ACCOUNTING FOR ALL — GRADE 10

Office Operations and Accounting

Aligned with the Official Curriculum of the Curriculum Development Centre (CDC), Government of Nepal

Book Overview and Pedagogical Approach

This comprehensive Grade 10 textbook covers the entire CDC Grade 10 Office Operations and Accounting syllabus for the Secondary Education Examination (SEE). Every chapter integrates conceptual theory, regulatory frameworks from Nepalese public and financial institutions, standard accounting proformas, step-by-step solved numerical problems, and SEE board examination practice exercises.

Official SEE Examination Specification Grid (75 Theory + 25 Practical = 100 Marks)

The external written examination carries 75 Marks (Time: 3 Hours) and internal practical assessment carries 25 Marks:

Chapters

Study Strategy for SEE Students

1. Master Both Theory and Numericals: Office Procedure, Filing, Banking/Insurance, Tax, and Institutional chapters are purely theoretical and guarantee full marks when written in structured points.
2. Practice Standard Formats: Always draw clean ruled tables with proper column headings, AGF form numbers, and narrations for Bank Reconciliation Statement (Ch 6), Rectification of Errors (Ch 7), Final Accounts (Ch 8), and Government Expenditure Accounts (Ch 11).
3. Memorize 5-Digit Codes and AGF Numbers: Very Short Answer (1-mark) questions frequently test budget head codes (e.g., 21111 Remuneration, 22111 Water and Electricity), revenue codes (11000–15000), and Auditor General Form numbers (AGF No. 101 to AGF No. 604).

Solutions

Worked answers to the exercises at the end of every chapter, and to the whole model question paper, are in the Solutions section at the end of the book, starting with Chapter 1 Solutions. Try each exercise on your own first.

Chapter 1: Office Management and Procedures

1.1 Concept and Meaning of Office Management

An Office is the administrative center of an organization where information is collected, processed, recorded, and communicated to execute organizational goals. Office Management refers to the art and science of planning, organizing, directing, coordinating, and controlling office activities and human/physical resources to achieve the predetermined objectives of an organization efficiently and economically.

Importance and Functions of Office Management

1. Smooth Execution of Administrative Work: Coordinates daily correspondence, record-keeping, and service delivery without delay.
2. Optimum Utilization of Resources: Ensures human resources (manpower), financial resources (budget), and physical materials (furniture, IT equipment) are utilized without wastage.
3. Support in Planning and Decision-Making: Supplies accurate, timely facts and records to executives for formulating policies and making administrative decisions.
4. Cost Control and Efficiency: Establishes standard workflows that minimize duplication of effort and reduce operational expenses.
5. Public Relations and Goodwill: Enhances the public image of government and business entities through prompt and transparent service delivery.
6. Coordination Among Departments: Acts as the communication link connecting finance, store, human resources, and executive departments.

1.2 Office Procedures

Office Procedure refers to the systematic, step-by-step sequence of performing administrative tasks—such as handling incoming/outgoing mail (Darta and Chalani), drafting memos, submitting proposals for decisions, and preparing reports—according to prevailing laws, rules, and organizational manuals.

The three primary decision-making and reporting procedures in Nepalese offices are:

1. Tippani (Official Memo for Decision)
2. Report
3. Resolution / Prastabana

1.3 Tippani (Official Note for Decision)

Meaning and Definition

Tippani is a written statement or official note initiated by a lower-level assistant or section officer and submitted upward through the administrative hierarchy to the authorized decision-making authority (such as the Head of Office, Department Chief, or Minister) to reach a formal decision on an unclear policy, problem, or new administrative matter.

• It states the current problem/subject, facts and background, relevant legal provisions (Acts/Rules), financial implications, and opinions/recommendations of subordinate levels so the executive can approve, modify, or reject the proposal.

Objectives and Importance of Tippani

1. Facilitates Informed Decision-Making: Provides complete facts, past precedents, and legal rules so the chief can make an objective decision.
2. Legal and Documentary Evidence: Serves as permanent official proof of why, how, and by whom a decision was made.
3. Clarifies Ambiguity: Helps amend unclear rules or create new working procedures when existing rules are silent.
4. Participatory Administration: Involves operational-level staff, section heads, and legal/account officers in the decision process before final approval.
5. Maintains Continuity: Guides future officers when similar administrative problems arise.

Considerations for Drafting a Tippani

The following points must be considered while drafting a Tippani:

1. Clear Subject Heading: The subject of the Tippani must be written clearly and concisely at the top.
2. Left Margin Space: A one-fourth (1/4) margin must be left blank on the left side of the Tippani sheet for remarks or instructions by higher authorities.
3. Sequential Order of Facts: Start with the background/problem, followed by related legal provisions, budget availability, and clear suggestions/opinions.
4. Attachment of Supporting Documents: Relevant letters, bills, quotations, or legal clauses must be enclosed and indexed by page/serial number.
5. Polite, Simple, and Unbiased Language: Avoid ambiguous, emotional, or overly complex wording.
6. Signature, Designation, and Date: Every official forwarding or deciding on the Tippani must sign with their name, designation, and date in chronological order.

Specimen Format of a Tippani

1.4 Report

Meaning and Structure

A Report is a formal, factual, and analytical written account prepared by an individual, committee, or office after investigating, inspecting, or completing a specific event, project, or financial period. Every standard report has three main parts:

1. Introduction: Title of the report, date, name of the recipient authority, terms of reference, and objectives of the study.
2. Body of the Report: Methodology used, facts discovered, data tables, inspection findings, and analysis of problems.
3. Conclusion and Recommendations: Summary of findings, actionable recommendations for improvement, and signature/date of the report writer(s).

Types of Reports

1. Annual/Periodic Report: Prepared at the end of a month, quarter, or fiscal year summarizing physical and financial progress.
2. Audit Report: Prepared by an internal auditor (DTCO) or final auditor (OAG) after examining financial accounts and vouchers.
3. Committee/Commission Report: Prepared by an investigation or study committee formed for a specific issue.
4. Educational/Field Visit Report: Prepared by students or employees after completing an observation tour or training program.
5. Feasibility Report: Prepared before launching a new project or business to evaluate technical and financial viability.

Considerations for Writing an Effective Report

• Must be grounded in verified facts, observations, and primary data rather than personal bias.
• Language should be clear, concise, and structured under logical headings.
• Must clearly mention the date, place, objectives, findings, and practical recommendations.

1.5 Resolution / Prastabana

Meaning and Types

A Resolution or Proposal is a formal motion or agenda item presented in a meeting or assembly (such as a Board of Directors meeting, Annual General Meeting, or Rural/Urban Municipal Assembly) for collective discussion and decision. Once approved by a majority vote or consensus, a Prastabana becomes a binding Decision/Resolution recorded in the Minute Book.

1.6 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is meant by office management?
2. Name the two main office procedures related to decision-making.
3. What is a Tippani?
4. State the three main parts of a report.
5. What is a Special Resolution?

Group B: Short Answer Questions (5 Marks Each)

1. What is office procedure? Explain any four points of importance of office procedure.
2. Define Tippani. Write any four considerations to be followed while drafting a Tippani.
3. What is a report? Explain the different types of reports used in government and business offices.

Worked answers to these exercises are in Chapter 1 Solutions.

Chapter 2: Filing and Indexing

2.1 Concept and Need of Filing

Filing is the systematic process of classifying, arranging, and preserving important office letters, vouchers, deeds, contracts, and records safely so that they can be located and retrieved quickly whenever required in the future.

• In the words of G.R. Terry: “Filing is the placing of documents and papers in acceptable containers according to some predetermined arrangement so that any of them when required may be located quickly and conveniently.”

Objectives and Importance of Filing

1. Preservation of Documents: Protects valuable vouchers, agreements, and correspondence from dust, insects, moisture, fire, and theft.
2. Ready Reference: Enables employees to retrieve past records rapidly without wasting time.
3. Documentary Evidence: Filed documents serve as legal proof in court disputes, tax assessments, and audit verifications.
4. Basis for Future Planning and Policy Formulation: Provides historical data and past precedents for formulating future budgets and policies.
5. Follow-up and Prompt Correspondence: Helps track pending letters, unpaid bills, and ongoing contracts.

2.2 Systems/Methods of Filing

Filing systems are broadly divided into Traditional Filing Methods and Modern Filing Methods:

A. Traditional Filing Methods

1. Misil Filing: Documents related to a single legal case or subject are tied together in chronological order using a red/white cotton ribbon inside a thick Nepali paper cover. Widely used in Nepalese courts, Land Revenue Offices, and District Administration Offices.
2. Box Filing: Papers are kept loosely inside a wooden, metal, or cardboard box with a spring clip. Suitable only for temporary or domestic documents.
3. Wooden Plank Filing: Papers are placed between two flat wooden planks and tied tightly with a cord. Used in traditional revenue/accounting records.
4. Wire/Spike Filing: A thick steel wire with a sharp upward point fixed on a wooden/metal base where receipts or bills are pierced in chronological order.
5. Pigeonhole Filing: A wooden cupboard divided into many small compartments (like pigeonholes) labeled with Nepali consonants or English letters (A to Z) for sorting mail.

B. Modern Filing Methods

2.3 Methods of Classification of Files

To arrange folders systematically inside modern filing cabinets, offices use five main methods of classification:

1. Alphabetical Classification

Files are arranged according to the first letter of the person’s, firm’s, or organization’s name in dictionary order (A, B, C… Z).

• Merits: Simple to understand; self-indexing (no separate index required); easy to add new files under any letter.
• Demerits: Confusion occurs when multiple persons share the same name (e.g., Ram Bahadur Thapa); difficult to estimate how much space each letter will need; secrecy is not maintained since names are openly visible.

2. Numerical Classification

Each correspondent, client, or file is assigned a unique serial number (1, 2, 3… or 101, 102…), and folders are arranged strictly in numerical order. A separate Alphabetical Index Card is required to find which number belongs to which person.

• Merits: High secrecy (outsiders see only numbers); unlimited expansion (new files simply take the next number); zero confusion among identical names; file number can be used as a reference code on letters/vouchers.
• Demerits: Indirect system requiring a separate index (costly and time-consuming); transposition errors in reading digits (e.g., 142 vs 124) can misplace a file.

3. Subject-wise Classification

All letters and documents relating to a particular topic or subject (e.g., Audit, Budget, Building Construction, Taxation, Staff Leave) are grouped together under that subject heading, arranged alphabetically by subject.

• Merits: Extremely useful when subject matter is more important than the correspondent’s name; all documents on a topic are found in one folder for quick Tippani or report writing.
• Demerits: Difficult to classify a letter that covers two or more subjects; requires cross-referencing cards; slow if one only remembers the sender’s name and not the subject.

4. Geographical Classification

Files are grouped according to geographical locations—such as Province → District → Municipality/Rural Municipality → Ward → Customer/Office Name.

• Merits: Ideal for banks, insurance companies, electricity/water utilities, and sales/distribution departments; helps evaluate regional performance.
• Demerits: Requires thorough geographical knowledge; requires a separate index if the customer’s address changes or is forgotten.

5. Chronological Classification

Documents and vouchers are filed strictly in the order of date and time of occurrence (Year → Month → Day).

• Merits: Essential for accounting vouchers (Journal Vouchers, invoices, Darta/Chalani registers); very simple to maintain daily records.
• Demerits: Cannot locate a document if the exact date of the transaction is unknown; separates multiple letters from the same person across different dates.

2.4 Indexing

Meaning and Importance of Indexing

Indexing is a guide, indicator, or pointer that helps locate the exact position of a specific file, ledger account, or document quickly. Just as a book’s table of contents guides a reader to a page number, an office index guides the clerk to the exact cabinet, drawer, and folder number.

Types of Indexing

1. Book/Page Index: Bound book or register with alphabetical cut-tabs on the right edge (used in ledgers and registers).
2. Loose-Leaf Index: Sheets held in metal hinges so pages can be added or removed as needed.
3. Vowel Index: Used by large organizations where each consonant section (R, S, etc.) is further subdivided by the first vowel following the initial letter (a, e, i, o, u — e.g., Ram under R-a, Rishi under R-i).
4. Card Index: Thick uniform cards (5“ × 3“) kept vertically in drawers, each containing the name, address, and file number of one client (widely used in libraries, hospitals, and numerical filing).
5. Visible Card Index / Strip Index: Cards or strips mounted overlapping on flat metal trays or rotary wheels so names and file numbers are visible at a glance.
6. Digital/Electronic Index: Database search index by ID, PAN, name, or keyword.

Differences Between Filing and Indexing

2.5 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is filing?
2. What is Misil filing?
3. Which classification of filing requires a separate index?
4. Define indexing.

Group B: Short Answer Questions (5 Marks Each)

1. Differentiate between Horizontal (Flat) Filing and Vertical (Upright) Filing in five points.
2. What is Alphabetical Classification of filing? Write any two merits and two demerits of it.
3. Explain Numerical Classification of filing along with its advantages and disadvantages.
4. What is indexing? Write any five differences between filing and indexing.

Worked answers to these exercises are in Chapter 2 Solutions.

Chapter 3: Bank, Insurance, and Financial Institutions

3.1 Concept and Types of Banks in Nepal

A Bank is a financial institution established under prevailing law that accepts deposits from the general public (paying interest) and grants loans/advances to individuals, businesses, and productive sectors (charging interest), while performing agency, remittance, and utility services.

• Historical Milestone: Nepal Bank Limited, established on 1994 Kartik 30 B.S. (1937 November 15 A.D.), is the first bank of Nepal.

Classification of Banks in Nepal under BAFIA, 2073

Under the Bank and Financial Institution Act (BAFIA), 2073, Nepal Rastra Bank (NRB) classifies banks and financial institutions into the Central Bank plus four licensed classes (Class A, B, C, and D) and Infrastructure Development Bank:

3.2 Functions of Central Bank — Nepal Rastra Bank

The major functions of the Central Bank are:

1. Monopoly of Note and Coin Issue: Issues Nepalese currency notes and coins keeping minimum 100% proportional reserves of gold, silver, foreign exchange, and government securities.
2. Banker, Advisor, and Financial Agent to the Government: Maintains government treasury accounts (TSA), manages public debt/treasury bills, and advises the Ministry of Finance on economic and fiscal policy.
3. Banker’s Bank and Lender of Last Resort: Grants licenses to Class A, B, C, and D institutions, holds their Cash Reserve Ratio (CRR), conducts clearinghouse operations, and provides emergency liquidity loans during financial crises.
4. Formulation and Implementation of Monetary Policy: Formulates the annual Monetary Policy to control inflation, regulate interest rates, and maintain price and balance-of-payments stability.
5. Control of Credit: Uses quantitative and qualitative tools (Bank Rate, CRR, Statutory Liquidity Ratio - SLR, Open Market Operations) to expand or contract credit supply.
6. Management and Custody of Foreign Exchange: Determines exchange rates (including the pegged rate with Indian currency and market rates for convertible currencies) and safeguards national foreign exchange reserves.

3.3 Functions of Commercial Banks

1. Primary Functions:
   • Accepting Deposits: Current/Demand Deposit (no interest, unlimited withdrawals for businesses), Saving Deposit (moderate interest, limited withdrawals), and Fixed/Time Deposit (highest interest rate for a fixed maturity period).
   • Granting Loans and Advances: Overdraft, Cash Credit, Term Loans, Home/Auto/Education Loans, and discounting of bills of exchange against collateral.
2. Secondary (Agency & Utility) Functions:
   • Remittance and Fund Transfer: Domestic and international transfer via bank draft, SWIFT, and remittance networks.
   • Opening Letters of Credit: Guarantees payment to foreign exporters in international trade.
   • Agency Services: Collection of cheques, dividends, pensions, utility payments, and locker facilities for safe custody of gold/documents.

3.4 Modern Banking Instruments

1. Cheque — Parties, Types, and Rules of Dishonor

A Cheque is an unconditional written order drawn by an account holder directing their bank to pay a specified sum of money on demand to the person named therein or to the bearer.

• Three Parties to a Cheque:
  1. Drawer: The account holder who writes and signs the cheque.
  2. Drawee: The bank on which the cheque is drawn.
  3. Payee: The person or institution named on the cheque who receives the money.
• Types of Cheques:
  1. Bearer Cheque: Payable over the counter to anyone who presents it at the bank (“or bearer” is not struck out). Risky if lost.
  2. Order Cheque: Payable only to the named person or someone endorsed by them after verifying identity on the back.
  3. Crossed Cheque: Has two parallel transverse lines drawn on the top-left corner (with or without “A/C Payee Only”). Cannot be encashed over the counter; must be deposited into a bank account—making it the safest cheque.
• Causes of Dishonor of a Cheque: Insufficient balance in the account, mismatch of drawer’s signature, difference between amount in words and figures, post-dated or stale cheque (older than 6 months), overwriting without signature, or account frozen by court/NRB order.

2. Electronic Cards, Digital Banking, SWIFT, and Remittance

• ATM / Debit Card vs. Credit Card: A Debit Card allows the account holder to withdraw cash or pay at POS/online using money already available in their bank account, whereas a Credit Card allows the cardholder to borrow funds up to a pre-approved credit limit and repay within a grace period.
• Mobile & Internet Banking / QR Payment: 24/7 digital banking via smartphones and web portals for fund transfers (ConnectIPS, Fonepay), bill payments, and account statements.
• SWIFT (Society for Worldwide Interbank Financial Telecommunication): Global secure messaging network using 8- or 11-character SWIFT/BIC codes to execute international wire transfers between banks worldwide.
• Remittance: Money sent home by migrant workers employed abroad through formal banking or licensed remittance channels, forming a vital source of Nepal’s foreign exchange reserves.

3.5 Insurance: Concept, Principles, and Types

Meaning of Insurance

Insurance is a legal contract between two parties—the Insurer (Insurance Company) and the Insured (Policyholder)—under which the insurer promises to compensate the insured for financial loss caused by an uncertain future event (or pay a fixed sum upon maturity/death) in exchange for a periodic payment called Premium.

• In Nepal, the insurance sector is regulated by the Nepal Insurance Authority (NIA) under the Insurance Act, 2079 (formerly known as Beema Samiti / Insurance Board).

Fundamental Principles of Insurance

1. Principle of Utmost Good Faith (Uberrimae Fidei): Both insured and insurer must disclose all material facts truthfully without concealment.
2. Principle of Insurable Interest: The insured must have a direct financial interest in the life or property insured such that its preservation benefits them and its loss causes financial harm.
3. Principle of Indemnity: Applicable to Non-Life Insurance (not Life Insurance); the insurer compensates only the actual financial loss suffered (up to the sum insured) so the insured cannot make a profit from a disaster.
4. Principle of Subrogation: Once the insurer pays full compensation for damaged property, ownership rights over the scrap/salvage or legal claim against a third party pass to the insurer.
5. Principle of Proximate Cause: The insurer pays compensation only if the immediate, direct cause of loss is an insured peril named in the policy.
6. Principle of Contribution: If a property is insured with multiple companies, all insurers share the actual loss proportionately.

Types of Insurance

Insurance is divided into Life Insurance, Non-Life (General) Insurance, and Micro-Insurance:

3.6 Other Financial Institutions in Nepal

1. Employees Provident Fund (EPF): Established under the Employees Provident Fund Act, 2019 B.S. (1962 A.D.). Deducts 10% of basic salary of government/institutional employees, adds an equal 10% matching contribution from the employer (total 20%), manages social security benefits (medical, accident, maternity, funeral grants), and provides employee loans and infrastructure financing.
2. Citizen Investment Trust (CIT): Established under the Citizen Investment Trust Act, 2047 B.S. (1991 A.D.). Operates voluntary retirement funds (Employee Growth Retirement Fund, Gratuity Fund, Investor Account Scheme, Citizen Unit Scheme), mobilizes capital market investments, and acts as an issue manager for shares.
3. Deposit and Credit Guarantee Fund (DCGF): Established in 2031 B.S. (governed by the Deposit and Credit Guarantee Fund Act, 2073). Insures natural persons’ savings and fixed deposits in banks/financial institutions (up to the statutory guarantee limit, Rs. 5,00,000 per depositor per bank) and guarantees microfinance, agricultural, and SME loans.
4. Financial Cooperatives: Autonomous associations of persons united voluntarily under the Cooperative Act, 2074, operating on the principle of “Each for all and all for each” to mobilize members’ savings and provide productive loans at reasonable interest rates.

3.7 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. When was Nepal Rastra Bank established?
2. Which is the first bank of Nepal and when was it established?
3. Which regulatory body regulates insurance companies in Nepal?
4. Write the full form of SWIFT and ATM.
5. What percentage of basic salary is deducted for the Employees Provident Fund (EPF)?

Group B: Short Answer Questions (5 Marks Each)

1. Explain any five major functions of the Central Bank (Nepal Rastra Bank).
2. What is a cheque? Explain the three types of cheques used in banking transactions.
3. Differentiate between Life Insurance and Non-Life (General) Insurance in five points.
4. Introduce Employees Provident Fund (EPF) and Citizen Investment Trust (CIT) and state their major functions.

Worked answers to these exercises are in Chapter 3 Solutions.

Chapter 4: Introduction to Tax

4.1 Concept, Meaning, and Objectives of Tax

Tax is a compulsory financial charge or levy imposed by the government (Federal, Provincial, or Local) on individuals, businesses, and goods/services under prevailing law, without any expectation of a direct, quid-pro-quo personal return or benefit to the taxpayer.

• In the words of Prof. Seligman: “A tax is a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to special benefits conferred.”
• In Nepal, domestic tax administration is governed by the Inland Revenue Department (IRD) under the Ministry of Finance.

Objectives and Importance of Taxation

1. Collection of Public Revenue: Primary source of government income to fund administrative expenses, salaries, defense, and public services.
2. Infrastructure and Economic Development: Finances roads, bridges, hydropower, schools, hospitals, and drinking water projects.
3. Reduction of Economic Inequality: Progressive taxation taxes high-income earners at higher rates and funds social security, scholarships, and subsidies for low-income citizens.
4. Protection of Domestic Industries: Imposing higher customs duty on imported luxury/competing goods protects domestic manufacturers.
5. Control of Harmful Consumption and Inflation: Heavy excise duties on tobacco, alcohol, and luxury items discourage harmful consumption and curb excess purchasing power.

4.2 Canons / Principles of Good Taxation

Classical economist Adam Smith (in The Wealth of Nations, 1776) propounded four foundational canons of taxation, supplemented by modern economists:

1. Canon of Equality / Ability to Pay: Citizens should contribute toward the support of the government in proportion to their respective abilities (higher tax rate for higher income).
2. Canon of Certainty: The time of payment, manner of payment, and exact amount to be paid must be clear and certain to the taxpayer and not arbitrary.
3. Canon of Convenience: Every tax ought to be levied at the time and in the manner most convenient for the contributor to pay (e.g., TDS deducted at the time of receiving salary, or VAT paid at the time of buying goods).
4. Canon of Economy: The administrative cost of collecting a tax should be minimal so that almost the entire sum collected enters the state treasury.
5. Modern Canons: Canon of Productivity (generates sufficient revenue), Canon of Elasticity/Flexibility (adjusts with economic growth), Canon of Simplicity (easy to understand), and Canon of Diversity (broad tax base covering direct and indirect sources).

4.3 Classification of Taxes: Direct Tax vs. Indirect Tax

Based on incidence and shifting of the tax burden, taxes are divided into two categories:

1. Direct Tax

A Direct Tax is a tax levied directly on the income, remuneration, profit, or wealth of an individual or legal entity, where the impact and incidence fall on the same person. The taxpayer cannot shift the burden of a direct tax to another person.

• Examples in Nepal:
  • Income Tax: Governed by the Income Tax Act, 2058; levied on Employment Income (Remuneration), Business Profit, and Investment Income.
  • Remuneration / Social Security Tax: Under the Finance Act, 2083 (Fiscal Year 2083/84), the first Rs. 10,00,000 of an individual’s yearly employment income is taxed at only 1% (the social security tax). Income above that is taxed in progressive slabs of 10% (Rs. 10–15 lakh), 20% (Rs. 15–25 lakh) and 27% (above Rs. 25 lakh), with an extra 2% on income above Rs. 40 lakh, making the top rate 29%. The slabs can change with each year’s Finance Act.
  • Property / House and Land Tax: Collected by Local Governments.
  • Vehicle Tax and House & Land Registration Fee: Collected at the Provincial/Local level.
  • Casual Gain Tax: Levied on lottery, prize, or windfall gains (25%).

2. Indirect Tax

An Indirect Tax is a tax levied on the production, import, export, or consumption of goods and services, where the initial tax is paid by the importer, manufacturer, or seller (impact), but the burden is shifted forward to the final consumer (incidence) by adding the tax to the price of the product.

• Examples in Nepal:
  • Value Added Tax (VAT): Governed by the Value Added Tax Act, 2052; a multi-stage consumption tax levied on value added at each stage of production and distribution at a single standard rate of 13% in Nepal (with 0% on exports and exemptions on basic agricultural/medical/educational items).
  • Customs Duty: Levied on goods imported into or exported out of Nepal at border customs offices.
  • Excise Duty: Levied on the manufacture or import of specific goods (such as alcohol, cigarettes, cement, vehicles, and beverages).

Comparison Between Direct Tax and Indirect Tax

4.4 PAN (Permanent Account Number) and Tax Compliance in Nepal

• PAN: A unique 9-digit computer-generated identification number issued by the Inland Revenue Department (IRD) to every taxpayer (Individual PAN for employees/citizens and Business PAN for firms/companies). Under Nepal’s policy of “One Person, One PAN”, salary payments and business transactions require mandatory PAN registration.
• VAT Registration Threshold: Businesses dealing in taxable goods exceeding Rs. 50 Lakhs annual turnover (or Rs. 30 Lakhs for services/mixed transactions) must register for VAT and issue VAT invoices showing the 13% tax separately.

4.5 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is indirect tax?
2. What is the current rate of Value Added Tax (VAT) in Nepal?
3. Write the full form of PAN and VAT.
4. Who propounded the four classical canons of taxation?

Group B: Short Answer Questions (5 Marks Each)

1. What is tax? Explain any four major objectives of levying tax by the government.
2. Differentiate between Direct Tax and Indirect Tax in five points with suitable examples.
3. What is Value Added Tax (VAT)? Explain the features and importance of VAT in Nepal’s revenue system.

Worked answers to these exercises are in Chapter 4 Solutions.

Chapter 5: Business Accounting

5.1 Meaning, Objectives, and Importance of Business Accounting

Business Accounting is the systematic process of identifying, measuring, recording, classifying, summarizing, and interpreting financial transactions of a business enterprise that can be expressed in monetary terms, in order to ascertain its operating result (Profit or Loss) for an accounting period and present its true financial position (Assets, Liabilities, and Equity) on a specific date.

Objectives and Importance of Business Accounting

1. Systematic and Permanent Record: Replaces limited human memory by maintaining chronological and classified records of all monetary transactions in Journal and Ledger books.
2. Ascertainment of Profit or Loss: Prepares the Trading and Profit & Loss Account (Income Statement) at the end of the fiscal year to determine net operating profit or loss.
3. Depiction of True Financial Position: Prepares the Balance Sheet showing total Assets, Liabilities, and Owner’s Capital.
4. Information to Internal and External Stakeholders: Communicates reliable financial reports to owners, management, banks, investors, creditors, employees, and tax authorities.
5. Assessment of Tax Liability: Provides audited financial evidence for assessing Income Tax and Value Added Tax (VAT).
6. Prevention and Detection of Errors and Fraud: Double-entry bookkeeping and Trial Balance verification help detect arithmetic and accounting errors.

5.2 Branches / Types of Accounting Methods

Business organizations utilize three primary branches of accounting based on user needs:

1. Financial Accounting

The foundational branch of accounting concerned with recording historical monetary transactions in the Journal, posting to Ledgers, preparing a Trial Balance, and drafting Final Accounts (Income Statement and Balance Sheet) at the end of the fiscal year.

• Primary Users: External stakeholders (shareholders, banks, creditors, Inland Revenue Department) as well as owners.

2. Cost Accounting

The specialized branch of accounting that records, classifies, and allocates expenditure on raw materials, direct labor, and factory/office overheads to determine the total cost and per-unit cost of manufacturing a product or rendering a service.

• Objectives: Ascertaining exact cost per unit, controlling wastage and unnecessary costs, and fixing a competitive selling price.

3. Management Accounting

The branch of accounting that collects, analyzes, and interprets data from both Financial Accounting and Cost Accounting (using tools like ratio analysis, budgeting, break-even analysis, and cash flow forecasting) to assist internal management in planning, controlling, and policy decision-making.

Differences Between Financial Accounting and Cost Accounting

5.3 Accounting Standards: NAS and NFRS in Nepal

Concept and Need of Accounting Standards

Accounting Standards are authoritative written policy documents, rules, and principles issued by a national or international accounting body governing the recognition, measurement, treatment, presentation, and disclosure of accounting transactions in financial statements.

• Why Accounting Standards Are Necessary:
  1. Brings uniformity and consistency in financial statements across different organizations.
  2. Enhances comparability (inter-firm and intra-firm comparisons across years).
  3. Prevents manipulation, window-dressing, and accounting fraud.
  4. Increases transparency, reliability, and international credibility for domestic and foreign investors.

Nepal Accounting Standards (NAS) & Nepal Financial Reporting Standards (NFRS)

1. Accounting Standards Board (ASB), Nepal: Established by the Government of Nepal in 2002 A.D. (2059 B.S.) through an amendment to the Nepal Chartered Accountants Act, 1997 (2053 B.S.) to formulate accounting standards in Nepal, while ICAN pronounces and enforces their compliance.
2. Nepal Accounting Standards (NAS): The national benchmarks and rules formulated by ASB Nepal that business and public entities in Nepal must follow when preparing financial statements.
3. Nepal Financial Reporting Standards (NFRS): Implemented since 2013 A.D. (2070 B.S.) in full convergence with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). NFRS is mandatory for multinational companies, commercial banks and financial institutions (BFIs), insurance companies, state-owned enterprises, and public listed companies that issue shares to the public. (For smaller entities, NFRS for SMEs and NAS for Micro Entities apply.)

5.4 Chart of Accounts in Business Accounting

A Chart of Accounts is a systematic, coded list of all accounts maintained in an organization’s general ledger, classified according to their financial nature so transactions can be recorded accurately and computerized easily. Every Chart of Accounts is organized into five fundamental account groups:

5.5 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Business Accounting?
2. Write the full forms of NAS, NFRS, GAAP, and ICAN.
3. Why is Cost Accounting used in a manufacturing business?
4. What is a Chart of Accounts?
5. For which organizations has NFRS been made mandatory in Nepal?

Group B: Short Answer Questions (5 Marks Each)

1. Define Business Accounting and explain any four objectives of maintaining business accounts.
2. Differentiate between Financial Accounting and Cost Accounting in five points.
3. What are Accounting Standards? Describe Nepal Accounting Standards (NAS) and Nepal Financial Reporting Standards (NFRS).
4. Explain the five main categories of accounts under a Chart of Accounts with examples of each.

Worked answers to these exercises are in Chapter 5 Solutions.

Chapter 6: Bank Reconciliation Statement

6.1 Concept and Need of Bank Reconciliation Statement

When a business opens a bank account, every banking transaction is recorded in two separate books maintained by two different parties:

1. Cash Book (Bank Column): Maintained by the business/office (Deposits are recorded on the Debit/Dr. side; Withdrawals/Cheques issued are recorded on the Credit/Cr. side).
2. Pass Book / Bank Statement: Maintained by the bank (Customer’s deposits are a liability for the bank and recorded on the Credit/Cr. side; Customer’s withdrawals are recorded on the Debit/Dr. side).

Theoretically, the Debit Balance of the Cash Book should equal the Credit Balance of the Pass Book on any given date. However, due to timing gaps in cheque clearance, direct bank entries, and clerical errors, the two balances frequently disagree.

• Definition: A Bank Reconciliation Statement (BRS) is a periodic statement prepared by an account holder (business or government office) on a specific date to identify and reconcile the causes of difference between the bank balance shown by the Cash Book and the balance shown by the Pass Book (Bank Statement).

