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Accounting for Companies – II

notes Bank Overdraft, Debentures, Outstanding Expenses, Provision for Taxation, Creditors
for Expenses, Unclaimed Dividend, Provident Fund, Pension Fund, Superannuating
Fund, Saving Bank A/c of Workmen, Long-term & Short-term Loans, Employees Security
Deposit, Workmen’s Profit-sharing Fund, etc.
l z Accumulated Profits: That portion of profits which is not distributed to the shareholders
for more than one year is known as accumulated profits. It is distributed among the
shareholders of the company at the time of liquidation of the company. In other words,
these are not transferred to the realisation account (it will be discussed later). These are
directly transferred to the shareholders’ account. Therefore, the student should have
a precise knowledge regarding these in order to solve the problems of amalgamation,
absorption and reconstruction correctly. The following accounts are treated as accumulated
profits – (a) Profits & Loss A/c (credit balance), (b) Revenue Reserve, (c) General Reserve,
(d) Capital Reserve, (e) Debenture Redemption Reserve/Sinking Fund A/c (f) Development
Rebate Reserve, (g) Capital Redemption Reserve, (h) Forfeited Shares Account (i) Share
Premium Accounts, (j) Workmen’s Compensation Fund (k) Dividend Equalisation Fund,
(l) Insurance Fund (m) Workmen’s Accident Fund.
l z General Reserve & Dividend Equalisation Fund: These two items are the examples of
accumulated profits. These are made from profits of the company. General reserve is
created to strengthen the financial position of the company, while Dividend Equalisation
fund is created to maintain the rate of dividend of the company during a period of crises.
l z Accident Fund and Workmen’s Compensation Fund: These funds are created out of profits to
meet any liability on these accounts in future. These are the examples of internal insurance.
If there is no liability on these accounts at the time of liquidation of the company, these are
treated as accumulated profits and are transferred to the shareholders’ accounts. And if
there is some liability on these accounts, they are first to be met out of these funds and the
balance is transferred to the shareholder’s account.

l z Insurance Fund: This fund is also created out of profits to meet any contingency in the form
of a loss by fire, theft etc., in future. It is an internal arrangement of insurance. It is created
to avoid payment of premium to an outside insurance company. At the time of liquidation,
the balance of this fund is transferred to the shareholders’ account as the balance of this
account represents the accumulated profits.

l z Accumulated Losses: Accumulated losses are shown in the assets side of the balance sheet
of a company. Accumulated losses include debit balance of profits and loss accounts,
preliminary expenses, discount on issue of shares and debentures, commission on issue of
shares and debentures, premium on redemption of preference shares, etc. Like accumulated
profits these are also transferred to the shareholders’ accounts at the time of liquidation of
a company.

Did u know? Dividend Equalisation fund is created to maintain the rate of dividend of the
company during a period of crises.

l z Provisions: There are some provisions, which may be shown in the liability side of the
balance sheet or may be shown in assets side as deduction from the particular assets. Such
type of provisions may be provisions for bad and doubtful debts, provision for depreciation,
provision for investment, provision for repairs and renewals, etc. These provisions are
transferred to the realisation accounts at the time of liquidation only when that particular
asset is transferred to this account.

Notes the assets along with its provisions are transferred to the realisation account.

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