e.g., stock, debtors, cash).

Distinguish between marshalling by order of liquidity and order of permanence.

Order of liquidity lists most liquid assets first (cash, debtors...) and most urgent liabilities first; order of permanence lists most permanent/fixed assets first (goodwill, land...) and long-term/capital liabilities first.

What are Contingent Liabilities and how are they shown?

Contingent liabilities are possible obligations whose occurrence depends on a future uncertain event (e.g., pending lawsuits, bills discounted). They are not recorded in the books but disclosed as a footnote to the Balance Sheet.

Differentiate between a Trial Balance and a Balance Sheet.

A Trial Balance is a list of all ledger debit and credit balances prepared to check arithmetical accuracy; a Balance Sheet is a financial statement of assets and liabilities showing financial position at a date.

What is Working Capital and how is it calculated?

Working Capital = Current Assets - Current Liabilities. It represents the funds available for day-to-day operations.

What is a Consignment, and who are the consignor and consignee?

Consignment is the dispatch of goods by one party (consignor/principal) to another (consignee/agent) for sale on the consignor's behalf and risk. The consignee sells goods and earns commission; ownership remains with the consignor until sold.

Why is a consignment sale not treated as an ordinary sale by the consignor?

Because ownership/risk of the goods does not pass to the consignee; the consignee only acts as an agent, so dispatch of goods on consignment is not revenue until the consignee actually sells to a third party.

What is a Proforma Invoice in consignment?

A proforma invoice is a statement sent by the consignor with the goods showing details and (often) a loaded selling price; it is not a real invoice and does not signify a sale.

Define ordinary commission, del credere commission and over-riding commission.

Ordinary commission: fixed % on total sales. Del credere commission: extra % to make the consignee bear the risk of bad debts. Over-riding commission: extra % usually on sales above an agreed price/quota to encourage higher sales or to push new products.

What is the accounting effect of del credere commission?

When del credere commission is given, the consignee bears bad debts; therefore bad debts are borne by the consignee and not charged to the Consignment Account (the consignor records full sales).

Distinguish between Normal Loss and Abnormal Loss in consignment.

Normal loss is unavoidable and inherent (e.g., evaporation, leakage); its cost is absorbed by remaining units (no separate entry, it inflates per-unit cost). Abnormal loss is accidental/avoidable (e.g., fire, theft); it is valued and credited to Consignment A/c and debited to a separate Abnormal Loss A/c (or P&L).

How is closing stock on consignment valued?

At cost to the consignor plus a proportionate share of non-recurring (direct) expenses incurred up to the point of bringing goods to the consignee's godown - valued at the lower of this cost or net realisable value.

What is an Account Sales in consignment?

An Account Sales is a periodic statement sent by the consignee to the consignor showing goods sold, sale price, expenses incurred by consignee, commission charged, and the net amount due/remitted.

Define a Joint Venture.

A joint venture is a temporary partnership/business arrangement between two or more parties (co-venturers) to carry out a specific business venture or project, sharing profits and losses in an agreed ratio, and dissolving on completion.

State three differences between a Joint Venture and a Consignment.

1) JV is a temporary partnership of co-venturers; consignment is a principal-agent relationship. 2) In JV all parties share profit/loss; in consignment consignee gets commission only. 3) JV relates to a specific venture and ends with it; consignment is a continuing arrangement.

Distinguish between a Joint Venture and a Partnership.

A joint venture is for a specific, temporary venture with no firm name and dissolves on completion; a partnership is a continuing business with a firm name and ongoing operations. Going concern does not apply to a JV.

Under the 'Memorandum Joint Venture Account' method, how is profit ascertained?

Each co-venturer records only his own transactions in a personal Joint Venture A/c. A Memorandum Joint Venture A/c (combining all parties' transactions) is prepared outside the books to find total venture profit/loss, which is then shared in the agreed ratio.

How is a Hire Purchase System defined?

Hire purchase is a system where goods are delivered to the buyer who pays in instalments; ownership passes to the buyer only after payment of the final instalment, and until then the buyer is merely a hirer.

What is the key difference between Hire Purchase and Installment Payment System regarding ownership?

In hire purchase, ownership transfers only after the last instalment is paid. In the installment system, ownership passes to the buyer immediately at the time of sale, with payment made in installments.

How is the total interest under a hire purchase agreement calculated?

Total Interest = Total Hire Purchase Price - Cash Price. (Total HP Price = Down Payment + Sum of all installments.) Interest is the excess of the hire purchase price over the cash price.