Unit 4

Insolvency Accounting

Q1) What is the meaning of Insolvency?

A1) A bankrupt is someone who cannot pay or settle their debt. If a person or partnership company or an undivided family of Hinduism is unable to fulfil its responsibilities and is in financial difficulty, the court intervenes in the creditor or debtor's own instance and the debtor is his Get the property and the freedom from having to pay his debt, which brings a settlement to abandon the whole thing. A joint-stock company may also go bankrupt, but the necessary measures in this regard will be taken in accordance with the Companies Act. The company is liquidated and its assets must be realized and distributed in accordance with the law.

Bankruptcy and bankruptcy mean the same thing. The latter term is used in the United Kingdom and the former is used in India. This is "if the debtor is unable to pay or fulfil the debt, or if the debtor or the debtor is unable to satisfy the claim, the state is in certain circumstances his property. Through the officers appointed for that purpose, such property is realized in an appropriate proportion among those whose debtors are borrowing or are financially liable. The officers are called official receivers and are appointed by the court.

Q2) What do you mean by accounting from incomplete records?

A2) Accounting records, which are not strictly kept according to double entry system are known as incomplete records. Many authors describe it as single-entry system. However, single entry system is a misnomer because there is no such system of maintaining accounting records. It is also not a ‘short cut’ method as an alternative to double entry system. It is rather a mechanism of maintaining records whereby some transactions are recorded with proper debits and credits while in case of others, either one sided or no entry is made. Normally, under this system records of cash and personal accounts of debtors and creditors are properly maintained, while the information relating to assets, liabilities, expenses and revenues is partially recorded. Hence, these are usually referred as incomplete records.

The limitations of incomplete records are as follows: (a) As double entry system is not followed; a trial balance cannot be prepared and accuracy of accounts cannot be ensured. (b) Correct ascertainment and evaluation of financial result of business operations cannot be made. (c) Analysis of profitability, liquidity and solvency of the business cannot be done. This may cause a problem in raising funds from outsiders and planning future business activities. (d) The owners face great difficulty in filing an insurance claim with an insurance company in case of loss of inventory by fire or theft. (e) It becomes difficult to convince the income tax authorities about the reliability of the computed income.

Q3) What are the advantages of accounting from incomplete records?

A3)

1. Maintenance of Cash Rook: A cash book is usually maintained. But the business transactions and the personal transactions of the proprietor are usually mixed up.
2. Maintenance of Personal Accounts: If there are credit sales and credit purchase the Personal Accounts of customers (debtors) and suppliers (creditors) are maintained. Rut the Real and Nominal Accounts are avoided. In other words, the accounts of fixed assets, liabilities, expenses and income are not maintained.
3. No Uniformity: The adoption of this system is not uniform. It differs from firm to firm as per their individual requirements and convenience.
4. Dependence on original vouchers: To ascertain profit or loss or to collect information for any other purpose, necessary figures can be collected only from the original vouchers such as purchase invoice, sales invoice etc. Thus, dependence on original vouchers is inevitable.
5. Preparation of Final Accounts: The final accounts cannot be prepared easily. It is possible to prepare the Trading and Profit & Loss Account only after the available information has been converted into double entry records arid the missing figures have been found out. The figures of assets and liabilities computed from incomplete records ore not very reliable as they; we based on mere estimates. Hence the statement of assets and liabilities prepared at the end of the accounting period under this system is called as 'Statement of Affairs' instead of "Balance Sheet".

Q4) What are the disadvantages of accounting from incomplete records?

A4) Single Entry System signifies the incompleteness and insufficiency of information. Hence, it suffers from certain limitations which can be summarised as follows:

1. The arithmetical accuracy of the books of account cannot be checked as it is not possible to prepare a Trial Balance in the absence of real and nominal accounts.

2. Any information obtained under this system will not be free from doubt and so is unreliable.

3. It is not possible to prepare a Trading Account and find out the rate of gross profit earned by the firm. In the absence of gross profit margin, the performance of the firm cannot be compared with that of other firms or with the past. This also affects proper planning and sound decision-making.

4. True profit or loss and information about assets and liabilities, cannot be obtained with certainty. Hence, it is not possible to a9sess financial soundness of the firm.

5. In the absence of proper and reliable balance sheet, the firm may not be able to avail itself of the various financial facilities from banks such as overdraft facilities or loan facilities.

6. The system generates a spirit of laxity on the part of the employees which may result in frauds.

Q5) What is the difference between single entry and double entry system?

A5) The differences between single entry and double entry system are listed below: 

Q6) What are the steps that are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information?

A6) If it is desired to calculate the profit by preparing Trading and Profit and Loss account under single entry then it is called a conversion method. Following steps are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information.

Step 1: Opening Statement of Affairs: Prepare a statement of affairs in the beginning so as to calculate capital in the beginning. Take up the Statement of Affairs at the end of the earlier trading stage and open all those accounts which have not previously been opened. First, we need to find out the opening capital by preparing the opening Statement of Affairs. Usually, under the Single-Entry System, cash, bank, and personal accounts are maintained.

Step 2: Other Accounts: From the debit side of the Cash Account, accounts other than the bank account and accounts of customers (on the presupposition that such accounts are previously maintained) should be credited. Then prepare (i) Total debtors account, and (ii) Total Creditors account, to find out credit sales, credit purchases, creditors or debtors balance either in the beginning or at the end.

The Cash Book/Cash Account should be prepared cautiously to find out missing figures such as sales, expenses, drawings, and closing balance of Cash/Bank, etc. From the credit side of the Cash Account, various accounts (other than the bank account and accounts of creditors) should be debited. On this side of the Cash Account, will be found amounts paid for cash purchases, for various expenses and for various assets acquired. All these accounts will be debited.

Step 3: Total sales and total purchase: After preparing these accounts, calculate

(1) Total sales, by adding cash sales and credit sales, and

(2) Total purchases by adding cash purchases and credit purchases.

If a Petty Cash Book is maintained, the monthly analysis will have to be posted in the ledger various accounts for expenses debited and the total credited to Petty Cash Account. Total Debtors Account, Total Creditors Account, Bills Receivable Account and Bills Payable Account should be arranged. The debit to the Petty Cash Account must already have been completed from the Cash or Bank Account. These accounts will help to find out figures like Credit Sales, Credit Purchases, Balances of Debtors, Creditors, Bills payable and Bills receivable correspondingly.

Total Sales will be Cash Sales + Credit Sales. Total Purchases will be Cash Purchases + Credit Purchases

Step 4: Final Account: Necessary journal entries for the adjustments should be made as per information provided in the predicament. Now prepare Trading, Profit and Loss Account, and Balance Sheet. Finally, the Profit and Loss Account and The Balance Sheet can be prepared.

Q7) State the difference between balance sheet and statement of affairs.

A7) The difference between balance sheet and statement of affairs are-

1. Balance sheet is prepared based on double entry system. Statement of affairs is a single and incomplete entry.
2. Balance sheet is prepared to present financial position of a business entity at a given date. Statement of affairs is prepared to find out the amount of capital either opening or closing.
3. Balance sheet shows assets at book value. Statement of affairs shows assets at both book value and market value.
4. Balance sheet is usually prepared at the end of the financial year. Statement of affairs is prepared for the date when the order is given against the debtor.
5. A balance sheet has to obey accounting practices, standards, concepts and policies. A statement of affairs has to be prepared according to the insolvency act.
6. Balance sheet adheres to going concern concept believing that these assets and liabilities will remain with the organization for a period. Statement of affairs considers realizable and payable values of the assets and liabilities to the present date, which is against to the going concern concept.
7. Balance sheet is prepared as the final financial statement of the general manual accounting procedure. Statement of affairs is prepared before the preparation of profit and loss statement.

Q8) State the difference between Profit& loss account and Deficiency account.

A8) The difference between Profit& loss account and Deficiency account are-

1. Presentation of capital- In Deficiency account, capital is shown on the left side of deficiency a/c but in Profit & loss a/c, capital is not shown in profit & loss a/c.
2. Time of preparation- Deficiency a/c is prepared after adjudication of the court whereas Profit & loss a/c is prepared at the end of accounting year.
3. Period of preparation- Deficiency a/c is prepared for the period from the date of commencement to the date of adjudication of insolvency whereas Profit & loss a/c is prepared for the financial year.
4. Subject matter- In deficiency a/c, capital a/c, Profit & loss a/c of different years, loss on assets, deficiency a/c etc are shown but in Profit & loss a/c, revenue income and revenue expenditures are shown.
5. Balance of account- Balance of a/c may be either deficiency or surplus in deficiency account whereas balance of a/c may be net profit or net loss.
6. Presentation of private assets and liabilities- Difference of private assets and private liabilities is recorded in deficiency a/c whereas difference of private assets and liabilities is not recorded in this liabilities a/c.
7. Objects- Deficiency account’s main object is to find out deficiency or surplus whereas profit & loss account’s main object is to find out net profit or net loss.

Q9) What is P.T.A?

A9) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required.

Q10) What is the purpose of P.T.A?

A10) The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

Q11) What is P.I.A?

A11) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking.

Q12) Why PIAs are used?

A12) PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.

Q13) What is Insolvency Accounting as per P.T.A and P.I.A rule including omission of items from records?

A13) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource, including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis. MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

Q14) Give a comparative study of P.T.A and P.I.A

A14) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to: • Identify programs and systems that are privacy-sensitive; • Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system; • Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and • Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance. MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. 1 Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. 2 The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource,3 including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form4 in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis.5 MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).6 After completing a PTA, the privacy team will provide the program manager or system owner with a determination on whether a PIA is required.7 If it is determined that a PIA is required, a PIA should be drafted by the project manager or system owner in collaboration with the privacy team. PIAs are usually required when:

• Developing or procuring any new technologies or systems that handle or collect PII.

• Creating a new program, system, technology, or information collection that may have privacy implications.

• Updating a system that results in new privacy risks.

• Issuing a new or updated rulemaking that entails the collection of PII.

Q15) What are insolvency laws and their rules?

A15) Insolvency occurs when an individual, company, or other organization cannot meet its financial obligations for paying debts as they become due. Bankruptcy is not exactly the same as insolvency. Bankruptcy is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency. Insolvency describes a situation where the debtor is unable to meet his/her obligations. Bankruptcy is a legal scheme in which an insolvent debtor seeks relief. The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL). The powers and jurisdiction of Company Law Board, Board of Industrial and Financial Reconstruction and High Court in this regard, is being exercised by National Company Law Tribunal and Appellate Tribunal. The purpose of creation of the Tribunal is to avoid multiplicity of litigation before various courts or quasi-judicial bodies or forums regarding revival or rehabilitation or merger and amalgamation, and winding up of companies. Before the enactment of the Insolvency and Bankruptcy Code, there was no single law in the country to deal with insolvency and bankruptcy. There were multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals in India. The framework for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delays in resolution. The legal and institutional framework did not aid lenders in effective and timely recovery or restructuring of defaulted assets and causes undue strain on the Indian credit system. The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) empowered banks or financial institutions with a presence in India or which have been notified by the Government of India to recover on non-performing assets without court intervention. An asset is classified as non-performing if interest or instalments of principal due remain unpaid for more than 180 days. SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs). The Insolvency Law Committee constituted by the Ministry of Corporate Affairs submitted second part of its Report in October 2018 after deliberating on the existing provisions of cross-border insolvency in the Insolvency and Bankruptcy Code, 2016 (sections 234 and 235) and the UNCITRAL Model Law on Cross Border Insolvency. The Committee noted that the existing provisions in the Code do not provide a comprehensive framework for cross-border insolvency matters. The Committee provided a comprehensive framework for this purpose based on the UNCITRAL Model Law on Cross-Border Insolvency, 1997. The Committee has proposed a draft Part on Cross Border Insolvency which could be made a part of the Code by inserting a separate part for this purpose. Company Secretaryship being a professional course, the examination standards are set very high, with emphasis on knowledge of concepts, applications, procedures and case laws, for which sole reliance on the contents of this study material may not be enough. Besides, as per the Company Secretaries Regulations, 1982, students are expected to be conversant with the amendments to the laws made up to six months preceding the date of examination. The material may, therefore, be regarded as the basic material and must be read along with the original Bare Acts, Rules, Regulations, Case Law, Student Company Secretary ebulletin and Chartered Secretary published by the Institute as well as recommended readings. This Study Material is based on the provisions which are notified under Insolvency and Bankruptcy Code, 2016 and Companies Act, 2013. The amendments made up to 30th June, 2019 have been incorporated in this study material. However, it may so happen that some developments might have taken place during the printing of the study material and its supply to the students. The students are therefore, advised to refer to the website of the Institute for updating of the study material. Although care has been taken in publishing this study material, yet the possibility of errors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf. Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same are brought to its notice for issue of corrigendum in the Student Company Secretary e-bulletin.

Q16) When a PIA should be conducted?

A16) A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).

Q17) What type of provisions the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes?

A17) The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL).

Q18) What is the objective of the Insolvency and Bankruptcy Code?

A18) The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify.

Q19) What does SARFAESI Act provides?

A19) SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs).

Q20) By which section, a PIA is required and why?

A20) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.

Unit 4

Insolvency Accounting

Q1) What is the meaning of Insolvency?

A1) A bankrupt is someone who cannot pay or settle their debt. If a person or partnership company or an undivided family of Hinduism is unable to fulfil its responsibilities and is in financial difficulty, the court intervenes in the creditor or debtor's own instance and the debtor is his Get the property and the freedom from having to pay his debt, which brings a settlement to abandon the whole thing. A joint-stock company may also go bankrupt, but the necessary measures in this regard will be taken in accordance with the Companies Act. The company is liquidated and its assets must be realized and distributed in accordance with the law.

Bankruptcy and bankruptcy mean the same thing. The latter term is used in the United Kingdom and the former is used in India. This is "if the debtor is unable to pay or fulfil the debt, or if the debtor or the debtor is unable to satisfy the claim, the state is in certain circumstances his property. Through the officers appointed for that purpose, such property is realized in an appropriate proportion among those whose debtors are borrowing or are financially liable. The officers are called official receivers and are appointed by the court.

Q2) What do you mean by accounting from incomplete records?

A2) Accounting records, which are not strictly kept according to double entry system are known as incomplete records. Many authors describe it as single-entry system. However, single entry system is a misnomer because there is no such system of maintaining accounting records. It is also not a ‘short cut’ method as an alternative to double entry system. It is rather a mechanism of maintaining records whereby some transactions are recorded with proper debits and credits while in case of others, either one sided or no entry is made. Normally, under this system records of cash and personal accounts of debtors and creditors are properly maintained, while the information relating to assets, liabilities, expenses and revenues is partially recorded. Hence, these are usually referred as incomplete records.

The limitations of incomplete records are as follows: (a) As double entry system is not followed; a trial balance cannot be prepared and accuracy of accounts cannot be ensured. (b) Correct ascertainment and evaluation of financial result of business operations cannot be made. (c) Analysis of profitability, liquidity and solvency of the business cannot be done. This may cause a problem in raising funds from outsiders and planning future business activities. (d) The owners face great difficulty in filing an insurance claim with an insurance company in case of loss of inventory by fire or theft. (e) It becomes difficult to convince the income tax authorities about the reliability of the computed income.

Q3) What are the advantages of accounting from incomplete records?

A3)

1. Maintenance of Cash Rook: A cash book is usually maintained. But the business transactions and the personal transactions of the proprietor are usually mixed up.
2. Maintenance of Personal Accounts: If there are credit sales and credit purchase the Personal Accounts of customers (debtors) and suppliers (creditors) are maintained. Rut the Real and Nominal Accounts are avoided. In other words, the accounts of fixed assets, liabilities, expenses and income are not maintained.
3. No Uniformity: The adoption of this system is not uniform. It differs from firm to firm as per their individual requirements and convenience.
4. Dependence on original vouchers: To ascertain profit or loss or to collect information for any other purpose, necessary figures can be collected only from the original vouchers such as purchase invoice, sales invoice etc. Thus, dependence on original vouchers is inevitable.
5. Preparation of Final Accounts: The final accounts cannot be prepared easily. It is possible to prepare the Trading and Profit & Loss Account only after the available information has been converted into double entry records arid the missing figures have been found out. The figures of assets and liabilities computed from incomplete records ore not very reliable as they; we based on mere estimates. Hence the statement of assets and liabilities prepared at the end of the accounting period under this system is called as 'Statement of Affairs' instead of "Balance Sheet".

Q4) What are the disadvantages of accounting from incomplete records?

A4) Single Entry System signifies the incompleteness and insufficiency of information. Hence, it suffers from certain limitations which can be summarised as follows:

1. The arithmetical accuracy of the books of account cannot be checked as it is not possible to prepare a Trial Balance in the absence of real and nominal accounts.

2. Any information obtained under this system will not be free from doubt and so is unreliable.

3. It is not possible to prepare a Trading Account and find out the rate of gross profit earned by the firm. In the absence of gross profit margin, the performance of the firm cannot be compared with that of other firms or with the past. This also affects proper planning and sound decision-making.

4. True profit or loss and information about assets and liabilities, cannot be obtained with certainty. Hence, it is not possible to a9sess financial soundness of the firm.

5. In the absence of proper and reliable balance sheet, the firm may not be able to avail itself of the various financial facilities from banks such as overdraft facilities or loan facilities.

6. The system generates a spirit of laxity on the part of the employees which may result in frauds.

Q5) What is the difference between single entry and double entry system?

A5) The differences between single entry and double entry system are listed below: 

Q6) What are the steps that are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information?

A6) If it is desired to calculate the profit by preparing Trading and Profit and Loss account under single entry then it is called a conversion method. Following steps are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information.

Step 1: Opening Statement of Affairs: Prepare a statement of affairs in the beginning so as to calculate capital in the beginning. Take up the Statement of Affairs at the end of the earlier trading stage and open all those accounts which have not previously been opened. First, we need to find out the opening capital by preparing the opening Statement of Affairs. Usually, under the Single-Entry System, cash, bank, and personal accounts are maintained.

Step 2: Other Accounts: From the debit side of the Cash Account, accounts other than the bank account and accounts of customers (on the presupposition that such accounts are previously maintained) should be credited. Then prepare (i) Total debtors account, and (ii) Total Creditors account, to find out credit sales, credit purchases, creditors or debtors balance either in the beginning or at the end.

The Cash Book/Cash Account should be prepared cautiously to find out missing figures such as sales, expenses, drawings, and closing balance of Cash/Bank, etc. From the credit side of the Cash Account, various accounts (other than the bank account and accounts of creditors) should be debited. On this side of the Cash Account, will be found amounts paid for cash purchases, for various expenses and for various assets acquired. All these accounts will be debited.

Step 3: Total sales and total purchase: After preparing these accounts, calculate

(1) Total sales, by adding cash sales and credit sales, and

(2) Total purchases by adding cash purchases and credit purchases.

If a Petty Cash Book is maintained, the monthly analysis will have to be posted in the ledger various accounts for expenses debited and the total credited to Petty Cash Account. Total Debtors Account, Total Creditors Account, Bills Receivable Account and Bills Payable Account should be arranged. The debit to the Petty Cash Account must already have been completed from the Cash or Bank Account. These accounts will help to find out figures like Credit Sales, Credit Purchases, Balances of Debtors, Creditors, Bills payable and Bills receivable correspondingly.

Total Sales will be Cash Sales + Credit Sales. Total Purchases will be Cash Purchases + Credit Purchases

Step 4: Final Account: Necessary journal entries for the adjustments should be made as per information provided in the predicament. Now prepare Trading, Profit and Loss Account, and Balance Sheet. Finally, the Profit and Loss Account and The Balance Sheet can be prepared.

Q7) State the difference between balance sheet and statement of affairs.

A7) The difference between balance sheet and statement of affairs are-

1. Balance sheet is prepared based on double entry system. Statement of affairs is a single and incomplete entry.
2. Balance sheet is prepared to present financial position of a business entity at a given date. Statement of affairs is prepared to find out the amount of capital either opening or closing.
3. Balance sheet shows assets at book value. Statement of affairs shows assets at both book value and market value.
4. Balance sheet is usually prepared at the end of the financial year. Statement of affairs is prepared for the date when the order is given against the debtor.
5. A balance sheet has to obey accounting practices, standards, concepts and policies. A statement of affairs has to be prepared according to the insolvency act.
6. Balance sheet adheres to going concern concept believing that these assets and liabilities will remain with the organization for a period. Statement of affairs considers realizable and payable values of the assets and liabilities to the present date, which is against to the going concern concept.
7. Balance sheet is prepared as the final financial statement of the general manual accounting procedure. Statement of affairs is prepared before the preparation of profit and loss statement.

Q8) State the difference between Profit& loss account and Deficiency account.

A8) The difference between Profit& loss account and Deficiency account are-

1. Presentation of capital- In Deficiency account, capital is shown on the left side of deficiency a/c but in Profit & loss a/c, capital is not shown in profit & loss a/c.
2. Time of preparation- Deficiency a/c is prepared after adjudication of the court whereas Profit & loss a/c is prepared at the end of accounting year.
3. Period of preparation- Deficiency a/c is prepared for the period from the date of commencement to the date of adjudication of insolvency whereas Profit & loss a/c is prepared for the financial year.
4. Subject matter- In deficiency a/c, capital a/c, Profit & loss a/c of different years, loss on assets, deficiency a/c etc are shown but in Profit & loss a/c, revenue income and revenue expenditures are shown.
5. Balance of account- Balance of a/c may be either deficiency or surplus in deficiency account whereas balance of a/c may be net profit or net loss.
6. Presentation of private assets and liabilities- Difference of private assets and private liabilities is recorded in deficiency a/c whereas difference of private assets and liabilities is not recorded in this liabilities a/c.
7. Objects- Deficiency account’s main object is to find out deficiency or surplus whereas profit & loss account’s main object is to find out net profit or net loss.

Q9) What is P.T.A?

A9) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required.

Q10) What is the purpose of P.T.A?

A10) The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

Q11) What is P.I.A?

A11) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking.

Q12) Why PIAs are used?

A12) PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.

Q13) What is Insolvency Accounting as per P.T.A and P.I.A rule including omission of items from records?

A13) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource, including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis. MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

Q14) Give a comparative study of P.T.A and P.I.A

A14) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to: • Identify programs and systems that are privacy-sensitive; • Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system; • Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and • Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance. MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. 1 Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. 2 The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource,3 including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form4 in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis.5 MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).6 After completing a PTA, the privacy team will provide the program manager or system owner with a determination on whether a PIA is required.7 If it is determined that a PIA is required, a PIA should be drafted by the project manager or system owner in collaboration with the privacy team. PIAs are usually required when:

• Developing or procuring any new technologies or systems that handle or collect PII.

• Creating a new program, system, technology, or information collection that may have privacy implications.

• Updating a system that results in new privacy risks.

• Issuing a new or updated rulemaking that entails the collection of PII.

Q15) What are insolvency laws and their rules?

A15) Insolvency occurs when an individual, company, or other organization cannot meet its financial obligations for paying debts as they become due. Bankruptcy is not exactly the same as insolvency. Bankruptcy is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency. Insolvency describes a situation where the debtor is unable to meet his/her obligations. Bankruptcy is a legal scheme in which an insolvent debtor seeks relief. The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL). The powers and jurisdiction of Company Law Board, Board of Industrial and Financial Reconstruction and High Court in this regard, is being exercised by National Company Law Tribunal and Appellate Tribunal. The purpose of creation of the Tribunal is to avoid multiplicity of litigation before various courts or quasi-judicial bodies or forums regarding revival or rehabilitation or merger and amalgamation, and winding up of companies. Before the enactment of the Insolvency and Bankruptcy Code, there was no single law in the country to deal with insolvency and bankruptcy. There were multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals in India. The framework for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delays in resolution. The legal and institutional framework did not aid lenders in effective and timely recovery or restructuring of defaulted assets and causes undue strain on the Indian credit system. The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) empowered banks or financial institutions with a presence in India or which have been notified by the Government of India to recover on non-performing assets without court intervention. An asset is classified as non-performing if interest or instalments of principal due remain unpaid for more than 180 days. SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs). The Insolvency Law Committee constituted by the Ministry of Corporate Affairs submitted second part of its Report in October 2018 after deliberating on the existing provisions of cross-border insolvency in the Insolvency and Bankruptcy Code, 2016 (sections 234 and 235) and the UNCITRAL Model Law on Cross Border Insolvency. The Committee noted that the existing provisions in the Code do not provide a comprehensive framework for cross-border insolvency matters. The Committee provided a comprehensive framework for this purpose based on the UNCITRAL Model Law on Cross-Border Insolvency, 1997. The Committee has proposed a draft Part on Cross Border Insolvency which could be made a part of the Code by inserting a separate part for this purpose. Company Secretaryship being a professional course, the examination standards are set very high, with emphasis on knowledge of concepts, applications, procedures and case laws, for which sole reliance on the contents of this study material may not be enough. Besides, as per the Company Secretaries Regulations, 1982, students are expected to be conversant with the amendments to the laws made up to six months preceding the date of examination. The material may, therefore, be regarded as the basic material and must be read along with the original Bare Acts, Rules, Regulations, Case Law, Student Company Secretary ebulletin and Chartered Secretary published by the Institute as well as recommended readings. This Study Material is based on the provisions which are notified under Insolvency and Bankruptcy Code, 2016 and Companies Act, 2013. The amendments made up to 30th June, 2019 have been incorporated in this study material. However, it may so happen that some developments might have taken place during the printing of the study material and its supply to the students. The students are therefore, advised to refer to the website of the Institute for updating of the study material. Although care has been taken in publishing this study material, yet the possibility of errors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf. Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same are brought to its notice for issue of corrigendum in the Student Company Secretary e-bulletin.

Q16) When a PIA should be conducted?

A16) A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).

Q17) What type of provisions the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes?

A17) The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL).

Q18) What is the objective of the Insolvency and Bankruptcy Code?

A18) The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify.

Q19) What does SARFAESI Act provides?

A19) SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs).

Q20) By which section, a PIA is required and why?

A20) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.

Unit 4

Insolvency Accounting

Q1) What is the meaning of Insolvency?

A1) A bankrupt is someone who cannot pay or settle their debt. If a person or partnership company or an undivided family of Hinduism is unable to fulfil its responsibilities and is in financial difficulty, the court intervenes in the creditor or debtor's own instance and the debtor is his Get the property and the freedom from having to pay his debt, which brings a settlement to abandon the whole thing. A joint-stock company may also go bankrupt, but the necessary measures in this regard will be taken in accordance with the Companies Act. The company is liquidated and its assets must be realized and distributed in accordance with the law.

Bankruptcy and bankruptcy mean the same thing. The latter term is used in the United Kingdom and the former is used in India. This is "if the debtor is unable to pay or fulfil the debt, or if the debtor or the debtor is unable to satisfy the claim, the state is in certain circumstances his property. Through the officers appointed for that purpose, such property is realized in an appropriate proportion among those whose debtors are borrowing or are financially liable. The officers are called official receivers and are appointed by the court.

Q2) What do you mean by accounting from incomplete records?

A2) Accounting records, which are not strictly kept according to double entry system are known as incomplete records. Many authors describe it as single-entry system. However, single entry system is a misnomer because there is no such system of maintaining accounting records. It is also not a ‘short cut’ method as an alternative to double entry system. It is rather a mechanism of maintaining records whereby some transactions are recorded with proper debits and credits while in case of others, either one sided or no entry is made. Normally, under this system records of cash and personal accounts of debtors and creditors are properly maintained, while the information relating to assets, liabilities, expenses and revenues is partially recorded. Hence, these are usually referred as incomplete records.

The limitations of incomplete records are as follows: (a) As double entry system is not followed; a trial balance cannot be prepared and accuracy of accounts cannot be ensured. (b) Correct ascertainment and evaluation of financial result of business operations cannot be made. (c) Analysis of profitability, liquidity and solvency of the business cannot be done. This may cause a problem in raising funds from outsiders and planning future business activities. (d) The owners face great difficulty in filing an insurance claim with an insurance company in case of loss of inventory by fire or theft. (e) It becomes difficult to convince the income tax authorities about the reliability of the computed income.

Q3) What are the advantages of accounting from incomplete records?

A3)

1. Maintenance of Cash Rook: A cash book is usually maintained. But the business transactions and the personal transactions of the proprietor are usually mixed up.
2. Maintenance of Personal Accounts: If there are credit sales and credit purchase the Personal Accounts of customers (debtors) and suppliers (creditors) are maintained. Rut the Real and Nominal Accounts are avoided. In other words, the accounts of fixed assets, liabilities, expenses and income are not maintained.
3. No Uniformity: The adoption of this system is not uniform. It differs from firm to firm as per their individual requirements and convenience.
4. Dependence on original vouchers: To ascertain profit or loss or to collect information for any other purpose, necessary figures can be collected only from the original vouchers such as purchase invoice, sales invoice etc. Thus, dependence on original vouchers is inevitable.
5. Preparation of Final Accounts: The final accounts cannot be prepared easily. It is possible to prepare the Trading and Profit & Loss Account only after the available information has been converted into double entry records arid the missing figures have been found out. The figures of assets and liabilities computed from incomplete records ore not very reliable as they; we based on mere estimates. Hence the statement of assets and liabilities prepared at the end of the accounting period under this system is called as 'Statement of Affairs' instead of "Balance Sheet".

Q4) What are the disadvantages of accounting from incomplete records?

A4) Single Entry System signifies the incompleteness and insufficiency of information. Hence, it suffers from certain limitations which can be summarised as follows:

1. The arithmetical accuracy of the books of account cannot be checked as it is not possible to prepare a Trial Balance in the absence of real and nominal accounts.

2. Any information obtained under this system will not be free from doubt and so is unreliable.

3. It is not possible to prepare a Trading Account and find out the rate of gross profit earned by the firm. In the absence of gross profit margin, the performance of the firm cannot be compared with that of other firms or with the past. This also affects proper planning and sound decision-making.

4. True profit or loss and information about assets and liabilities, cannot be obtained with certainty. Hence, it is not possible to a9sess financial soundness of the firm.

5. In the absence of proper and reliable balance sheet, the firm may not be able to avail itself of the various financial facilities from banks such as overdraft facilities or loan facilities.

6. The system generates a spirit of laxity on the part of the employees which may result in frauds.

Q5) What is the difference between single entry and double entry system?

A5) The differences between single entry and double entry system are listed below: 

Q6) What are the steps that are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information?

A6) If it is desired to calculate the profit by preparing Trading and Profit and Loss account under single entry then it is called a conversion method. Following steps are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information.

Step 1: Opening Statement of Affairs: Prepare a statement of affairs in the beginning so as to calculate capital in the beginning. Take up the Statement of Affairs at the end of the earlier trading stage and open all those accounts which have not previously been opened. First, we need to find out the opening capital by preparing the opening Statement of Affairs. Usually, under the Single-Entry System, cash, bank, and personal accounts are maintained.

Step 2: Other Accounts: From the debit side of the Cash Account, accounts other than the bank account and accounts of customers (on the presupposition that such accounts are previously maintained) should be credited. Then prepare (i) Total debtors account, and (ii) Total Creditors account, to find out credit sales, credit purchases, creditors or debtors balance either in the beginning or at the end.

The Cash Book/Cash Account should be prepared cautiously to find out missing figures such as sales, expenses, drawings, and closing balance of Cash/Bank, etc. From the credit side of the Cash Account, various accounts (other than the bank account and accounts of creditors) should be debited. On this side of the Cash Account, will be found amounts paid for cash purchases, for various expenses and for various assets acquired. All these accounts will be debited.

Step 3: Total sales and total purchase: After preparing these accounts, calculate

(1) Total sales, by adding cash sales and credit sales, and

(2) Total purchases by adding cash purchases and credit purchases.

If a Petty Cash Book is maintained, the monthly analysis will have to be posted in the ledger various accounts for expenses debited and the total credited to Petty Cash Account. Total Debtors Account, Total Creditors Account, Bills Receivable Account and Bills Payable Account should be arranged. The debit to the Petty Cash Account must already have been completed from the Cash or Bank Account. These accounts will help to find out figures like Credit Sales, Credit Purchases, Balances of Debtors, Creditors, Bills payable and Bills receivable correspondingly.

Total Sales will be Cash Sales + Credit Sales. Total Purchases will be Cash Purchases + Credit Purchases

Step 4: Final Account: Necessary journal entries for the adjustments should be made as per information provided in the predicament. Now prepare Trading, Profit and Loss Account, and Balance Sheet. Finally, the Profit and Loss Account and The Balance Sheet can be prepared.

Q7) State the difference between balance sheet and statement of affairs.

A7) The difference between balance sheet and statement of affairs are-

1. Balance sheet is prepared based on double entry system. Statement of affairs is a single and incomplete entry.
2. Balance sheet is prepared to present financial position of a business entity at a given date. Statement of affairs is prepared to find out the amount of capital either opening or closing.
3. Balance sheet shows assets at book value. Statement of affairs shows assets at both book value and market value.
4. Balance sheet is usually prepared at the end of the financial year. Statement of affairs is prepared for the date when the order is given against the debtor.
5. A balance sheet has to obey accounting practices, standards, concepts and policies. A statement of affairs has to be prepared according to the insolvency act.
6. Balance sheet adheres to going concern concept believing that these assets and liabilities will remain with the organization for a period. Statement of affairs considers realizable and payable values of the assets and liabilities to the present date, which is against to the going concern concept.
7. Balance sheet is prepared as the final financial statement of the general manual accounting procedure. Statement of affairs is prepared before the preparation of profit and loss statement.

Q8) State the difference between Profit& loss account and Deficiency account.

A8) The difference between Profit& loss account and Deficiency account are-

1. Presentation of capital- In Deficiency account, capital is shown on the left side of deficiency a/c but in Profit & loss a/c, capital is not shown in profit & loss a/c.
2. Time of preparation- Deficiency a/c is prepared after adjudication of the court whereas Profit & loss a/c is prepared at the end of accounting year.
3. Period of preparation- Deficiency a/c is prepared for the period from the date of commencement to the date of adjudication of insolvency whereas Profit & loss a/c is prepared for the financial year.
4. Subject matter- In deficiency a/c, capital a/c, Profit & loss a/c of different years, loss on assets, deficiency a/c etc are shown but in Profit & loss a/c, revenue income and revenue expenditures are shown.
5. Balance of account- Balance of a/c may be either deficiency or surplus in deficiency account whereas balance of a/c may be net profit or net loss.
6. Presentation of private assets and liabilities- Difference of private assets and private liabilities is recorded in deficiency a/c whereas difference of private assets and liabilities is not recorded in this liabilities a/c.
7. Objects- Deficiency account’s main object is to find out deficiency or surplus whereas profit & loss account’s main object is to find out net profit or net loss.

Q9) What is P.T.A?

A9) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required.

Q10) What is the purpose of P.T.A?

A10) The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

Q11) What is P.I.A?

A11) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking.

Q12) Why PIAs are used?

A12) PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.

Q13) What is Insolvency Accounting as per P.T.A and P.I.A rule including omission of items from records?

A13) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource, including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis. MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

Q14) Give a comparative study of P.T.A and P.I.A

A14) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to: • Identify programs and systems that are privacy-sensitive; • Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system; • Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and • Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance. MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. 1 Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. 2 The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource,3 including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form4 in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis.5 MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).6 After completing a PTA, the privacy team will provide the program manager or system owner with a determination on whether a PIA is required.7 If it is determined that a PIA is required, a PIA should be drafted by the project manager or system owner in collaboration with the privacy team. PIAs are usually required when:

• Developing or procuring any new technologies or systems that handle or collect PII.

• Creating a new program, system, technology, or information collection that may have privacy implications.

• Updating a system that results in new privacy risks.

• Issuing a new or updated rulemaking that entails the collection of PII.

Q15) What are insolvency laws and their rules?

A15) Insolvency occurs when an individual, company, or other organization cannot meet its financial obligations for paying debts as they become due. Bankruptcy is not exactly the same as insolvency. Bankruptcy is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency. Insolvency describes a situation where the debtor is unable to meet his/her obligations. Bankruptcy is a legal scheme in which an insolvent debtor seeks relief. The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL). The powers and jurisdiction of Company Law Board, Board of Industrial and Financial Reconstruction and High Court in this regard, is being exercised by National Company Law Tribunal and Appellate Tribunal. The purpose of creation of the Tribunal is to avoid multiplicity of litigation before various courts or quasi-judicial bodies or forums regarding revival or rehabilitation or merger and amalgamation, and winding up of companies. Before the enactment of the Insolvency and Bankruptcy Code, there was no single law in the country to deal with insolvency and bankruptcy. There were multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals in India. The framework for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delays in resolution. The legal and institutional framework did not aid lenders in effective and timely recovery or restructuring of defaulted assets and causes undue strain on the Indian credit system. The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) empowered banks or financial institutions with a presence in India or which have been notified by the Government of India to recover on non-performing assets without court intervention. An asset is classified as non-performing if interest or instalments of principal due remain unpaid for more than 180 days. SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs). The Insolvency Law Committee constituted by the Ministry of Corporate Affairs submitted second part of its Report in October 2018 after deliberating on the existing provisions of cross-border insolvency in the Insolvency and Bankruptcy Code, 2016 (sections 234 and 235) and the UNCITRAL Model Law on Cross Border Insolvency. The Committee noted that the existing provisions in the Code do not provide a comprehensive framework for cross-border insolvency matters. The Committee provided a comprehensive framework for this purpose based on the UNCITRAL Model Law on Cross-Border Insolvency, 1997. The Committee has proposed a draft Part on Cross Border Insolvency which could be made a part of the Code by inserting a separate part for this purpose. Company Secretaryship being a professional course, the examination standards are set very high, with emphasis on knowledge of concepts, applications, procedures and case laws, for which sole reliance on the contents of this study material may not be enough. Besides, as per the Company Secretaries Regulations, 1982, students are expected to be conversant with the amendments to the laws made up to six months preceding the date of examination. The material may, therefore, be regarded as the basic material and must be read along with the original Bare Acts, Rules, Regulations, Case Law, Student Company Secretary ebulletin and Chartered Secretary published by the Institute as well as recommended readings. This Study Material is based on the provisions which are notified under Insolvency and Bankruptcy Code, 2016 and Companies Act, 2013. The amendments made up to 30th June, 2019 have been incorporated in this study material. However, it may so happen that some developments might have taken place during the printing of the study material and its supply to the students. The students are therefore, advised to refer to the website of the Institute for updating of the study material. Although care has been taken in publishing this study material, yet the possibility of errors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf. Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same are brought to its notice for issue of corrigendum in the Student Company Secretary e-bulletin.

Q16) When a PIA should be conducted?

A16) A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).

Q17) What type of provisions the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes?

A17) The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL).

Q18) What is the objective of the Insolvency and Bankruptcy Code?

A18) The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify.

Q19) What does SARFAESI Act provides?

A19) SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs).

Q20) By which section, a PIA is required and why?

A20) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.

Unit 4

Insolvency Accounting

Q1) What is the meaning of Insolvency?

A1) A bankrupt is someone who cannot pay or settle their debt. If a person or partnership company or an undivided family of Hinduism is unable to fulfil its responsibilities and is in financial difficulty, the court intervenes in the creditor or debtor's own instance and the debtor is his Get the property and the freedom from having to pay his debt, which brings a settlement to abandon the whole thing. A joint-stock company may also go bankrupt, but the necessary measures in this regard will be taken in accordance with the Companies Act. The company is liquidated and its assets must be realized and distributed in accordance with the law.

Bankruptcy and bankruptcy mean the same thing. The latter term is used in the United Kingdom and the former is used in India. This is "if the debtor is unable to pay or fulfil the debt, or if the debtor or the debtor is unable to satisfy the claim, the state is in certain circumstances his property. Through the officers appointed for that purpose, such property is realized in an appropriate proportion among those whose debtors are borrowing or are financially liable. The officers are called official receivers and are appointed by the court.

Q2) What do you mean by accounting from incomplete records?

A2) Accounting records, which are not strictly kept according to double entry system are known as incomplete records. Many authors describe it as single-entry system. However, single entry system is a misnomer because there is no such system of maintaining accounting records. It is also not a ‘short cut’ method as an alternative to double entry system. It is rather a mechanism of maintaining records whereby some transactions are recorded with proper debits and credits while in case of others, either one sided or no entry is made. Normally, under this system records of cash and personal accounts of debtors and creditors are properly maintained, while the information relating to assets, liabilities, expenses and revenues is partially recorded. Hence, these are usually referred as incomplete records.

The limitations of incomplete records are as follows: (a) As double entry system is not followed; a trial balance cannot be prepared and accuracy of accounts cannot be ensured. (b) Correct ascertainment and evaluation of financial result of business operations cannot be made. (c) Analysis of profitability, liquidity and solvency of the business cannot be done. This may cause a problem in raising funds from outsiders and planning future business activities. (d) The owners face great difficulty in filing an insurance claim with an insurance company in case of loss of inventory by fire or theft. (e) It becomes difficult to convince the income tax authorities about the reliability of the computed income.

Q3) What are the advantages of accounting from incomplete records?

A3)

1. Maintenance of Cash Rook: A cash book is usually maintained. But the business transactions and the personal transactions of the proprietor are usually mixed up.
2. Maintenance of Personal Accounts: If there are credit sales and credit purchase the Personal Accounts of customers (debtors) and suppliers (creditors) are maintained. Rut the Real and Nominal Accounts are avoided. In other words, the accounts of fixed assets, liabilities, expenses and income are not maintained.
3. No Uniformity: The adoption of this system is not uniform. It differs from firm to firm as per their individual requirements and convenience.
4. Dependence on original vouchers: To ascertain profit or loss or to collect information for any other purpose, necessary figures can be collected only from the original vouchers such as purchase invoice, sales invoice etc. Thus, dependence on original vouchers is inevitable.
5. Preparation of Final Accounts: The final accounts cannot be prepared easily. It is possible to prepare the Trading and Profit & Loss Account only after the available information has been converted into double entry records arid the missing figures have been found out. The figures of assets and liabilities computed from incomplete records ore not very reliable as they; we based on mere estimates. Hence the statement of assets and liabilities prepared at the end of the accounting period under this system is called as 'Statement of Affairs' instead of "Balance Sheet".

Q4) What are the disadvantages of accounting from incomplete records?

A4) Single Entry System signifies the incompleteness and insufficiency of information. Hence, it suffers from certain limitations which can be summarised as follows:

1. The arithmetical accuracy of the books of account cannot be checked as it is not possible to prepare a Trial Balance in the absence of real and nominal accounts.

2. Any information obtained under this system will not be free from doubt and so is unreliable.

3. It is not possible to prepare a Trading Account and find out the rate of gross profit earned by the firm. In the absence of gross profit margin, the performance of the firm cannot be compared with that of other firms or with the past. This also affects proper planning and sound decision-making.

4. True profit or loss and information about assets and liabilities, cannot be obtained with certainty. Hence, it is not possible to a9sess financial soundness of the firm.

5. In the absence of proper and reliable balance sheet, the firm may not be able to avail itself of the various financial facilities from banks such as overdraft facilities or loan facilities.

6. The system generates a spirit of laxity on the part of the employees which may result in frauds.

Q5) What is the difference between single entry and double entry system?

A5) The differences between single entry and double entry system are listed below: 

Q6) What are the steps that are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information?

A6) If it is desired to calculate the profit by preparing Trading and Profit and Loss account under single entry then it is called a conversion method. Following steps are necessary to prepare Trading and Profit and Loss account and Balance Sheet from incomplete information.

Step 1: Opening Statement of Affairs: Prepare a statement of affairs in the beginning so as to calculate capital in the beginning. Take up the Statement of Affairs at the end of the earlier trading stage and open all those accounts which have not previously been opened. First, we need to find out the opening capital by preparing the opening Statement of Affairs. Usually, under the Single-Entry System, cash, bank, and personal accounts are maintained.

Step 2: Other Accounts: From the debit side of the Cash Account, accounts other than the bank account and accounts of customers (on the presupposition that such accounts are previously maintained) should be credited. Then prepare (i) Total debtors account, and (ii) Total Creditors account, to find out credit sales, credit purchases, creditors or debtors balance either in the beginning or at the end.

The Cash Book/Cash Account should be prepared cautiously to find out missing figures such as sales, expenses, drawings, and closing balance of Cash/Bank, etc. From the credit side of the Cash Account, various accounts (other than the bank account and accounts of creditors) should be debited. On this side of the Cash Account, will be found amounts paid for cash purchases, for various expenses and for various assets acquired. All these accounts will be debited.

Step 3: Total sales and total purchase: After preparing these accounts, calculate

(1) Total sales, by adding cash sales and credit sales, and

(2) Total purchases by adding cash purchases and credit purchases.

If a Petty Cash Book is maintained, the monthly analysis will have to be posted in the ledger various accounts for expenses debited and the total credited to Petty Cash Account. Total Debtors Account, Total Creditors Account, Bills Receivable Account and Bills Payable Account should be arranged. The debit to the Petty Cash Account must already have been completed from the Cash or Bank Account. These accounts will help to find out figures like Credit Sales, Credit Purchases, Balances of Debtors, Creditors, Bills payable and Bills receivable correspondingly.

Total Sales will be Cash Sales + Credit Sales. Total Purchases will be Cash Purchases + Credit Purchases

Step 4: Final Account: Necessary journal entries for the adjustments should be made as per information provided in the predicament. Now prepare Trading, Profit and Loss Account, and Balance Sheet. Finally, the Profit and Loss Account and The Balance Sheet can be prepared.

Q7) State the difference between balance sheet and statement of affairs.

A7) The difference between balance sheet and statement of affairs are-

1. Balance sheet is prepared based on double entry system. Statement of affairs is a single and incomplete entry.
2. Balance sheet is prepared to present financial position of a business entity at a given date. Statement of affairs is prepared to find out the amount of capital either opening or closing.
3. Balance sheet shows assets at book value. Statement of affairs shows assets at both book value and market value.
4. Balance sheet is usually prepared at the end of the financial year. Statement of affairs is prepared for the date when the order is given against the debtor.
5. A balance sheet has to obey accounting practices, standards, concepts and policies. A statement of affairs has to be prepared according to the insolvency act.
6. Balance sheet adheres to going concern concept believing that these assets and liabilities will remain with the organization for a period. Statement of affairs considers realizable and payable values of the assets and liabilities to the present date, which is against to the going concern concept.
7. Balance sheet is prepared as the final financial statement of the general manual accounting procedure. Statement of affairs is prepared before the preparation of profit and loss statement.

Q8) State the difference between Profit& loss account and Deficiency account.

A8) The difference between Profit& loss account and Deficiency account are-

1. Presentation of capital- In Deficiency account, capital is shown on the left side of deficiency a/c but in Profit & loss a/c, capital is not shown in profit & loss a/c.
2. Time of preparation- Deficiency a/c is prepared after adjudication of the court whereas Profit & loss a/c is prepared at the end of accounting year.
3. Period of preparation- Deficiency a/c is prepared for the period from the date of commencement to the date of adjudication of insolvency whereas Profit & loss a/c is prepared for the financial year.
4. Subject matter- In deficiency a/c, capital a/c, Profit & loss a/c of different years, loss on assets, deficiency a/c etc are shown but in Profit & loss a/c, revenue income and revenue expenditures are shown.
5. Balance of account- Balance of a/c may be either deficiency or surplus in deficiency account whereas balance of a/c may be net profit or net loss.
6. Presentation of private assets and liabilities- Difference of private assets and private liabilities is recorded in deficiency a/c whereas difference of private assets and liabilities is not recorded in this liabilities a/c.
7. Objects- Deficiency account’s main object is to find out deficiency or surplus whereas profit & loss account’s main object is to find out net profit or net loss.

Q9) What is P.T.A?

A9) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required.

Q10) What is the purpose of P.T.A?

A10) The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

Q11) What is P.I.A?

A11) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking.

Q12) Why PIAs are used?

A12) PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.

Q13) What is Insolvency Accounting as per P.T.A and P.I.A rule including omission of items from records?

A13) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to:

• Identify programs and systems that are privacy-sensitive;
• Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system;
• Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and
• Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance.

MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource, including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis. MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

Q14) Give a comparative study of P.T.A and P.I.A

A14) A PTA is a questionnaire used to determine if a system contains personally identifiable information (PII), whether a PIA is required, whether a System of Records Notice (SORN) is required, and if any other privacy requirements apply to the information system. While not required by statute, regulation or guidance, a PTA is a tool that helps MSPB to determine whether an MSPB program or system has privacy implications and whether additional privacy compliance documents are required. The purpose of the PTA is to: • Identify programs and systems that are privacy-sensitive; • Demonstrate MSPB’s considerations and inclusions of privacy during the review of a program or system; • Provide a record of the program or system and its privacy requirements to MSPB’s privacy team; and • Demonstrate MSPB’s compliance with privacy laws, regulations, and Government-wide guidance. MSPB begins the privacy compliance process with a PTA, which serves as the official determination by MSPB as to whether an MSPB program or system has privacy implications. 1 Program managers and system owners should collaborate with the privacy team to complete a PTA whenever they believe a program, system (whether new or substantially changed), or information collection involves PII or privacy-sensitive technologies. A PTA is used by MSPB to determine whether a PIA is required.

A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII. 2 The Office of Management and Budget (OMB) has established a government-wide policy for managing information as a strategic resource,3 including a requirement for Federal agencies to ensure compliance with privacy requirements and manage privacy risk. Under this policy, OMB has defined a PIA as an analysis of how information is handled to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; to determine the risks and effects of creating, collecting, using, processing, storing, maintaining, disseminating, disclosing, and disposing of information in identifiable form4 in an electronic information system; and to examine and evaluate protections and alternate processes for handling information to mitigate potential privacy concerns. A privacy impact assessment is both an analysis and a formal document detailing the process and the outcome of the analysis.5 MSPB’s PIAs demonstrate that we have considered privacy for the lifecycle of a program or system, including the collection, maintenance, dissemination, use, and destruction of information in identifiable form. The PIA process ensures that we have identified and mitigated any privacy risks and that privacy is “baked-in” to the project or system from the start and that we have made system considerations that incorporate privacy into the system architecture.

A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).6 After completing a PTA, the privacy team will provide the program manager or system owner with a determination on whether a PIA is required.7 If it is determined that a PIA is required, a PIA should be drafted by the project manager or system owner in collaboration with the privacy team. PIAs are usually required when:

• Developing or procuring any new technologies or systems that handle or collect PII.

• Creating a new program, system, technology, or information collection that may have privacy implications.

• Updating a system that results in new privacy risks.

• Issuing a new or updated rulemaking that entails the collection of PII.

Q15) What are insolvency laws and their rules?

A15) Insolvency occurs when an individual, company, or other organization cannot meet its financial obligations for paying debts as they become due. Bankruptcy is not exactly the same as insolvency. Bankruptcy is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency. Insolvency describes a situation where the debtor is unable to meet his/her obligations. Bankruptcy is a legal scheme in which an insolvent debtor seeks relief. The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL). The powers and jurisdiction of Company Law Board, Board of Industrial and Financial Reconstruction and High Court in this regard, is being exercised by National Company Law Tribunal and Appellate Tribunal. The purpose of creation of the Tribunal is to avoid multiplicity of litigation before various courts or quasi-judicial bodies or forums regarding revival or rehabilitation or merger and amalgamation, and winding up of companies. Before the enactment of the Insolvency and Bankruptcy Code, there was no single law in the country to deal with insolvency and bankruptcy. There were multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals in India. The framework for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delays in resolution. The legal and institutional framework did not aid lenders in effective and timely recovery or restructuring of defaulted assets and causes undue strain on the Indian credit system. The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) empowered banks or financial institutions with a presence in India or which have been notified by the Government of India to recover on non-performing assets without court intervention. An asset is classified as non-performing if interest or instalments of principal due remain unpaid for more than 180 days. SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs). The Insolvency Law Committee constituted by the Ministry of Corporate Affairs submitted second part of its Report in October 2018 after deliberating on the existing provisions of cross-border insolvency in the Insolvency and Bankruptcy Code, 2016 (sections 234 and 235) and the UNCITRAL Model Law on Cross Border Insolvency. The Committee noted that the existing provisions in the Code do not provide a comprehensive framework for cross-border insolvency matters. The Committee provided a comprehensive framework for this purpose based on the UNCITRAL Model Law on Cross-Border Insolvency, 1997. The Committee has proposed a draft Part on Cross Border Insolvency which could be made a part of the Code by inserting a separate part for this purpose. Company Secretaryship being a professional course, the examination standards are set very high, with emphasis on knowledge of concepts, applications, procedures and case laws, for which sole reliance on the contents of this study material may not be enough. Besides, as per the Company Secretaries Regulations, 1982, students are expected to be conversant with the amendments to the laws made up to six months preceding the date of examination. The material may, therefore, be regarded as the basic material and must be read along with the original Bare Acts, Rules, Regulations, Case Law, Student Company Secretary ebulletin and Chartered Secretary published by the Institute as well as recommended readings. This Study Material is based on the provisions which are notified under Insolvency and Bankruptcy Code, 2016 and Companies Act, 2013. The amendments made up to 30th June, 2019 have been incorporated in this study material. However, it may so happen that some developments might have taken place during the printing of the study material and its supply to the students. The students are therefore, advised to refer to the website of the Institute for updating of the study material. Although care has been taken in publishing this study material, yet the possibility of errors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf. Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same are brought to its notice for issue of corrigendum in the Student Company Secretary e-bulletin.

Q16) When a PIA should be conducted?

A16) A PIA should be conducted before developing or procuring IT systems or projects that collect, maintain or disseminate information in identifiable form from or about members of the public, or initiating, consistent with the Paperwork Reduction Act, a new electronic collection of information in identifiable form for 10 or more persons (excluding agencies, instrumentalities or employees of the federal government).

Q17) What type of provisions the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes?

A17) The Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 includes provision for determination of sickness, application for revival, appointment of interim/Company administrator, time bound revival process and if revival not possible, liquidation process through single regulator ‘National Company Law Tribunal’. The Companies Act, 2013 provides for regulation of insolvency, including revival, winding-up and liquidation of companies in time bound manner. It incorporates international best practices based on models suggested by the United Nations Commission on International Trade Law (UNCITRAL).

Q18) What is the objective of the Insolvency and Bankruptcy Code?

A18) The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. The Code applies to companies, partnerships, limited liability partnerships, individuals and any other body which the central government may specify.

Q19) What does SARFAESI Act provides?

A19) SARFAESI Act provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. Recovery of Debts and Bankruptcy Act, 1993 is an Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides a procedure that is distinct from the existing Code of Civil Procedure in order to ensure a speedy adjudication. The Act also provides for the setting up of a separate set of tribunals to hear such matters and these tribunals are termed as Debt Recovery Tribunals (DRTs).

Q20) By which section, a PIA is required and why?

A20) A PIA is required by Section 208 of the E-Government Act of 2002 to ensure sufficient protections for the privacy of personal information. PIAs analyse how MSPB collects, uses, disseminates, and maintains PII, and documents how MSPB incorporates privacy concerns through the development, design, and deployment of a technology, program, or rulemaking. PIAs are used to conduct reviews of how information about individuals is handled within MSPB when we use information technology (IT) to collect PII, when MSPB develops or purchases new IT systems that handle PII, or when there is a substantial change to an IT system that handles PII.