Posts tagged "Define"

What are the Contingent Liabilities

Contingent liability is a potential obligation which may in the future develop into actual liability or may dissolve without necessitating any outlay. The crucial characteristics of contingent liability is uncertainty i.e, whether it will or will not develop into a real liability. Thus a contingent liability is that which may or may not arise after the preparation of balance sheet.

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Explain Prepayment

Prepayment also known as prepared expenses are those expenses which are incurred or paid during the year under audit but relate to the period subsequent to the current year. These represents payments made in advance, for services or rights to be received over some future period of time. Such prepayment may be in respect in telephone charges, rent, rates insurances, subscriptions, advertisement, etc.

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Divisible Profits

Profit may be defined as follows:

1. Generally speaking the profit of the business during a given period is the excess over the expenditure for the period.

2. It is the excess of Assets over the liabilities and the capital between the two periods.

Profit is the different to the net assets of the business an existing on the end of the year and on the commencement of the year after making necessary adjustments for internal or introduction of capital. The surplus of income earned during a particular period after providing for all actual and outstanding expenses, incurred in the earning of such income is the measures of profit.

Divisible Profit is that part of the net profit of the business which has actually been released and bonafide exists after the revaluation of all assets and liabilities and can legally be distributed to the share holders as dividend. The amount of divisible profit is ascertained in accordance with the provisions of the memorandum of Association and the articles of Association. Distribution of profits which would affect the interest of third parties of which would amount to the return of capital to the share holders, would be illegal. In all cases capital of the business is to be maintained intact.

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