Objectives and Importance of Preparing BRS

1. Locating Causes of Disagreement: Identifies exact reasons why the Cash Book and Pass Book balances differ.
2. Detecting Errors and Fraud: Reveals arithmetic or posting errors committed either by the office accountant or by bank staff, and prevents embezzlement of cash.
3. Tracking Unpresented and Uncredited Cheques: Shows which cheques deposited have not yet been cleared and which cheques issued have not yet been presented by payees.
4. Updating the Cash Book: Informs the business about direct deposits, bank charges, interest credited, or dishonored cheques recorded in the Pass Book.

6.2 Causes of Disagreement Between Cash Book and Pass Book Balances

All differences arise from three main categories of causes:

A. Timing Differences

1. Cheques issued but not yet presented for payment: The business immediately credits (reduces) its Cash Book when a cheque is issued, but the Pass Book balance remains higher until the payee actually presents the cheque at the bank.
   • Effect: Cash Book Balance < Pass Book Balance.
2. Cheques deposited/paid into bank but not yet collected/credited: The business immediately debits (increases) its Cash Book when a cheque is sent to the bank, but the Pass Book balance remains lower until the bank collects the funds through clearing.
   • Effect: Cash Book Balance > Pass Book Balance.

B. Transactions Recorded by the Bank First without Immediate Intimation to the Business

3. Bank charges, commission, or interest on overdraft debited by the bank: The bank deducts (debits) service charges or SMS/locker fees directly in the Pass Book, reducing the Pass Book balance before the business records it.
   • Effect: Cash Book Balance > Pass Book Balance.
4. Interest credited by the bank or dividends collected directly by the bank: The bank credits (increases) the Pass Book directly, making the Pass Book balance higher than the Cash Book.
   • Effect: Cash Book Balance < Pass Book Balance.
5. Direct deposit by a customer into the bank account: Increases the Pass Book balance while the Cash Book remains lower until notified.
   • Effect: Cash Book Balance < Pass Book Balance.
6. Direct payment made by the bank as per Standing Order: Reduces the Pass Book balance while the Cash Book remains higher.
   • Effect: Cash Book Balance > Pass Book Balance.
7. Dishonor of a deposited cheque or discounted bill: The business had added it in the Cash Book, but the bank did not credit (or debited back) the Pass Book.
   • Effect: Cash Book Balance > Pass Book Balance.

C. Errors Committed in Cash Book or Pass Book

8. Under-casting or Over-casting of the Debit or Credit side of the Cash Book.
9. Wrong recording or omission of a cheque deposited/issued in the Cash Book or Pass Book.

6.3 Master Rule Table for Preparing BRS (Without Overdraft)

Golden Rule of BRS: Treat the Starting Book as the book that changes and the Target Book (the book whose balance you want to find) as the fixed benchmark. Ask yourself: “Is the Target Book higher or lower because of this transaction?” If the Target Book is higher, ADD (+); if it is lower, DEDUCT (−).

6.4 Step-by-Step Solved SEE Numerical Problems (5 Marks Each)

Solved Problem 1: Starting with Balance as per Cash Book

Question: From the following particulars of Himalayan Traders, prepare a Bank Reconciliation Statement as on 30th Chaitra 2082:

1. Bank balance as per Cash Book on 30th Chaitra 2082: Rs. 65,000.
2. Cheques issued for Rs. 25,000, out of which cheques of Rs. 15,000 only were presented for payment in Chaitra.
3. Cheques of Rs. 18,000 were deposited into the bank, but a cheque of Rs. 6,000 was credited by the bank only on 5th Baishakh 2083.
4. A customer directly deposited Rs. 12,000 into the bank account without informing the trader.
5. Bank credited Rs. 1,500 as interest on deposit and debited Rs. 500 as bank charges in the Pass Book.
6. Insurance premium of Rs. 4,000 was paid directly by the bank according to standing order.

Solution:

• Working Note on Item 2: Issued Rs. 25,000, presented Rs. 15,000 → Unpresented amount = Rs. 10,000 (reconcile only the unpresented portion!).
• Working Note on Item 3: Deposited Rs. 18,000, cleared in Baishakh Rs. 6,000 → Uncredited amount on 30th Chaitra = Rs. 6,000.

Himalayan Traders
Bank Reconciliation Statement
As on 30th Chaitra 2082

Solved Problem 2: Starting with Balance as per Pass Book

Question: Prepare a Bank Reconciliation Statement as on 31st Ashadh 2083 from the following details:

1. Credit balance as per Pass Book on 31st Ashadh: Rs. 90,000.
2. Cheques deposited into the bank for Rs. 30,000, but cheques for Rs. 22,000 only were collected by the bank up to 31st Ashadh.
3. Cheques issued for Rs. 14,000 were not presented for payment.
4. A cheque of Rs. 5,000 deposited into the bank was dishonored, of which no entry was made in the Cash Book.
5. Bank debited Rs. 800 for service charges and credited Rs. 3,200 for dividend collected on shares.
6. The payment (credit) side of the Cash Book was undercast by Rs. 1,000.

Solution: Note: Since we start with Pass Book Balance, our Target Book is the Cash Book. When the Payment (Cr.) side of the Cash Book is undercast by Rs. 1,000, fewer payments were subtracted in the Cash Book, so the Cash Book balance is higher by Rs. 1,000 (hence Add when starting from Pass Book).

Bank Reconciliation Statement
As on 31st Ashadh 2083

6.5 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is a Bank Reconciliation Statement?
2. State any two causes of disagreement between the Cash Book and Pass Book balances.

Group B: Short Answer Numerical Questions (5 Marks Each)

1. Practice Problem 1: On 30th Chaitra, the Cash Book of Everest Enterprises showed a bank balance of Rs. 50,000. On comparing with the Pass Book, the following differences were noted:
   • (a) Cheques issued for Rs. 12,000 were not presented for payment.
   • (b) Cheques sent for collection amounting to Rs. 15,000 were not credited by the bank up to 30th Chaitra.
   • (c) Bank charges of Rs. 400 and electricity bill of Rs. 2,600 paid by the bank were not recorded in the Cash Book.
   • (d) A debtor directly deposited Rs. 8,000 into the bank account.
   • (e) Bank credited Rs. 1,000 as interest in the Pass Book.
   • Required: Bank Reconciliation Statement (Answer: Balance as per Pass Book = Rs. 53,000).

Worked answers to these exercises are in Chapter 6 Solutions.

Chapter 7: Accounting Errors and Their Rectification

7.1 Concept of Accounting Errors

Accounting Errors are unintentional mistakes committed by bookkeepers and accountants while recording financial transactions in the Journal/Subsidiary Books, posting them into Ledger accounts, totaling/balancing accounts, or transferring balances to the Trial Balance.

• Error vs. Fraud: An Accounting Error is committed unintentionally due to carelessness, fatigue, or lack of accounting knowledge, whereas Fraud is committed intentionally to misappropriate cash or goods or falsify accounts.

7.2 Classification of Accounting Errors

Based on whether they affect the agreement of the Trial Balance, accounting errors are classified into two major groups:

A. Errors NOT Disclosed by the Trial Balance (Two-Sided Errors)

Even when the Debit and Credit totals of a Trial Balance are equal, the following four types of errors may still exist:

1. Errors of Omission: When a transaction is completely omitted from the books of original entry (Journal or Subsidiary Book), neither Debit nor Credit is recorded, so the Trial Balance still agrees.
   • Example: Goods sold to Sita on credit for Rs. 10,000 was completely omitted from the Sales Book.
2. Errors of Commission: Mistakes committed due to clerical negligence while recording or posting to the wrong personal account or recording an incorrect figure on both sides.
   • Example: Goods sold to Ram for Rs. 5,000 was wrongly debited to Shyam’s Account; or credit purchase of Rs. 4,500 recorded in the Purchase Book as Rs. 5,400.
3. Errors of Principle: Errors arising from violating fundamental accounting principles—specifically failing to distinguish between Capital Expenditure (Asset) and Revenue Expenditure (Expense), or between personal and business expenses.
   • Example: Wages paid for installation of new Machinery Rs. 8,000 was debited to Wages Account instead of Machinery Account; or purchase of Furniture debited to Purchase Account.
4. Compensating Errors: When two or more independent errors of equal amount occur on opposite sides (Debit and Credit) such that one error cancels out (neutralizes) the effect of the other in the Trial Balance.
   • Example: Purchase Account (Dr.) is undercast by Rs. 2,000 and Sales Account (Cr.) is also undercast by Rs. 2,000.

B. Errors Disclosed by the Trial Balance (One-Sided Errors)

These errors affect only one side (either Debit or Credit) or cause unequal amounts on Debit and Credit, making the Trial Balance disagree:

1. Wrong Totaling (Overcasting or Undercasting) of Subsidiary Books or Ledgers: e.g., Sales Book undercast by Rs. 5,000.
2. Omission to Post to One Account: Transaction recorded in Journal, posted to Debit account, but omitted from Credit account.
3. Posting to the Wrong Side of an Account: e.g., Cash received from Hari Rs. 3,000 credited to Cash A/C or debited to Hari’s A/C.
4. Posting the Wrong Amount to One Account: e.g., Purchase of Machinery for Rs. 20,000 debited to Machinery A/C as Rs. 2,000 (while Cash A/C was rightly credited by Rs. 20,000).
5. Double Posting to a Single Account or omission of a Ledger balance from the Trial Balance.

7.3 Suspense Account

When the Trial Balance fails to agree and the accountant cannot immediately locate all one-sided errors before preparing Final Accounts, the difference between the Debit and Credit totals of the Trial Balance is temporarily placed in a dummy/temporary account called the Suspense Account.

• If Trial Balance Debit side is short, Suspense Account is Debited.
• If Trial Balance Credit side is short, Suspense Account is Credited.
• Once all one-sided errors are subsequently discovered and rectified by passing Journal entries through the Suspense Account, the Suspense Account automatically closes (its balance becomes zero).

7.4 Rules & Procedure for Rectification of Errors

In accounting, errors must never be erased, scratched out, or overwritten. They are rectified systematically using the 3-Step Formula for Two-Sided Errors and Suspense Account Entries for One-Sided Errors (after Trial Balance):

Method 1: Rectification of Two-Sided Errors (3-Step Formula)

For any error affecting two accounts:

1. Wrong Entry: What was actually recorded in the books?
2. Correct Entry: What should have been recorded according to accounting rules?
3. Rectifying Entry: Keep the unrecorded Correct Debit/Credit, and reverse the Wrong Entry (debit the wrongly credited account; credit the wrongly debited account).

Method 2: Rectification of One-Sided Errors Using Suspense Account

When an error affects only one account (such as undercasting/overcasting of a book, or wrong amount posted to one ledger account), rectify the affected account and place Suspense Account on the opposite side:

• Rule 1 (Undercasting / Less Recorded): Give the account its same natural side (e.g., Purchase A/C is Dr., so if Purchase Book is undercast, Debit Purchase A/C and Credit Suspense A/C; Sales A/C is Cr., so if Sales Book is undercast, Debit Suspense A/C and Credit Sales A/C).
• Rule 2 (Overcasting / Excess Recorded): Give the account the opposite side to cancel the excess (e.g., if Purchase Book is overcast, Debit Suspense A/C and Credit Purchase A/C; if Sales Book is overcast, Debit Sales A/C and Credit Suspense A/C).

7.5 Solved SEE Numerical Problem (Based on Official CDC Model Question)

Question: Rectify the following accounting errors by passing necessary rectifying journal entries:

1. (a) Salary paid to Ram Rs. 10,000 was wrongly debited to Ram’s personal account.
2. (b) Credit sales to Hari Rs. 7,000 was wrongly debited to Ram’s account.
3. (c) Purchase of Machinery of Rs. 20,000 was debited as Rs. 2,000 only in Machinery Account.
4. (d) Sales Book was under-recorded (undercast) by Rs. 5,000.
5. (e) Purchase of Furniture for Rs. 15,000 was wrongly recorded through the Purchase Book.

Solution:

Rectifying Journal Entries

7.6 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What are accounting errors?
2. What is an Error of Principle? Give one example.
3. Why is a Suspense Account opened?

Group B: Short Answer Questions (5 Marks Each)

1. Explain the four types of errors that are NOT disclosed by the Trial Balance, with one example of each.
2. Rectify the following errors by passing Journal Entries (5 Marks):
   • (a) Wages paid for installation of Plant Rs. 6,000 was debited to Wages Account.
   • (b) Goods purchased from Binod on credit for Rs. 8,500 was recorded in the Purchase Book as Rs. 5,800.
   • (c) Repair of office computer Rs. 2,500 was debited to Computer Account.
   • (d) Purchase Book was overcast by Rs. 4,000.
   • (e) Cash received from Suman Rs. 3,000 was wrongly credited to Sujan’s Account.

Worked answers to these exercises are in Chapter 7 Solutions.

Chapter 8: Final Accounts

8.1 Concept, Objectives, and Components of Final Accounts

Final Accounts are the financial statements prepared at the end of an accounting period (usually on the last day of Ashadh, the end of Nepal’s fiscal year, though some businesses close their books on the last day of Chaitra) from the balances of the Trial Balance and Additional Adjustments to determine the operating results (Gross Profit/Loss and Net Profit/Loss) and the true financial position (Assets and Liabilities) of a business enterprise.

Three Components Prepared in Sequential Order

1. Trading Account → Determines Gross Profit or Gross Loss.
2. Profit and Loss Account → Determines Net Profit or Net Loss.
3. Balance Sheet → Shows the financial position (Capital & Liabilities = Assets) on the closing date.

8.2 Trading Account

Meaning and Purpose

The Trading Account is the first step of Final Accounts prepared to find out the Gross Profit or Gross Loss resulting from buying/manufacturing and selling goods during a fiscal year.

• Debit Side (Direct Expenses): Opening Stock, Net Purchases (Purchases - Purchase Return / Return Outwards), and all Direct Factory/Purchase Expenses incurred to bring goods into the godown/factory and make them ready for sale:
  • Wages / Productive Wages
  • Carriage Inwards / Freight Inwards / Cartage
  • Customs Duty, Import Duty, Octroi, Clearing Charges
  • Factory Rent, Factory Lighting, Factory Insurance, Motive Power, Coal, Gas, Fuel, Royalty on Production.
• Credit Side (Direct Revenues): Net Sales (Sales - Sales Return / Return Inwards) and Closing Stock, plus any abnormal loss of goods (by fire/theft).
• Formula:
  • If Credit Total > Debit Total → Gross Profit c/d (transferred to Cr. side of P/L Account).
  • If Debit Total > Credit Total → Gross Loss c/d (transferred to Dr. side of P/L Account).

8.3 Profit and Loss Account

Meaning and Purpose

The Profit and Loss Account is prepared immediately after the Trading Account to ascertain the Net Profit or Net Loss of the business after charging all Indirect Expenses and adding all Indirect Incomes.

• Debit Side (Indirect Expenses & Losses):
  • Office & Administrative Expenses: Salaries, Office Rent, Printing & Stationery, Postage, Telephone/Internet, Audit Fee, Legal Charges, Office Electricity/Water, General Expenses, Insurance Premium.
  • Selling & Distribution Expenses: Carriage Outwards, Advertisement, Salesmen’s Commission/Salary, Showroom Rent, Packing Charges, Bad Debts, Discount Allowed.
  • Financial & Other Expenses/Losses: Interest on Bank Loan, Bank Charges, Depreciation on Fixed Assets, Repair & Maintenance, Loss on Sale of Fixed Assets, Loss by Fire/Theft (uninsured portion).
• Credit Side (Indirect Incomes & Gains): Gross Profit b/d, Commission Received, Rent Received, Interest on Investment/Deposit, Discount Received, Dividend Received, Bad Debts Recovered, Appreciation on Land/Building, Gain on Sale of Fixed Assets.
• Formula:
  • If Credit Total > Debit Total → Net Profit (added to Capital in Balance Sheet).
  • If Debit Total > Credit Total → Net Loss (deducted from Capital in Balance Sheet).

8.4 Balance Sheet

Meaning and Purpose

A Balance Sheet is not a ledger account (it has no Dr. or Cr. sides and does not use “To” or “By”); it is a Statement of Financial Position prepared on the last day of the fiscal year showing Capital and Liabilities on the Left-Hand Side and Assets and Properties on the Right-Hand Side.

8.5 Master Table of Final Account Adjustments

Golden Rule: Every item inside the Trial Balance appears ONCE (either in Trading, P/L, or Balance Sheet). Every item given outside the Trial Balance as an Adjustment must be recorded TWICE (once in Trading or P/L Account, and once in the Balance Sheet) to maintain double-entry balance!

8.6 Comprehensive Solved SEE Long Question (8 Marks)

Question: From the following Trial Balance of Bagmati Trading Concern as on 30th Chaitra 2082, prepare Trading Account, Profit and Loss Account for the year ended 30th Chaitra 2082, and a Balance Sheet as on that date:

Additional Information (Adjustments):

1. Closing Stock was valued at Rs. 60,000.
2. Outstanding Salary for one month amounted to Rs. 4,000 and Outstanding Wages Rs. 3,000.
3. Prepaid Insurance was Rs. 2,000.
4. Depreciate Machinery by 10% and Furniture by 5%.
5. Create a Provision for Bad and Doubtful Debts at 5% on Sundry Debtors.

Solution:

Bagmati Trading Concern
Trading and Profit & Loss Account
For the year ended 30th Chaitra 2082

Bagmati Trading Concern
Balance Sheet
As on 30th Chaitra 2082

8.7 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. Why is a Trading Account prepared?
2. How do you record outstanding salary expenses at the end of a year in the Final Accounts?
3. What is a Balance Sheet?

Group C: Long Answer Numerical Practice (8 Marks)

1. Practice Problem: From the following Trial Balance of Gokarneshwor Traders as on the last day of Ashadh 2083, prepare Trading Account, Profit & Loss Account, and Balance Sheet:
   • Debit Balances: Opening Stock Rs. 30,000; Purchases Rs. 1,50,000; Wages Rs. 15,000; Custom Duty Rs. 5,000; Salaries Rs. 35,000; Rent Rs. 12,000; Land & Building Rs. 2,00,000; Equipment Rs. 60,000; Debtors Rs. 50,000; Cash in Hand Rs. 43,000 (Total = Rs. 6,00,000).
   • Credit Balances: Capital Rs. 2,20,000; Sales Rs. 3,10,000; Creditors Rs. 40,000; Commission Received Rs. 10,000; Bank Overdraft Rs. 20,000 (Total = Rs. 6,00,000).
   • Adjustments: (i) Closing Stock Rs. 45,000; (ii) Outstanding Rent Rs. 3,000; (iii) Appreciate Land & Building by 10% and Depreciate Equipment by 10%.
   • (Expected Answers: Gross Profit = Rs. 1,55,000; Net Profit = Rs. 1,29,000; Balance Sheet Total = Rs. 4,12,000).

Worked answers to these exercises are in Chapter 8 Solutions.

Chapter 9: System of Government Accounting in Nepal

9.1 Concept and Meaning of Government Accounting

Government Accounting is the scientific and systematic process of recording, classifying, summarizing, reporting, and auditing the financial transactions of government offices (Federal, Provincial, and Local levels) relating to the collection of public revenue, release of budget, expenditure of public funds, store management, and retention/trust accounts in accordance with the Constitution, Financial Procedures and Fiscal Accountability Act, and formats approved by the Office of the Auditor General (OAG).

Historical Evolution of Government Accounting in Nepal

1. Lichhavi & Malla Period: Rudimentary records of state taxes (Bhaga, Bhoga, Kara), customs, and guthi trusts.
2. Shah & Rana Period (1825 B.S. – 2007 B.S.):
   • Laldhadda and Mothdhadda introduced in 1871 B.S. for administrative and land revenue records.
   • Kitabkhana established in 1904 B.S. to record civil and military employee salaries.
   • Kharidar Gunawanta introduced Syaha Sresta Pranali in 1936 B.S. (using Syaha, Awarje, and Dhapot).
   • Faram Sresta Pranali (51 forms) introduced in 1968 B.S. for Terai revenue offices, and Hattabahi Sresta Pranali for hilly treasury offices.
3. Post-Democracy Era & The New Accounting System (2018 B.S.):
   • First National Budget presented in 2008 Magh 21 B.S.; Office of the Accountant General established in 2008 B.S.; Office of the Auditor General established in 2016 B.S.
   • An Accounting Reform Committee formed on 2017 Magh 20 B.S. drafted the double-entry New Accounting System, which was officially approved by King Mahendra on 2018 Chaitra 2 B.S. (1962 March 15 A.D.) and implemented from Fiscal Year 2019/20 B.S.
4. Federal Public Financial Management & Updated AGF System (2076 B.S. Onwards):
   • Following the Constitution of Nepal (2072), the Office of the Auditor General revised all government accounting forms (AGF) into a modern 8-series (100 to 800 series) unified chart of accounts implemented across Federal, Provincial, and Local governments from Fiscal Year 2076/77 B.S.

9.2 Features and Objectives of Nepal’s Government Accounting System

1. Based on Double-Entry Principle: Every financial transaction has an equal debit and credit effect.
2. Budgetary Control: No expenditure can exceed the approved budget limit under each specific 5-digit budget sub-head.
3. Banking Transactions & Treasury Single Account: All receipts and payments are routed through commercial banks and the Treasury Single Account (TSA) rather than physical cash.
4. Uniform Prescribed Forms: Every government office must use the exact AGF (Auditor General Form) prescribed by OAG and implemented by FCGO.
5. Classification into Central Level and Operating Level Accounting:
   • Central Level Offices: Ministries, Departments, and Constitutional Bodies (receive budget authorization and oversee subordinate offices).
   • Operating Level Offices: District and field offices (execute programs, spend budget, and submit monthly statements within 7 days).
6. Mandatory Internal and Final Audit: Internal audit is conducted by the District/Province Treasury Comptroller Office (DTCO/PTCO) and Final Audit by the Office of the Auditor General (OAG).

9.3 Differences Between Government Accounting and Business Accounting

9.4 Bases of Accounting: Cash Basis vs. Accrual Basis

1. Cash Basis of Accounting: Revenue is recorded only when cash/bank deposit is actually received, and expenditure is recorded only when payment is actually made, regardless of which period the transaction relates to. Nepal’s government accounting traditionally operates on a modified cash basis.
2. Accrual Basis of Accounting: Revenue is recognized as soon as it is earned (even if receivable), and expenses are recognized as soon as they are incurred (even if unpaid).

9.5 New AGF Series Classification (2076 B.S.)

The Office of the Auditor General organizes all government accounting forms into 8 functional series:

9.6 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. When was the New Accounting System formally approved in Nepal?
2. Give any two examples of government offices that use Central Level Accounting.
3. Who approves the accounting forms (AGF) used in government offices of Nepal?
4. On which basis of accounting is the Government Accounting System of Nepal primarily based?

Group B: Short Answer Questions (5 Marks Each)

1. What is Government Accounting? Explain any four main features of the Government Accounting System of Nepal.
2. Differentiate between Government Accounting and Business Accounting in five points.
3. Distinguish between Central Level Accounting and Operating Level Accounting with suitable examples.

Worked answers to these exercises are in Chapter 9 Solutions.

Chapter 10: Revenue Accounting

10.1 Concept and Meaning of Government Revenue Accounting

Government Revenue refers to the total public income collected by the government (Federal, Provincial, and Local) from citizens and business entities through compulsory taxes (such as Income Tax, VAT, Customs Duty, Excise Duty) and non-tax sources (such as administrative service fees, passport/license fees, royalties, fines, penalties, dividends, and grants) without any direct repayment obligation.

• Revenue Accounting: Revenue Accounting is the systematic process of collecting public revenues, issuing official receipts, recording daily collections in prescribed forms, depositing the collected funds into the designated Revenue Bank Account (Consolidated Fund), and submitting monthly and annual revenue statements to the superior office and Treasury Comptroller Office (DTCO/PTCO).
• Legal Responsibility: The Head of Office holds the ultimate legal responsibility for maintaining accurate revenue records and getting them audited.

10.2 Revenue Classification and 5-Digit Revenue Accounting Codes

To standardize computerized revenue tracking in the Revenue Management Information System (RMIS) of FCGO, every revenue source is assigned a 5-digit Revenue Accounting Code. The main revenue code categories are:

10.3 Forms Used in Revenue Accounting (100 Series)

1. Cash / Receipt Slip (AGF No. 101): Issued immediately to the taxpayer/service-seeker as official proof when cash or cheque is received at the office counter.
2. Daily Revenue Book (AGF No. 102): Records all AGF No. 101 receipts issued throughout the day in chronological order to find the daily total revenue under each revenue code.
3. Revenue Journal Voucher (AGF No. 103): Double-entry voucher used to journalize revenue collection and deposit into the Revenue Bank Account (Consolidated Fund).
4. Revenue Bank Cash Book (AGF No. 108): Multi-column ledger showing daily revenue received, amount deposited into the bank, and remaining cash waiting to be deposited.
5. Monthly Statement of Revenue (AGF No. 109): Monthly summary statement of revenue collected and deposited into the Consolidated Fund.

10.4 Process of Revenue Accounting & Banking Arrangement

The revenue accounting cycle follows 6 sequential steps:

1. Collection of Revenue & Issuance of Receipt (AGF 101) OR Direct Bank Voucher / Electronic Payment (RMIS / ConnectIPS).
2. Posting to Daily Revenue Book (AGF 102) at the close of each working day.
3. Mandatory Bank Deposit into Consolidated Fund: Any cash collected at the office counter cannot be spent directly by the office; it must be deposited into the designated commercial bank’s Revenue Account on the same day or the very next working day.
4. Preparation of Revenue Journal Voucher (AGF 103) and Revenue Bank Cash Book (AGF 108).
5. Automatic Transfer via Treasury Single Account (TSA) to the Government’s Consolidated Fund.
6. Monthly and Annual Reporting:
   • Monthly Revenue Report (AGF 109): Must be submitted to the superior office and District Treasury Comptroller Office (DTCO) within 7 days after the end of every month.
   • Annual Revenue Statement: Must be submitted within 35 days after the end of the fiscal year for Final Audit by the Office of the Auditor General.

10.5 Rules & Solved Example of Revenue Journal Voucher (AGF No. 103)

Rules for Passing Revenue Journal Entries

• Case A: When revenue is collected in cash at the office and deposited into the Bank later:
  1. On collection of cash:
     • Dr. Cash Account
     • Cr. Revenue Code Account (e.g., Cr. 14221 Passport Fee)
  2. On depositing collected cash into the Revenue Bank Account:
     • Dr. Bank (Consolidated Fund) Account
     • Cr. Cash Account
• Case B: When the taxpayer deposits revenue directly into the Bank (or via Online RMIS voucher):
  • Dr. Bank (Consolidated Fund) Account
  • Cr. Concerned Revenue Code Account

Solved Example

Question: Pass Revenue Journal Vouchers (AGF No. 103) for the District Administration Office, Kathmandu:

1. 2083/04/05: Collected Rs. 25,000 in cash for Passport Fee (Code 14221) as per Receipt Nos. 101–105.
2. 2083/04/06: Deposited the cash collected on 2083/04/05 (Rs. 25,000) into Rastriya Banijya Bank Revenue Account as per bank voucher.
3. 2083/04/12: Received bank deposit voucher of Rs. 15,000 deposited directly by service-seekers for fines and penalties (Code 14311).

Solution:

10.6 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Revenue Accounting System?
2. Who is responsible for maintaining revenue records up to getting the final audit done in a government office?
3. Within how many days after the end of a month must a revenue-collecting office submit the monthly revenue statement to the superior office?
4. Who conducts the internal audit of revenue accounts of Federal Government offices?
5. Under which revenue code is recovered audit irregularity deposited?
6. What is the AGF number of the Revenue Journal Voucher?

Group B & C: Short and Long Answer Questions (5 & 8 Marks)

1. What is a Revenue Accounting Code? Write any five revenue codes with their titles. (5 Marks)
2. Explain the step-by-step process of Revenue Accounting in Nepal. (8 Marks)
3. Review how banking arrangements (TSA and online payment) are used in Revenue Accounting in Nepal. (8 Marks)

Worked answers to these exercises are in Chapter 10 Solutions.

Chapter 11: Accounting of Government Expenditure

11.1 Overview of Government Expenditure Accounting

In Nepal’s operating-level government offices, all budget expenditures are executed through the Single Treasury Account (TSA) managed by the District Treasury Comptroller Office (DTCO). Instead of keeping idle cash in individual office bank accounts, operating offices issue a Payment Order (AGF No. 204) or Electronic Fund Transfer (EFT) instruction to the DTCO, which releases and pays the exact amount directly to the supplier’s or employee’s bank account (TSA Credit).

This chapter covers the four core pillars of Operating Level Expenditure Accounting tested in the SEE exam:

1. Journal Voucher (AGF No. 203)
2. Budget Sheet (AGF No. 208)
3. Bank Cash Book (AGF No. 209)
4. Statement of Expenditure / Monthly Statement (AGF No. 210)

11.2 Official 5-Digit Budget Expenditure Heads & Codes

Every SEE student must memorize the standard 5-digit Budget Sub-head Codes used in Journal Vouchers, Budget Sheets, and Monthly Statements:

11.3 Part I: Journal Voucher (AGF No. 203)

A Journal Voucher (AGF No. 203) is the primary book of original entry in government offices used to record every financial transaction in chronological order using double-entry rules before posting to the Budget Sheet (AGF 208) and Bank Cash Book (AGF 209).

• Notice that in government accounting, Budget Expenditure is always prefixed with B.E., and Bank Balance / Treasury Payment is credited as To TSA (DTCO) / Bank Account.

Complete Rules for All Types of Journal Vouchers (AGF No. 203)

1. General Budget Expenditure

When an office pays for any expense or asset (e.g., Stationery, Rent, Furniture, Water/Electricity) by cheque / payment order (TSA):

• Dr. B.E. [Concerned Budget Head Name] (with 5-digit Code in Budget Sub-head column)
• Cr. TSA (DTCO) / Bank Account

2. Advance Given Transactions

When an advance is given to an employee, contractor, or firm to purchase goods or travel:

• Dr. Advance [Post + Name of Person/Firm] Account (Write the intended Budget Code in brackets for reference)
• Cr. TSA (DTCO) / Bank Account

3. Advance Clearance / Settlement Transactions

When the advance holder submits bills/documents to clear the advance, there are three cases:

• Case 3A: Bill Amount = Advance Amount:
  • Dr. B.E. [Budget Head Name] (Actual bill amount)
  • Cr. Advance [Post + Name of Person] Account (Advance amount cleared)
• Case 3B: Bill Amount < Advance Amount:
  • Dr. B.E. [Budget Head Name] (Actual bill amount spent)
  • Dr. TSA (DTCO) / Bank Account (Unspent cash returned via bank voucher)
  • Cr. Advance [Post + Name of Person] Account (Total original advance cleared)
• Case 3C: Bill Amount > Advance Amount:
  • Dr. B.E. [Budget Head Name] (Total actual bill amount spent)
  • Cr. Advance [Post + Name of Person] Account (Original advance cleared)
  • Cr. TSA (DTCO) / Bank Account (Excess expenditure paid by payment order/cheque)

4. Salary Distribution and Deductions Voucher

In Nepal’s government offices, the government adds 10% Employees Provident Fund (EPF) to the employees’ basic salary, deducts 20% total EPF (10% government addition + 10% employee deduction), deducts Social Security Tax / Income Tax, Citizen Investment Trust (CIT), EPF Loan, and Insurance Fund, and pays the net salary and deducted funds simultaneously or sequentially:

• When Salary & Deductions are Paid Together in One Combined Entry:
  • Dr. B.E. Employee Remuneration (21111) (Total Gross Salary including Govt. EPF / or Basic Salary)
  • Dr. B.E. Contributory Pension/EPF (21212) (If Govt. 10% addition is shown separately)
  • Cr. TSA (DTCO) / Bank Account (For Net Salary + EPF + Tax + CIT deposited directly into concerned accounts via TSA)
• When Salary is Distributed First and Deductions are Deposited Later:
  1. On Salary Distribution:
     • Dr. B.E. Employee Remuneration (21111) (Total Salary including Govt. contribution)
     • Cr. Employees Provident Fund (EPF) Account (20% of Basic Salary)
     • Cr. Social Security / Income Tax Account
     • Cr. Citizen Investment Trust (CIT) Account
     • Cr. TSA (DTCO) / Bank Account (Net payable salary)
  2. On Depositing Deducted Amounts to Concerned Offices:
     • Dr. Employees Provident Fund (EPF) Account
     • Dr. Social Security / Income Tax Account
     • Dr. Citizen Investment Trust (CIT) Account
     • Cr. TSA (DTCO) / Bank Account

Solved SEE Numerical: Journal Vouchers (AGF No. 203 — 5 Marks)

Question (Based on CDC Model Question 2080): Prepare Journal Vouchers (AGF No. 203) from the following transactions of District Education Coordination Unit, Bhaktapur:

1. 2083/04/05: Issued payment order of Rs. 30,000 for purchasing office stationery.
2. 2083/04/10: Paid Rs. 20,000 through payment order for house rent to house owner Mr. Chitrakar.
3. 2083/04/14: Advance given to Section Officer Mrs. Rajani Silwal Rs. 25,000 for travelling expenses.
4. 2083/04/22: Mrs. Rajani Silwal submitted travelling bill of Rs. 22,000 and bank voucher of Rs. 3,000 for the remaining unspent cash to clear her advance.
5. 2083/04/28: Out of total salary of Rs. 2,20,000 (including government contribution to EPF) for the month of Shrawan, deducted Rs. 40,000 for EPF and Rs. 2,000 for Social Security Tax, paid net salary to employees, and deposited the deducted amounts into the concerned offices on the same day.

Solution:

Government of Nepal
District Education Coordination Unit, Bhaktapur
Journal Voucher (AGF No. 203)

11.4 Part II: Budget Sheet (AGF No. 208)

Meaning, Purpose, and Structure

A Budget Sheet (AGF No. 208) is the primary budgetary control ledger maintained by operating-level government offices to record the Annual Budget Appropriation, Budget Release / Payment Orders, and Actual Budget Expenditure under each 5-digit budget sub-head.

• Three Main Horizontal Parts of a Budget Sheet:
  1. Part 1 — Annual Appropriation: Shows the approved annual budget limit for each budget sub-head so expenditure never exceeds the budget.
  2. Part 2 — Budget Release: Shows cumulative payment releases through TSA.
  3. Part 3 — Budget Expenditure: Records every expenditure transaction (B.E.) and advance given/cleared under the respective budget sub-head column:
     • When Advance is Given: Entered as normal positive expenditure Rs. X in the concerned budget head column.
     • When Advance is Cleared: The original advance is subtracted in brackets (Rs. X) and the actual bill expenditure Rs. Y is added in the same column!
     • At the end of every month, two totals are calculated: Total of This Month and Total Up to This Month (Cumulative Total).

11.5 Part III: Bank Cash Book (AGF No. 209)

Meaning and 5-Part Structure

The Bank Cash Book (AGF No. 209) is the main multi-column ledger maintained by operating-level government offices under the double-entry system to record all banking, cash, budget expenditure, advance, and miscellaneous transactions in a single book.

• It contains 6 Major Sections (17 Columns):
  1. Descriptive Columns: Date, Reference/J.V. No., Particulars.
  2. Cash Balance: Debit (Dr.), Credit (Cr.), Balance.
  3. Bank / TSA Balance: Debit (Dr.), Credit (Cr.), Cheque/Payment Order No., Balance. (Note: Under the TSA system, whenever a payment order is issued for an expense, the office simultaneously receives budget release Dr. and makes payment Cr. in the Bank/TSA column, or records Cr. against released budget).
  4. Budget Expenditure: Budget Sub-head No. and Amount.
  5. Advance: Given and Cleared.
  6. Miscellaneous Account: Account No., Debit (Dr.), and Credit (Cr.) (used for Budget Release, EPF, Tax, Petty Cash, etc.).

Golden Posting Rules for Bank Cash Book (AGF No. 209)

11.6 Part IV: Statement of Expenditure / Monthly Statement (AGF No. 210)

Meaning, Purpose, and Key Formulas

The Statement of Expenditure (AGF No. 210) is a monthly financial report prepared by every operating-level government office at the end of each month and submitted to its superior office and DTCO within 7 days of the next month.

Essential Formulas for Solving AGF No. 210 (5 or 8 Marks)

1. Total Expenditure Up to This Month = Expenditure up to Last Month + Expenditure of This Month.
2. Remaining Annual Budget = Annual Appropriation Budget - Total Expenditure Up to This Month.
3. Net Expenditure Excluding Advance = Total Expenditure Up to This Month - Uncleared Advance.

Solved SEE Numerical: Statement of Expenditure (AGF No. 210 — 5 Marks)

Question: From the following particulars of District Police Office, Sindhuli, prepare a Statement of Expenditure (AGF No. 210) for the month of Poush 2082:

Additional Information: Out of the expenditure of Travel Expenses (22612), an advance of Rs. 15,000 given to Police Inspector Mr. Thapa remains uncleared.

Solution:

Government of Nepal
District Police Office, Sindhuli
Statement of Expenditure (AGF No. 210)
Fiscal Year: 2082/83 | Month: Poush

Summary of Advance and Net Expenditure:

• Total Expenditure Up to Poush (including Advance): Rs. 26,90,000
• Less: Uncleared Advance (Travel Advance of Inspector Mr. Thapa): (Rs. 15,000)
• Net Expenditure (Excluding Uncleared Advance): Rs. 26,75,000

11.7 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. Write the AGF numbers of Journal Voucher, Budget Sheet, Bank Cash Book, and Statement of Expenditure.
2. What are the 5-digit budget sub-head numbers for Employee Remuneration, Office Supplies, and Machinery & Equipment?
3. Why is a Budget Sheet (AGF No. 208) prepared?

Group B & C: Short and Long Numerical Questions (5 & 8 Marks)

1. Practice Problem (Journal Voucher & Bank Cash Book): Prepare Journal Vouchers (AGF No. 203) and post them into a Bank Cash Book (AGF No. 209) for District Health Office, Lalitpur for Mangsir 2083:
   • 2083/08/03: Paid Rs. 15,000 for Water and Electricity (22111) by payment order.
   • 2083/08/08: Purchased computers and printers (31122) for Rs. 85,000 through payment order.
   • 2083/08/15: Issued payment order of Rs. 30,000 as advance to Storekeeper Mr. Bikash Gurung for purchasing office stationery (22311).
   • 2083/08/24: Mr. Bikash Gurung submitted stationery purchase bills of Rs. 34,000; his advance was cleared and the excess Rs. 4,000 was paid by payment order.
   • 2083/08/29: Distributed monthly salary of Rs. 3,30,000 (21111 including government EPF contribution) after deducting EPF Rs. 60,000 and Social Security Tax Rs. 3,000, and deposited the deducted amounts to the concerned offices on the same day.

Worked answers to these exercises are in Chapter 11 Solutions.

Chapter 12: Store Accounting

12.1 Concept, Meaning, and Importance of Store Accounting

In government and business offices, a large portion of the annual budget is spent on purchasing physical goods, stationery, furniture, computers, machinery, and vehicles.

• Definition: Store Accounting is the systematic process of keeping quantitative and financial records of all consumable and durable physical goods purchased, received, stored, issued/distributed, written off, and remaining in stock in an office, using the prescribed forms of the 400 Series (AGF No. 401 to 418) approved by the Office of the Auditor General.

Importance and Objectives of Store Accounting

1. Protection Against Misuse, Theft, and Loss: Maintains exact accountability for every item purchased by the office.
2. Shows Exact Stock Position: Reveals the opening balance, receipts, issues, and closing balance of every item at any time.
3. Prevents Over-Stocking and Under-Stocking: Helps the storekeeper know when to reorder goods so daily office work is never halted and public funds are not locked in idle inventory.
4. Facilitates Physical Verification and Annual Inspection: Enables the annual Store Inspection Committee (AGF No. 411) to verify whether physical items match ledger records and identify damaged or obsolete goods requiring auction or write-off.
5. Smooth Handover-Takeover: Ensures complete accountability when a storekeeper or office chief is transferred or promoted.

12.2 Classification of Store / Goods

In Nepal’s Government Store Accounting System, all physical goods are classified into two categories based on their durability and lifespan:

12.3 Major Forms Used in Store Accounting (400 Series)

According to the revised AGF 400 Series, the core documents and ledgers used in Store Accounting are:

1. Store Requisition Form / Demand Form (AGF No. 401)

• Purpose: Prepared by a section or employee whenever goods are needed from the store (or need to be purchased from the market).
• Process: The demanding employee fills in the item name, specification, and quantity, signs it, gets the recommendation of the Storekeeper (who checks whether the item is available in stock or must be purchased from the market), and obtains approval from the Head of Office.

2. Purchase Order (AGF No. 402)

• Purpose: When demanded goods are not available in the store and the Head of Office approves market purchase on AGF No. 401, the office issues a formal Purchase Order (AGF No. 402) instructing the selected vendor/supplier to supply the specified goods within a stipulated date at the agreed rate and terms.

3. Store Entry Report / Dakhila Report (AGF No. 403)

• Purpose: When goods ordered via AGF No. 402 (or received via transfer/grant) arrive at the office along with the seller’s tax invoice/bill, the storekeeper inspects the quality, specification, and quantity of the goods and prepares the Store Entry Report / Dakhila Report (AGF No. 403) to formally enter the goods into the Store Ledger (AGF 407 or 408). Without a Dakhila Report, the Accounts Section cannot pay the supplier’s bill!

4. Store Release / Transfer Report (AGF No. 404)

• Purpose: Used when durable or consumable store items are handed over or transferred from one government office to another government office free of cost.

5. Store Ledger for Consumable Goods (AGF No. 407)

• Purpose: Separate pages are maintained for each type of consumable item (e.g., A4 Paper, Ballpens, Toner), showing Receipts from AGF 403, Issues/Consumption from AGF 401, and Remaining Balance in quantity, rate, and amount.

6. Store Ledger for Non-Consumable / Capital Goods (AGF No. 408)

• Purpose: Maintains permanent records of durable assets (Computers, Vehicles, Furniture), including manufacturer, model number, serial/engine number, specification, country of origin, useful life, acquisition cost, additions, write-offs, and current physical condition.

7. Bin Card (AGF No. 409) and Store Subsidiary Ledger (AGF No. 412)

• Bin Card (AGF No. 409): Attached directly to each storage rack/bin in the storehouse showing quantity received, issued, and remaining.
• Store Subsidiary Ledger (AGF No. 412): Tracks durable items (laptop, table, chair, vehicle) issued to a specific employee so they remain accountable until returned.

8. Store Inspection Report (AGF No. 411)

• Purpose: Every government office must form a Store Inspection Committee at least once a year (at the end of the fiscal year) to physically inspect all consumable and durable store items and submit the Store Inspection Report (AGF No. 411) to the Head of Office, identifying:
  • Goods in good working condition vs. goods needing repair.
  • Obsolete or unserviceable goods that should be auctioned or written off.
  • Any discrepancy between physical stock and Store Ledger balances.

12.4 Specimen Format of Store Requisition Form (AGF No. 401) and Dakhila Report (AGF No. 403)

Specimen: Store Requisition Form (AGF No. 401)

• Demanded by: Section Officer | Recommended by: Storekeeper (“Available in store / Need to purchase from market”) | Approved by: Head of Office.

Specimen: Store Entry / Dakhila Report (AGF No. 403)

12.5 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Store Accounting?
2. Write the names of any four forms used in Store Accounting with their AGF numbers.
3. What is a Dakhila Report (Submission/Entry Report)?
4. Write any two points of importance of Store Accounting.

Group B: Short Answer Questions (5 Marks Each)

1. What is Store Accounting? Write any four uses/importances of it.
2. Differentiate between Consumable (Non-durable) Store Ledger (AGF 407) and Non-consumable (Durable) Store Ledger (AGF 408) in five points.
3. Explain the purpose and importance of: (a) Store Requisition Form (AGF 401), (b) Purchase Order (AGF 402), and (c) Store Inspection Report (AGF 411).

Worked answers to these exercises are in Chapter 12 Solutions.

Chapter 13: Fund Accounting and Retention Account

PART A: FUND ACCOUNTING

13.1 Concept and Meaning of Fund and Fund Accounting

• What is a Fund?: A Fund is a distinct pool of financial resources (cash and bank balances) set aside and established under constitutional or legal provisions for carrying out specific governmental, developmental, emergency, or welfare activities, together with all revenues received into it and expenditures made from it.
• What is Fund Accounting?: Fund Accounting is an accounting system primarily used by governments and non-profit organizations that tracks financial resources by segregating them into independent, self-balancing Funds (such as the Consolidated Fund, Divisible Fund, Contingent Fund, or Retention Fund) to ensure that public money is spent strictly for its legally authorized purpose rather than for earning profit.

13.2 Types of Government Funds in Nepal

Under Part 10 (Federal Financial Procedures), Part 16 (Provincial Financial Procedures), and Part 19 (Local Financial Procedures) of the Constitution of Nepal and the Inter-Governmental Fiscal Arrangement Act, 2074, government funds in Nepal are classified into three primary categories:

1. Consolidated Fund (Article 116, 204, & 229 of the Constitution)

• Meaning: Except for revenues credited to religious Guthi funds or specific separate funds, all revenues received by the Government of Nepal, all loans raised on the security of revenues, and all money received in repayment of loans granted under the authority of an Act are credited into a single sovereign treasury account known as the Consolidated Fund.
• Three Levels of Consolidated Funds in Federal Nepal:
  1. Federal Consolidated Fund (Article 116)
  2. Provincial Consolidated Fund (Article 204 — one in each of the 7 Provinces)
  3. Local Consolidated Fund (Article 229 — one in each of the 753 Local Levels, managed via SuTRA)
• Rule of Withdrawal: No money can be withdrawn from the Consolidated Fund except through an Appropriation Act (Budget Act) passed by the respective Parliament/Assembly (or for constitutional charges on the fund).

2. Divisible Fund (Inter-Governmental Fiscal Arrangement Act, 2074)

• Meaning: A special fund established to collect shared taxes and natural resource royalties that do not belong exclusively to a single tier of government, and to distribute them transparently among the Federal, Provincial, and Local Governments according to constitutional and legal sharing formulas.
• Types and Sharing Ratios of Divisible Funds in Nepal:
  1. Federal Divisible Fund for VAT and Internal Excise Duty: Value Added Tax (VAT) and Excise Duty on domestic production are deposited into the Federal Divisible Fund at Nepal Rastra Bank and distributed monthly as:
     • 70% to the Federal Consolidated Fund
     • 15% to the Provincial Consolidated Funds (7 Provinces)
     • 15% to the Local Consolidated Funds (753 Local Levels)
  2. Natural Resource Royalty Divisible Fund: Royalties from mountaineering, electricity, forests, mines/minerals, and water are shared as 50% Federal Government, 25% Concerned Provincial Government, and 25% Concerned Local Government(s).
  3. Provincial Divisible Fund: Shares Vehicle Tax and House/Land Registration Fees between the Province and Local Levels.
• Importance/Uses of Divisible Fund:
  • Ensures fiscal federalism and equitable revenue sharing across all three tiers of government.
  • Provides regular monthly financial resources to Provincial and Local governments for development and service delivery.
  • Prevents duplication of taxation and fiscal disputes between Federal, Provincial, and Local levels.

3. Contingent / Emergency Fund (Article 124 of the Constitution)

• Meaning: A permanent fund established by Federal or Provincial Act into which a fixed sum is deposited from time to time to meet unforeseen natural disasters, epidemics, earthquakes, floods, or sudden national emergencies before parliamentary approval can be obtained. The expenditure made from the Contingent Fund must subsequently be reimbursed from the Consolidated Fund.

PART B: RETENTION ACCOUNTING

13.3 Concept and Meaning of Retention / Security Deposit

• What is Retention / Security Deposit?: Retention Money is a refundable cash deposit kept temporarily by a contractor, supplier, bidder, or individual with a government office or court as a financial guarantee to ensure the timely and faithful completion of a contract, construction work, supply of goods, or legal appearance.
  • It is neither government revenue nor government budget expenditure at the time of receipt; it is a trust liability that must be refunded once the obligation is fulfilled, or forfeited into government revenue if the depositor breaches the contract!

Conditions in Which Retention Deposit Should Be Kept

1. Bid Security / Earnest Money: Kept (usually 2% to 3% of estimated cost) when contractors or suppliers submit sealed tenders/quotations so they do not withdraw their bid arbitrarily.
2. Performance Security / Retention Money: Kept (usually 5% deducted from each running bill or deposited at contract signing) to guarantee that construction or supply work is completed on time and meets quality standards during the defect-liability period.
3. Judicial Bail / Court Deposit: Kept by courts or quasi-judicial bodies during legal proceedings or appeals.
4. Lease / Auction / Advance Guarantee Deposit: Kept when leasing government buildings/land or participating in public auctions.

13.4 Forms Used in Retention Accounting (600 Series)

1. Cash Receipt (AGF No. 101) / Bank Deposit Voucher: Used when retention deposit is received.
2. Retention Journal Voucher (AGF No. 601): Primary book of original entry for recording receipt, refund, and forfeiture of retention money.
3. Individual Retention Ledger (AGF No. 602): Separate ledger account maintained for each depositor/contractor to track how much they deposited, how much was refunded, and how much remains.
4. Retention Bank Cash Book (AGF No. 603): Main ledger recording all retention bank receipts, refunds, transfers to revenue, and remaining bank balance.
5. Monthly Statement of Retention (AGF No. 604): Monthly summary report submitted to DTCO within 7 days after month-end.

13.5 Rules & Solved Example of Retention Journal Vouchers (AGF No. 601)

There are three core transactions in Retention Accounting:

Solved Example

Question: Prepare Retention Journal Vouchers (AGF No. 601) for the Road Division Office, Kathmandu:

1. 2083/05/04: Sherpa Construction Pvt. Ltd. deposited Rs. 1,50,000 in the Retention Bank Account as bid security for road construction.
2. 2083/05/10: Himal Suppliers deposited Rs. 40,000 as performance retention for supplying stationery.
3. 2083/05/20: Refunded the retention money of Rs. 40,000 to Himal Suppliers by issuing a payment order after satisfactory supply of stationery.
4. 2083/05/28: Forfeited and transferred Rs. 25,000 of retention money deposited by ABC Builders into the Government Revenue Account as they failed to complete the work within the contract period.

Solution:

13.6 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is a Fund?
2. What is Consolidated Fund?
3. In what ratio are VAT and Internal Excise Duty distributed from the Federal Divisible Fund among Federal, Provincial, and Local governments?
4. What is Retention Money?

Group B: Short Answer Questions (5 Marks Each)

1. What is a Government Fund? Explain the three main types of government funds in Nepal (Consolidated, Divisible, and Contingent Fund).
2. What is a Divisible Fund? Write any four uses/importances of the Divisible Fund in Nepal’s federal system.
3. Define Retention Accounting. Mention any three conditions in which retention deposit should be kept, and list the forms used in Retention Accounting.

Worked answers to these exercises are in Chapter 13 Solutions.

Chapter 14: Internal Control and Auditing

14.1 Internal Control System

Meaning and Concept

Internal Control is the comprehensive system of organizational plans, administrative procedures, division of duties, internal checks, budgetary controls, and asset safeguards established by the management or Head of Office within an organization to conduct daily operations smoothly, prevent errors and fraud, safeguard assets, and ensure compliance with prevailing laws and policies.

• Under Nepal’s Financial Procedures and Fiscal Accountability Act, 2076, every government ministry and office must prepare and implement an Internal Control Guideline suited to the nature of its work.

Objectives and Importance of Internal Control

1. Prevention of Errors, Fraud, and Irregularities: Through segregation of duties (e.g., the person who purchases goods is separate from the storekeeper who verifies Dakhila and the accountant who makes payment), no single individual can commit fraud easily.
2. Safeguarding Public and Business Assets: Protects cash, bank balances, inventory, and fixed assets against theft, waste, and unauthorized use.
3. Accuracy and Reliability of Accounting Records: Ensures that every voucher is supported by valid bills, receipts, and approvals before entry.
4. Compliance with Laws and Budget Limits: Guarantees that all financial transactions strictly follow the Public Procurement Act, Tax Laws, and approved budget ceilings.
5. Operational Efficiency and Accountability: Fixes clear responsibility on each employee for their assigned task.

14.2 Auditing: Concept, Objectives, and Types

Meaning of Auditing

The word Audit is derived from the Latin word “Audire”, which means “to hear”.

• Definition: Auditing is the independent, systematic, and critical examination of the books of accounts, vouchers, supporting documents, store records, and financial statements of an organization by a qualified and authorized auditor to verify their regularity, economy, efficiency, effectiveness, and propriety, and to express an official audit opinion/report.
• In Nepal, auditing standards (Nepal Standards on Auditing - NSAs) are developed by the Auditing Standards Board (AuSB), Nepal and regulated by ICAN for the corporate sector, while public sector audit is governed by the Audit Act, 2075 under the Office of the Auditor General (OAG).

Types of Audit in Government Accounting: Internal Audit vs. Final (External) Audit

In Nepal’s government accounting system, every office undergoes two stages of audit:

1. Internal Audit

• Meaning: A periodic examination of the accounts, vouchers, revenue, expenditure, store, and retention records of an operating government office conducted during the fiscal year (monthly/quarterly) by an internal agency within the executive branch to detect and correct errors before the Final Audit.
• Who Conducts Internal Audit in Nepal?:
  • For Federal Government Offices: Conducted by the District Treasury Comptroller Office (DTCO) under the Financial Comptroller General Office (FCGO).
  • For Provincial Government Offices: Conducted by the Province Treasury Comptroller Office (PTCO).
  • For Local Levels: Conducted by the Internal Audit Section of the respective Rural Municipality or Municipality.

2. Final / External / Statutory Audit

• Meaning: The constitutional and independent examination of the annual financial statements and accounts of all government offices, constitutional bodies, and state-owned enterprises conducted after the completion of the fiscal year by the supreme audit institution of the nation.
• Who Conducts Final Audit in Nepal?: Exclusively conducted by the Office of the Auditor General (OAG) under Article 241 of the Constitution of Nepal, considering Five Pillars: Regularity, Economy, Efficiency, Effectiveness, and Propriety.

Differences Between Internal Audit and Final (External) Audit

14.3 Audit Irregularities / Beruju and Its Settlement

Meaning of Beruju

According to Section 2(t) of the Financial Procedures and Fiscal Accountability Act, 2076, Beruju (Audit Irregularity) refers to any financial transaction pointed out by the auditor during an audit as being carried out contrary to prevailing laws, without maintaining required supporting documents/accounts, in an irregular or unreasonable manner, or advances remaining unsettled.

Classification of Beruju

When the Office of the Auditor General conducts the Final Audit, all identified Beruju is classified into three official categories:

1. Recoverable Beruju: Irregularities involving overpayment, embezzlement, revenue leakage, or payment made without actual delivery of goods/work, where the exact sum of money must be recovered in cash from the concerned official or contractor and deposited into the Consolidated Fund (Revenue Code 15111).
2. Beruju to be Regularized / Adjusted: Transactions where the work was genuinely performed and money was not misappropriated, but procedural formalities, bills/receipts, or approvals were incomplete:
   • Unreasonable/Improper: Procedural rule was bypassed (needs superior/parliamentary regularization).
   • Unsupported by Documents: Missing bill, receipt, or Dakhila report (cleared by submitting the missing proof).
   • Responsibility Not Taken: Uncarried balance to next year’s books.
   • Reimbursement Not Taken: Foreign aid/grant spent but reimbursement not yet claimed.
3. Unsettled Advance Beruju: Advances given to employees, contractors, institutions, or Letters of Credit (LC) that have not been cleared within the legal deadline by the end of the fiscal year.

Procedure for Settlement of Beruju

• Upon receiving the preliminary audit report, the Accounting Officer / Secretary and Head of Office must take action to recover recoverable amounts, submit missing documents, or clear advances within 35 days (and submit responses to OAG).
• Final audit reports are reviewed by the Public Accounts Committee (PAC) of the Federal/Provincial Parliament.

14.4 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Internal Control?
2. From which Latin word is the term ‘Audit’ derived and what does it mean?
3. Who conducts the Internal Audit and Final Audit of Federal Government offices in Nepal?
4. What is Beruju (Audit Irregularity)?

Group B & C: Short and Long Answer Questions (5 & 8 Marks)

1. What is Auditing? Explain any four objectives/advantages of Auditing. (5 Marks)
2. Differentiate between Internal Audit and Final (External) Audit in five points. (5 Marks)
3. What is Beruju? Explain the three main classifications of Beruju in Nepal’s government accounting system and how Beruju can be minimized. (8 Marks)

Worked answers to these exercises are in Chapter 14 Solutions.

Chapter 15: Agencies Involved in Government Accounting System of Nepal

15.1 Overview of Institutions Involved in Nepal’s Government Accounting System

The operation, treasury control, budget release, accounting standardization, internal audit, and constitutional final audit of public funds in Nepal are carried out by a coordinated network of statutory and constitutional institutions:

1. Ministry of Finance (MoF)
2. Financial Comptroller General Office (FCGO)
3. District Treasury Comptroller Office (DTCO)
4. Province Treasury Comptroller Office (PTCO)
5. Office of the Auditor General (OAG)

15.2 Ministry of Finance (MoF)

Introduction

The Ministry of Finance, established in 2008 B.S. (1951 A.D.), is the apex central executive ministry of the Government of Nepal responsible for public finance, national budget formulation, fiscal policy, revenue administration, foreign aid mobilization, and overall economic stability of the country.

Major Functions of the Ministry of Finance

1. Formulation and Presentation of the Annual National Budget: Prepares the annual estimate of revenue and expenditure (Budget Speech on Jestha 15 every year as per Article 119 of the Constitution) and monitors its implementation.
2. Formulation of Fiscal, Tax, and Revenue Policies: Formulates policies relating to Direct Tax (Income Tax) and Indirect Tax (VAT, Customs, Excise) through the Inland Revenue Department and Department of Customs.
3. Mobilization of Foreign Aid, Grants, and Public Debt: Negotiates bilateral and multilateral grants and loans (World Bank, ADB, IMF) and manages internal and external public debt.
4. Supervision of Financial Comptroller General Office and Public Enterprises: Oversees the treasury management system (FCGO), coordinates with Nepal Rastra Bank on monetary policy, and monitors state-owned enterprises.
5. Inter-Governmental Fiscal Transfers: Manages fiscal equalization, conditional, complementary, and special grants to Provincial and Local Governments in coordination with the National Natural Resources and Fiscal Commission (NNRFC).

15.3 Financial Comptroller General Office (FCGO)

Introduction

The Financial Comptroller General Office (FCGO) is the main department-level central agency under the Ministry of Finance responsible for operating and administering the Government Accounting System and Treasury Management of Nepal.

• Historical Background: Initially established as the Accountant General Office in 2008 Ashwin 6 B.S., it was upgraded and renamed the Financial Comptroller General Office (FCGO) from 2032 Shrawan 1 B.S. (1975 A.D.). It is headed by the Financial Comptroller General, a Special Class (Secretary-level) officer of the Government of Nepal.

Major Functions, Duties, and Rights of FCGO

1. Implementation and Reform of Government Accounting Forms: Implements the AGF accounting forms approved by the Office of the Auditor General across all government offices and provides technical training to accounting personnel.
2. Management of the Consolidated Fund and Treasury Single Account: Operates and maintains the central accounts of the Federal Consolidated Fund, Contingent Fund, and Divisible Funds, and prepares the Annual Consolidated Financial Statement of the Government of Nepal.
3. Supervision of DTCOs and Internal Audit: Directs and supervises all 77 District Treasury Comptroller Offices (DTCOs) to ensure timely budget release, payment processing, and Internal Audit of all federal offices.
4. Operation of Public Financial Management (PFM) IT Systems: Develops and operates national financial software systems including TSA, CGAS, SuTRA, RMIS, PAMS, and EFT.
5. Management of Pension, Gratuity, and Public Debt Records: Administers civil, police, and teacher pensions (via the Pension Management Office / Nivrittibharan Vyavasthapan Karyalaya) and tracks government investments and loans.

15.4 District Treasury Comptroller Office (DTCO)

Introduction

The District Treasury Comptroller Office (DTCO) is the district-level operating arm of the FCGO established in all 77 districts of Nepal (first started in 2038 B.S. and expanded nationwide by 2042 B.S.).

Major Functions of DTCO

1. Operation of Single Treasury Account (TSA) & Budget Release/Payment: Executes payment orders (AGF 204 / EFT) submitted by district-level government offices within approved budget ceilings.
2. Internal Audit of Government Offices: Conducts regular internal audits of revenue, appropriation (expenditure), store, and retention accounts of all federal offices in the district.
3. Collection and Consolidation of Monthly Financial Statements: Receives monthly statements (AGF 109, AGF 210, AGF 604) from all operating offices within the district (within 7 days of month-end) and submits a consolidated district report to FCGO.
4. Physical Inspection and Technical Guidance: Verifies store inspection reports, cash/bank reconciliations, and advises district offices on financial rules and accounting procedures.

15.5 Province Treasury Comptroller Office (PTCO)

Established in each of the 7 Provinces of Nepal under the Provincial Ministry of Economic Affairs and Planning, the Province Treasury Comptroller Office (PTCO) manages the Provincial Consolidated Fund, operates the provincial TSA system, releases budget to provincial offices, and conducts the Internal Audit of all provincial government offices.

15.6 Office of the Auditor General (OAG)

Constitutional Status and Introduction

The Office of the Auditor General (OAG) is the supreme constitutional auditing body of Nepal.

• Establishment: First established on 2016 Ashadh 15 B.S. (1959 June 29 A.D.) under the Constitution of the Kingdom of Nepal, 2015.
• Current Constitutional Provision: Governed by Part 22, Articles 240 and 241 of the Constitution of Nepal (2072) and the Audit Act, 2075.
• Appointment and Tenure: The Auditor General is appointed by the President of Nepal on the recommendation of the Constitutional Council for a single term of 6 (six) years from the date of appointment.

Functions, Duties, and Powers of the Auditor General (Article 241 of the Constitution)

1. Final Constitutional Audit of All Public Accounts: Conducts the final audit of the accounts of the Office of the President/Vice-President, Supreme Court, Federal Parliament, Provincial Assemblies, Provincial Governments, Local Levels (753 Rural/Urban Municipalities), Constitutional Bodies, Nepal Army, Nepal Police, Armed Police Force, and all Federal/Provincial government offices—with due consideration to Regularity, Economy, Efficiency, Effectiveness, and Propriety.
2. Audit and Consultation of Corporate Bodies: Audits corporate bodies in which the government owns more than 50% of the shares or assets and is consulted when appointing auditors for corporate bodies where the government holds shares.
3. Approval of Government Accounting Forms (AGF): Prescribes and approves all accounting forms, ledgers, and reporting formats used across Federal, Provincial, and Local levels.
4. Right to Access All Books, Documents, and Explanations: Has the constitutional power to inspect any accounting book, voucher, or store record at any time and demand explanations from any chief or official.
5. Submission of Annual Audit Report: Submits an Annual Report to the President of Nepal, who causes it to be laid before the Federal Parliament for deliberation by the Public Accounts Committee.

15.7 Comparison Between FCGO and OAG

15.8 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. Which is the apex (supreme) auditing body in Nepal?
2. When was the Office of the Auditor General established in Nepal?
3. Who appoints the Auditor General in Nepal and what is their tenure?
4. Define Province Treasury Comptroller Office (PTCO).

Group B & C: Short and Long Answer Questions (5 & 8 Marks)

1. Write any five major functions of the Ministry of Finance. (5 Marks)
2. Introduce the Financial Comptroller General Office (FCGO) and explain its major functions. (5 Marks)
3. Explain the functions, duties, and powers of the Office of the Auditor General (OAG) under the Constitution of Nepal. (8 Marks)

Worked answers to these exercises are in Chapter 15 Solutions.

Chapter 16: Use of Information Technology in Office Operation and Accounting

16.1 Concept and Importance of IT in Office Operation and Accounting

Information Technology (IT) refers to the integrated use of computers, software applications, databases, internet networks, cloud computing, and telecommunications to collect, process, store, secure, and transmit administrative and financial information.

• Today, both private enterprises and the Government of Nepal have transitioned from manual paper registers to Digital Office Management (E-Governance) and Computerized Accounting Systems.

How Computer / IT in Accounting Helps in Cost Control and Efficiency

1. Reduction in Paperwork and Administrative Cost: Eliminates physical ledgers, printing, and manual voucher storage, directly reducing stationery and administrative overhead costs.
2. Speed and Automation of Calculations: Automatically posts journal entries into ledgers, Trial Balance, Budget Sheets, and Final Accounts within seconds without human arithmetic errors.
3. Real-Time Budget and Cash Monitoring: Prevents overspending by automatically blocking payment orders that exceed the approved budget limit in CGAS/TSA.
4. Transparency and Prevention of Fraud/Leakage: Digital audit trails, electronic fund transfers (EFT), and online revenue portals (RMIS) prevent cash handling and embezzlement.
5. Instant Financial Reporting and Backup: Generates monthly statements (AGF 210), tax returns, and daily national treasury reports instantly, with secure cloud backup.

16.2 Digital Tools Used in Modern Office Operations

1. Electronic Attendance (E-Attendance): Biometric fingerprint or facial-recognition devices that record employee arrival and departure times accurately.
2. Digital Darta-Chalani & Office Automation System (GIOMS): Government Integrated Office Management System used for electronic mail registration, digital Tippani routing, and paperless file tracking.
3. Digital Signature: Cryptographically secure electronic signature legally recognized under the Electronic Transactions Act, 2063 to authenticate digital documents and vouchers.
4. Web Portals, E-Procurement (e-GP), and Citizens’ Apps: Public procurement via PPMO’s e-GP portal, CCTV monitoring, video conferencing, and cloud storage.

16.3 Major IT Systems Used in Government Accounting of Nepal

The Financial Comptroller General Office (FCGO) and Ministry of Finance operate an interconnected suite of Public Financial Management (PFM) IT systems that every Grade 10 student must know:

1. TSA — Treasury Single Account

• Full Form: Treasury Single Account.
• Meaning & Operation: Instead of thousands of government offices holding separate idle bank accounts across commercial banks, all government bank accounts are consolidated into a unified Single Treasury Account structure managed through DTCOs and Nepal Rastra Bank.
• Benefits: Eliminates idle cash balances in operating offices, reduces the government’s need for short-term borrowing/overdraft, provides real-time daily cash balance positions to the Ministry of Finance, and ensures strict budgetary control.

2. CGAS — Computerized Government Accounting System

• Full Form: Computerized Government Accounting System.
• Meaning & Operation: Web-based accounting software developed and operated by FCGO used by Federal and Provincial operating-level offices to enter Journal Vouchers (AGF 203) and Payment Orders (AGF 204). Once entered in CGAS, it automatically generates the Budget Sheet (AGF 208), Bank Cash Book (AGF 209), Monthly Statement of Expenditure (AGF 210), and executes direct Electronic Fund Transfer (EFT) to payees’ bank accounts.

3. SuTRA — Sub-National Treasury Regulatory Application

• Full Form: Sub-National Treasury Regulatory Application.
• Meaning & Operation: Web-based public financial management software operated across all 753 Local Governments (Rural Municipalities and Municipalities) of Nepal. It integrates local-level Planning, Budgeting, Revenue Collection, Accounting (Journal Vouchers, Ledgers), and Financial Reporting of the Local Consolidated Fund in a single system.

4. LMBIS — Line Ministry Budget Information System

• Full Form: Line Ministry Budget Information System.
• Meaning & Operation: Web-based budget formulation and program entry system operated by the Ministry of Finance, where all federal ministries and departments enter their annual programs, budget ceilings, and quarterly allocations to produce the annual Red Book (Budget Book) and transmit approved budgets directly to FCGO’s CGAS/TSA.

5. RMIS — Revenue Management Information System

• Full Form: Revenue Management Information System.
• Meaning & Operation: Online government revenue portal developed by FCGO that allows taxpayers and service-seekers to generate electronic revenue vouchers (E-Challan) from home and pay government taxes, passport fees, traffic fines, and non-tax revenues online via ConnectIPS, mobile banking, digital wallets, or international cards, providing real-time revenue reporting.

6. PAMS — Public Assets Management System

• Full Form: Public Assets Management System.
• Meaning & Operation: Web-based store and property accounting software developed by FCGO that digitizes Store Accounting (400 Series — AGF 401 to 418), tracking consumable and durable government assets, vehicles, buildings, and equipment across government offices.

7. EFT — Electronic Funds Transfer

• Full Form: Electronic Funds Transfer.
• Meaning & Operation: Integrated with CGAS, TSA, and SuTRA through Nepal Clearing House Limited (NCHL / ConnectIPS), EFT replaces paper cheques by transferring salaries, vendor payments, and social security allowances directly from the Treasury Single Account into the bank account of the employee or supplier within minutes.

16.4 Summary Table of Major PFM IT Systems in Nepal

16.5 Challenges and Security Measures in Using IT in Accounting

• Challenges: Shortage of trained IT/accounting manpower in remote areas, internet connectivity disruptions, cyber-security/hacking risks, power outages, and software server downtime during peak fiscal-year closing.
• Security Measures: Role-based user IDs and two-factor authentication (2FA), digital signatures, regular encrypted cloud/offsite backups, firewall protection, and continuous staff training.

16.6 CDC Textbook Exercises & SEE Practice Questions

Group A: Very Short Answer Questions (1 Mark Each)

1. Write the full forms of TSA, CGAS, SuTRA, LMBIS, RMIS, and PAMS.
2. How does the use of computers in accounting help in cost control?
3. Which accounting software is used by all 753 Local Levels of Nepal to manage their Consolidated Fund?

Group B: Short Answer Questions (5 Marks Each)

1. Explain the importance of Information Technology (IT) in modern office operations and accounting.
2. What is the Treasury Single Account (TSA) system? Write any four advantages of implementing TSA in Nepal.
3. Write short notes on: (a) CGAS, (b) SuTRA, and (c) RMIS.

Worked answers to these exercises are in Chapter 16 Solutions.

Appendix: AGF Forms Directory, Budget Codes, Master Formulas, and Solved SEE Model Question Set

A.1 Complete Directory of Auditor General Forms (AGF No.) for SEE

Revised and implemented by the Office of the Auditor General (OAG) across Federal, Provincial, and Local levels:

A.2 Master Quick-Reference of 5-Digit Revenue & Expenditure Codes

A.3 Golden Accounting Rules & Key Formulas

1. Traditional Classification Rules of Debit and Credit:
   • Personal Account: Debit the Receiver, Credit the Giver.
   • Real Account: Debit what comes in, Credit what goes out.
   • Nominal Account: Debit all expenses and losses, Credit all incomes and gains.
2. Modern Accounting Equation Rule:
   • Assets & Expenses: Increase → Debit (Dr.) | Decrease → Credit (Cr.)
   • Liabilities, Capital/Equity, & Revenue: Increase → Credit (Cr.) | Decrease → Debit (Dr.)
3. Final Accounts Key Formulas:
   • Gross Profit = Net Sales + Closing Stock - (Opening Stock + Net Purchases + Direct Expenses)
   • Net Profit = Gross Profit + Indirect Incomes - Indirect Expenses
   • Closing Capital (in Balance Sheet) = Opening Capital + Net Profit (or - Net Loss) + Interest on Capital - Drawings

A.4 Official Pattern Full-Length SEE Model Question Paper (75 Marks)

Subject: Office Operations and Accounting Full Marks: 75 | Time: 3 Hours

Group ‘A’ — Very Short Answer Questions [11 × 1 = 11 Marks]

Attempt all questions in one sentence:

1. Name the two office procedures related to decision-making.
2. Which classification of filing requires a separate index card?
3. When was Nepal Rastra Bank established?
4. What is an indirect tax?
5. Write the full form of NFRS.
6. Why is a Bank Reconciliation Statement prepared?
7. How do you record outstanding salary expenses given in adjustments in the Final Accounts?
8. Give any two examples of government offices that use Central Level Accounting.
9. What is a Revenue Accounting System?
10. Write any two points of importance of Store Accounting.
11. How does using computers in accounting help in cost control?

Group ‘B’ — Short Answer Questions [8 × 5 = 40 Marks]

12. Define Tippani. Write any four considerations to be followed while drafting a Tippani. [1 + 4 = 5]
13. Differentiate between Horizontal (Flat) Filing and Vertical (Upright) Filing in five points. [5] OR Explain any five major functions of a Commercial Bank. [5]
14. What is Tax? Differentiate between Direct Tax and Indirect Tax in four points. [1 + 4 = 5]
15. From the following particulars, prepare a Bank Reconciliation Statement of Koshi Traders as on 30th Chaitra 2082: [5]
    • (a) Debit balance as per Cash Book on 30th Chaitra: Rs. 45,000.
    • (b) Cheques issued for Rs. 15,000, out of which cheques for Rs. 9,000 were presented for payment.
    • (c) Cheques deposited into the bank Rs. 10,000 were not credited by the bank up to 30th Chaitra.
    • (d) A customer directly deposited Rs. 6,000 into the bank account.
    • (e) Bank credited Rs. 800 as interest and debited Rs. 300 as bank service charge in the Pass Book.
16. Rectify the following accounting errors by passing rectifying journal entries: [5]
    • (a) Salary paid to Ram Rs. 10,000 was wrongly debited to Ram’s personal account.
    • (b) Credit sales to Hari Rs. 7,000 was wrongly debited to Ram’s account.
    • (c) Purchase of Machinery of Rs. 20,000 was debited as Rs. 2,000 in Machinery Account.
    • (d) Sales Book was under-recorded by Rs. 5,000.
    • (e) Repair of Building Rs. 3,500 was debited to Building Account.
17. From the following details of District Police Office, Sindhuli, prepare a Statement of Expenditure (AGF No. 210) for the month of Poush 2082: [5]
    • Employee Remuneration (21111): Annual Budget Rs. 36,00,000 | Exp. up to Mangsir Rs. 15,00,000 | Exp. of Poush Rs. 3,00,000
    • Water & Electricity (22111): Annual Budget Rs. 60,000 | Exp. up to Mangsir Rs. 20,000 | Exp. of Poush Rs. 5,000
    • Office Supplies (22311): Annual Budget Rs. 1,50,000 | Exp. up to Mangsir Rs. 50,000 | Exp. of Poush Rs. 15,000
    • Travel Expenses (22612): Annual Budget Rs. 2,00,000 | Exp. up to Mangsir Rs. 60,000 | Exp. of Poush Rs. 30,000 (including uncleared advance of Rs. 10,000)
    • Furniture & Fixtures (31123): Annual Budget Rs. 3,00,000 | Exp. up to Mangsir Rs. 1,00,000 | Exp. of Poush Rs. 40,000
18. Define Retention Accounting. Mention any three conditions in which retention deposit should be kept, and list any four forms used in Store Accounting. [1 + 2 + 2 = 5]
19. Write any five functions of the Ministry of Finance, OR explain five differences between Internal Audit and Final Audit. [5]

Group ‘C’ — Long Answer Questions [3 × 8 = 24 Marks]

20. Explain the three branches/methods of Business Accounting (Financial, Cost, and Management Accounting), and describe why Accounting Standards (NAS and NFRS) are necessary in Nepal. [4 + 4 = 8]
21. From the following Trial Balance of Himalayan Trading House for the year ended 30th Chaitra 2082, prepare Trading Account, Profit and Loss Account, and Balance Sheet: [2 + 3 + 3 = 8]
    • Debit: Opening Stock Rs. 35,000; Purchases Rs. 1,80,000; Wages Rs. 18,000; Carriage Inwards Rs. 4,000; Salaries Rs. 33,000; Rent Rs. 12,000; Prepaid Insurance Rs. 6,000; Plant & Machinery Rs. 1,00,000; Furniture Rs. 40,000; Debtors Rs. 60,000; Cash at Bank Rs. 52,000 (Total = Rs. 5,40,000).
    • Credit: Capital Rs. 1,90,000; Sales Rs. 2,95,000; Purchase Return Rs. 5,000; Commission Received Rs. 8,000; Creditors Rs. 42,000 (Total = Rs. 5,40,000).
    • Adjustments: (i) Closing Stock Rs. 50,000; (ii) Outstanding Salary Rs. 3,000 and Outstanding Wages Rs. 2,000; (iii) Insurance expired to the extent of Rs. 4,000; (iv) Depreciate Plant & Machinery by 10% and Furniture by 5%.
22. Prepare Journal Vouchers (AGF No. 203) from the following transactions of District Administration Office, Kavre for Shrawan 2082: [8]
    • (a) 2082/04/05: Issued payment order of Rs. 30,000 for purchasing office materials.
    • (b) 2082/04/10: Paid Rs. 20,000 through payment order for house rent to house owner Mr. Chitrakar.
    • (c) 2082/04/14: Advance given to Section Officer Mrs. Rajani Silwal Rs. 25,000 for travelling expenses.
    • (d) 2082/04/24: Mrs. Rajani Silwal submitted travelling expenses bill of Rs. 25,000 and cleared her advance.
    • (e) 2082/04/28: Out of total salary of Rs. 2,20,000 (including EPF contribution) for the month of Shrawan, deducted Rs. 40,000 for EPF and Rs. 2,000 for income tax, distributed net salary, and deposited the deducted amounts in the concerned offices.

A.5 Answer Key Summary for Numerical Questions in the Model Set

• Q.15 (Bank Reconciliation Statement):
  • Starting Cash Book Balance = Rs. 45,000
  • Add: Unpresented cheques (15,000 - 9,000 = 6,000) + Direct deposit (6,000) + Interest credited (800) = + Rs. 12,800
  • Less: Uncredited cheques (10,000) + Bank charges (300) = - Rs. 10,300
  • Balance as per Pass Book (Cr.) = Rs. 47,500.
• Q.16 (Rectification of Errors):
  • (a) Salary A/C Dr. 10,000 To Ram’s A/C 10,000
  • (b) Hari’s A/C Dr. 7,000 To Ram’s A/C 7,000
  • (c) Machinery A/C Dr. 18,000 To Suspense A/C 18,000
  • (d) Suspense A/C Dr. 5,000 To Sales A/C 5,000
  • (e) Repair A/C Dr. 3,500 To Building A/C 3,500
• Q.17 (Statement of Expenditure AGF No. 210):
  • Total Annual Budget = Rs. 43,10,000 | Exp. up to Mangsir = Rs. 17,30,000 | Exp. of Poush = Rs. 3,90,000
  • Total Expenditure Up to Poush = Rs. 21,20,000 | Remaining Budget Balance = Rs. 21,90,000
  • Net Expenditure Excluding Uncleared Advance (21,20,000 - 10,000) = Rs. 21,10,000.
• Q.21 (Final Accounts):
  • Gross Profit = Sales (2,95,000) + Closing Stock (50,000) - [Opening Stock (35,000) + Net Purchases (1,75,000) + Wages (18,000 + 2,000) + Carriage (4,000)] = Rs. 1,11,000.
  • Net Profit = Gross Profit (1,11,000) + Commission (8,000) - [Salaries (33,000 + 3,000) + Rent (12,000) + Expired Insurance (4,000) + Depr. on Plant (10,000) + Depr. on Furniture (2,000)] = Rs. 55,000.
  • Balance Sheet Total = Capital (1,90,000 + 55,000 = 2,45,000) + Creditors (42,000) + Outstanding Salary (3,000) + Outstanding Wages (2,000) = Rs. 2,92,000 (Assets: Plant 90,000 + Furniture 38,000 + Debtors 60,000 + Closing Stock 50,000 + Unexpired Insurance 2,000 + Bank 52,000 = Rs. 2,92,000).

Full worked answers to every question in the paper are in Model Question Paper Solutions.

Chapter 1 Solutions: Office Management and Procedures

Answers to the Chapter 1 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is meant by office management?

Office management is the art and science of planning, organizing, directing, coordinating and controlling office activities and the office’s human and physical resources, so that the organization achieves its predetermined objectives efficiently and economically.

2. Name the two main office procedures related to decision-making.

The two main decision-making procedures are the Tippani, an official note submitted up the hierarchy for the chief’s decision, and the Resolution or Prastabana, a motion decided collectively in a meeting or assembly.

3. What is a Tippani?

A Tippani is an official written note that a lower-level assistant or section officer prepares and submits upward through the administrative hierarchy to the authorized decision-making authority, such as the Head of Office, so that a formal decision can be made on an unclear policy, problem or new administrative matter.

4. State the three main parts of a report.

The three main parts of a report are (1) the Introduction, (2) the Body of the Report and (3) the Conclusion and Recommendations.

5. What is a Special Resolution?

A Special Resolution is a resolution on a major structural or constitutional matter, such as changing a company’s name or objectives, altering its share capital or voluntary liquidation, which is passed only by a special majority of at least 75% (three-fourths) of the members present.

Group B: Short Answer Questions (5 Marks Each)

1. What is office procedure? Explain any four points of importance of office procedure.

Office procedure is the systematic, step-by-step sequence in which administrative tasks are performed according to prevailing laws, rules and organizational manuals. Handling incoming and outgoing mail (Darta and Chalani), drafting memos, submitting proposals for decisions and preparing reports all follow such fixed steps. In Nepalese offices, the three main decision-making and reporting procedures are the Tippani, the Report and the Resolution (Prastabana).

Four points of importance of office procedure are:

1. Uniformity in work: When every task follows the same fixed steps, all employees handle similar work in the same way. Letters are registered, files are opened and proposals are submitted in a standard form, so the quality of work does not depend on the habits of individual staff.
2. Speed and economy: A clear sequence of steps removes unnecessary movement of papers, duplication of effort and delay. Work is completed in less time and at lower cost, which supports the cost control and efficiency that office management aims for.
3. Fixing responsibility: Each step of a procedure shows who must act, and the signatures, designations and dates recorded at every step show who did what and when. This makes it easy to supervise work and to hold the right person accountable for any mistake or delay.
4. Legal compliance and transparency: Office procedures are framed according to prevailing laws and rules, so decisions taken by following them are lawful and can be defended in audits and courts. The written record kept at each step also makes the office’s work transparent to superiors, auditors and the public.

Office procedure also makes it easy to train new employees, and it keeps work running smoothly when staff are transferred or replaced.

2. Define Tippani. Write any four considerations to be followed while drafting a Tippani.

Tippani is a written statement or official note initiated by a lower-level assistant or section officer and submitted upward through the administrative hierarchy to the authorized decision-making authority, such as the Head of Office, Department Chief or Minister, to reach a formal decision on an unclear policy, problem or new administrative matter. It sets out the subject, the facts and background, the relevant legal provisions, the financial implications and the opinions of the subordinate levels, so that the authority can approve, modify or reject the proposal.

Four considerations to be followed while drafting a Tippani are:

1. Clear subject heading: The subject of the Tippani must be written clearly and concisely at the top, such as “Regarding the Purchase of 5 Desktop Computers for the Accounts Section.” A clear subject tells every reader at a glance what decision is being sought.
2. Left margin space: A one-fourth (1/4) margin must be left blank on the left side of the Tippani sheet. Higher authorities use this space to write their remarks, opinions or instructions as the Tippani moves up the hierarchy.
3. Sequential order of facts: The Tippani should begin with the background or problem, followed by the related legal provisions, the availability of budget and, finally, clear suggestions or opinions. This logical order helps the decision-maker understand the matter and decide quickly.
4. Signature, designation and date: Every official who forwards or decides on the Tippani must sign it with name, designation and date, in chronological order. This shows who gave which opinion and when, so the Tippani serves as permanent documentary evidence of the decision.

The chapter lists two more considerations: relevant letters, bills, quotations or legal clauses must be attached and indexed by page or serial number, and the language must be polite, simple and unbiased.

3. What is a report? Explain the different types of reports used in government and business offices.

A Report is a formal, factual and analytical written account prepared by an individual, committee or office after investigating, inspecting or completing a specific event, project or financial period. Every standard report has three main parts: the Introduction, the Body of the Report, and the Conclusion and Recommendations.

The different types of reports used in government and business offices are:

1. Annual/Periodic Report: It is prepared at the end of a month, quarter or fiscal year and summarizes the physical and financial progress made during that period. Management uses it to compare actual progress with targets and to plan for the next period.
2. Audit Report: It is prepared by an auditor after examining the financial accounts and vouchers of an office. In government offices, the internal audit is done by the District Treasury Comptroller Office (DTCO) and the final audit by the Office of the Auditor General (OAG), while a business is audited by an independent chartered accountant; the report points out errors and irregularities and suggests improvements.
3. Committee/Commission Report: It is prepared by an investigation or study committee formed for a specific issue. It presents the facts the committee found and its recommendations to the authority that formed it.
4. Educational/Field Visit Report: It is prepared by students or employees after completing an observation tour or a training program. It records what was observed or learned and how that knowledge can be used in study or work.
5. Feasibility Report: It is prepared before launching a new project or business to evaluate whether it is technically and financially viable. Investors, banks and government bodies rely on it to decide whether the project should go ahead.

Chapter 2 Solutions: Filing and Indexing

Answers to the Chapter 2 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is filing?

Filing is the systematic process of classifying, arranging and preserving important office letters, vouchers, deeds, contracts and records safely, so that any of them can be located and retrieved quickly whenever it is needed in the future.

2. What is Misil filing?

Misil filing is a traditional Nepalese filing method in which all the documents related to a single legal case or subject are tied together in chronological order with a red or white cotton ribbon inside a thick Nepali paper cover; it is widely used in courts, Land Revenue Offices and District Administration Offices.

3. Which classification of filing requires a separate index?

Numerical classification requires a separate index, usually an alphabetical index card, because the files are arranged by number and only the index shows which number belongs to which person.

4. Define indexing.

Indexing is a guide, indicator or pointer that helps locate the exact position of a specific file, ledger account or document quickly, just as a book’s table of contents guides a reader to the right page.

Group B: Short Answer Questions (5 Marks Each)

1. Differentiate between Horizontal (Flat) Filing and Vertical (Upright) Filing in five points.

Horizontal and vertical filing are the two modern filing methods. In horizontal (flat) filing, files are laid flat one on top of another, while in vertical (upright) filing, folders stand upright side by side in the drawers of a steel filing cabinet. They differ as follows:

2. What is Alphabetical Classification of filing? Write any two merits and two demerits of it.

Alphabetical Classification is the method of filing in which files are arranged according to the first letter of the name of the person, firm or organization, in dictionary order (A, B, C … Z). Names that begin with the same letter are arranged by their following letters, just as words are in a dictionary, so a client’s file is found by going straight to the letter with which the name begins.

Merits:

1. Simple to understand: Anyone who knows the alphabet can file and find papers without special training. The clerk simply goes to the section for the first letter of the correspondent’s name.
2. Self-indexing: The names written on the folders themselves act as the index, so no separate index is required. This saves the cost and time of preparing and maintaining index cards.

Demerits:

1. Confusion among identical names: When several correspondents share the same name, such as Ram Bahadur Thapa, their files lie together and papers can easily be put into the wrong folder. Other details, such as the address, must then be checked to tell the files apart.
2. Lack of secrecy: Clients’ names are written openly on the folders, so anyone who opens the drawer can see whose files are kept there. The method is therefore not suitable for confidential records.

The chapter also notes one more merit, that new files are easy to add under any letter, and one more demerit, that it is difficult to estimate the space each letter will need.

3. Explain Numerical Classification of filing along with its advantages and disadvantages.

Numerical Classification is the method of filing in which each correspondent, client or file is given a unique serial number (1, 2, 3 … or 101, 102 …) and the folders are arranged strictly in numerical order. Since the folders show only numbers, a separate alphabetical index card is kept for each correspondent, showing the name, address and file number. To find a file, the clerk first looks up the name in the card index, reads the file number and then takes out the folder with that number.

Advantages:

1. High secrecy: Outsiders see only numbers on the folders and cannot tell whose file is whose without the index. This makes the method suitable for confidential records.
2. Unlimited expansion: A new correspondent simply takes the next unused number, and the new folder is added at the end. The existing arrangement never has to be disturbed.
3. No confusion among identical names: Even if many clients have the same name, each has a different file number, so papers are not misplaced between their files.
4. Number as a reference code: The file number can be quoted as a reference on letters and vouchers. Replies can then be filed quickly, and related papers are easy to trace later.

Disadvantages:

1. Indirect system needing a separate index: A file cannot be found directly; the clerk must first consult the alphabetical index. Preparing and maintaining the index adds to the cost and time of filing.
2. Transposition errors: Digits may be read or written in the wrong order, such as 142 for 124, and the file is then put in the wrong place. Once a file is misplaced in this way, it is very hard to trace.

4. What is indexing? Write any five differences between filing and indexing.

Indexing is a guide, indicator or pointer that helps locate the exact position of a specific file, ledger account or document quickly. Just as a book’s table of contents guides a reader to a page number, an office index guides the clerk to the exact cabinet, drawer and folder number. Common types are the book (page) index, loose-leaf index, vowel index, card index, visible card (strip) index and digital (electronic) index.

Five differences between filing and indexing are:

Chapter 3 Solutions: Bank, Insurance, and Financial Institutions

Answers to the Chapter 3 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. When was Nepal Rastra Bank established?

Nepal Rastra Bank, the central bank of Nepal, was established on 2013 Baishakh 14 B.S. (1956 April 26 A.D.) under the Nepal Rastra Bank Act, 2012.

2. Which is the first bank of Nepal and when was it established?

Nepal Bank Limited is the first bank of Nepal; it was established on 1994 Kartik 30 B.S. (1937 November 15 A.D.).

3. Which regulatory body regulates insurance companies in Nepal?

Insurance companies in Nepal are regulated by the Nepal Insurance Authority (NIA) under the Insurance Act, 2079; it was formerly known as the Beema Samiti (Insurance Board).

4. Write the full form of SWIFT and ATM.

SWIFT: Society for Worldwide Interbank Financial Telecommunication. ATM: Automated Teller Machine.

5. What percentage of basic salary is deducted for the Employees Provident Fund (EPF)?

10% of the employee’s basic salary is deducted for the EPF, and the employer adds an equal 10% as a matching contribution, making a total of 20%.

Group B: Short Answer Questions (5 Marks Each)

1. Explain any five major functions of the Central Bank (Nepal Rastra Bank).

Nepal Rastra Bank (NRB) is the central bank of Nepal, established on 2013 Baishakh 14 B.S. under the Nepal Rastra Bank Act, 2012 and now governed by the NRB Act, 2058. As the supreme monetary and regulatory authority of the country, it guides and controls the whole banking and financial system. Five of its major functions are:

1. Monopoly of note and coin issue: NRB alone has the right to issue Nepalese currency notes and coins. It keeps reserves of gold, silver, foreign exchange and government securities against the currency it issues, which maintains public confidence in the rupee and uniformity in the currency system.
2. Banker, advisor and financial agent to the government: NRB maintains the government’s treasury accounts (TSA) and manages public debt and treasury bills on its behalf. It also advises the Ministry of Finance on economic and fiscal policy.
3. Banker’s bank and lender of last resort: NRB grants licenses to Class A, B, C and D institutions, holds their Cash Reserve Ratio (CRR) deposits and conducts clearinghouse operations. When banks face a financial crisis, NRB provides them emergency liquidity loans, which is why it is called the lender of last resort.
4. Formulation and implementation of monetary policy: NRB formulates the annual Monetary Policy to control inflation, regulate interest rates and maintain price and balance-of-payments stability. It then carries out this policy through the banks and financial institutions it regulates.
5. Control of credit: NRB expands or contracts the supply of credit using quantitative and qualitative tools such as the Bank Rate, the CRR, the Statutory Liquidity Ratio (SLR) and Open Market Operations. Credit is expanded to encourage investment and contracted when prices rise too fast.

The sixth function in the chapter is management and custody of foreign exchange: NRB determines exchange rates, including the pegged rate with Indian currency, and safeguards the national foreign exchange reserves.

2. What is a cheque? Explain the three types of cheques used in banking transactions.

A Cheque is an unconditional written order drawn by an account holder directing their bank to pay a specified sum of money on demand to the person named in it or to the bearer. Every cheque has three parties: the Drawer, the account holder who writes and signs it; the Drawee, the bank on which it is drawn; and the Payee, the person or institution who receives the money.

The three types of cheques used in banking transactions are:

1. Bearer Cheque: A bearer cheque is payable over the counter to anyone who presents it at the bank, because the words “or bearer” on it are not struck out. The bank does not need to check who the holder is, so it is risky: if the cheque is lost or stolen, the finder can encash it.
2. Order Cheque: An order cheque is payable only to the person named on it, or to someone to whom that person has endorsed it on the back. The bank verifies the identity of the person before paying, so it is safer than a bearer cheque.
3. Crossed Cheque: A crossed cheque has two parallel transverse lines drawn on its top-left corner, with or without the words “A/C Payee Only”. It cannot be encashed over the counter and must be deposited into a bank account, so the payment can always be traced. This makes it the safest type of cheque.

3. Differentiate between Life Insurance and Non-Life (General) Insurance in five points.

Life Insurance covers the risk to a person’s life, such as whole life, endowment, term and children’s education policies. Non-Life or General Insurance covers financial loss to property, goods, vehicles and liabilities, such as fire, marine, motor, agriculture and health insurance. Both are regulated in Nepal by the Nepal Insurance Authority. They differ as follows:

4. Introduce Employees Provident Fund (EPF) and Citizen Investment Trust (CIT) and state their major functions.

(a) Employees Provident Fund (EPF): The EPF was established under the Employees Provident Fund Act, 2019 B.S. (1962 A.D.) to build up compulsory retirement savings for government and institutional employees. Its major functions are:

1. Collecting provident fund contributions: It deducts 10% of the basic salary of each employee and adds an equal 10% matching contribution from the employer, so 20% of basic salary is saved in the employee’s account. The accumulated amount is paid to the employee on retirement.
2. Managing social security benefits: It runs social security schemes for its contributors, such as medical, accident, maternity and funeral grants.
3. Lending to employees: It provides loans to its contributors out of the funds it holds, which helps them meet needs such as housing or education.
4. Financing infrastructure: It invests its large pool of savings in national infrastructure projects, which supports the country’s development.

(b) Citizen Investment Trust (CIT): The CIT was established under the Citizen Investment Trust Act, 2047 B.S. (1991 A.D.) to encourage citizens to save and to put those savings to productive use through the capital market. Its major functions are:

1. Operating voluntary retirement funds: It runs the Employee Growth Retirement Fund and the Gratuity Fund, in which employees and employers can save voluntarily for retirement.
2. Running savings schemes for the public: Through the Investor Account Scheme and the Citizen Unit Scheme, it collects savings from the general public and invests them on their behalf.
3. Mobilizing capital market investment: It invests the funds it collects in shares and other securities, which channels small savings into the capital market.
4. Acting as an issue manager: It manages the issue of shares for companies that offer them to the public.

Chapter 4 Solutions: Introduction to Tax

Answers to the Chapter 4 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is indirect tax?

An indirect tax is a tax levied on the production, import, export or consumption of goods and services whose burden the producer or seller shifts to the final consumer by adding it to the price, such as VAT, Customs Duty and Excise Duty.

2. What is the current rate of Value Added Tax (VAT) in Nepal?

Nepal levies VAT at a single standard rate of 13%; exports are taxed at 0%, and basic agricultural, medical and educational items are exempt.

3. Write the full form of PAN and VAT.

PAN: Permanent Account Number. VAT: Value Added Tax.

4. Who propounded the four classical canons of taxation?

The classical economist Adam Smith propounded the four canons of taxation (Equality, Certainty, Convenience and Economy) in The Wealth of Nations (1776).

Group B: Short Answer Questions (5 Marks Each)

1. What is tax? Explain any four major objectives of levying tax by the government.

Tax is a compulsory financial charge imposed by the government (Federal, