Important Points for IC 26 - Life Insurance Finance Exam
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Step 5: The two sides of the Balance Sheet are totaled and tallied.
Capital transactions mean transactions involved in the purchase, acquisition, sale or disposal or assets which have a useful life of at least more than one year. Capital expenditure is the expenditure which improves the earning capacity of an asset so that the asset works more efficiently or lasts longer. Capital receipt is income which is earned from activities that are not ordinary activities / regular operations of an entity
Revenue transactions, relate to the income and expenses connected with the normal day to day operations of the business. Revenue expenditure is that expenditure which is incurred to maintain the existing capacity of an asset so that it can do its daily work. A revenue receipt is a regular receipt i.e. these transactions are regularly entered into in an entity in the ordinary course of the entity's activities.
Presentation of financial statements : Interest expenses are added to the interest cost under finance costs in the profit and loss account, Interest accrued on the loan is shown in the balance sheet under current liabilities, Prepaid expenses are recognised as a current asset in the balance sheet, Rent receivable is shown as a current asset in the balance sheet, Income received in advance is shown as a current liability in the B/S.
The Balances Sheet must reflect the true financial position of a business. A balance sheet is prepared as on a certain date and not for a period. The total of all assets must be equal to the total of all liabilities, including capital.
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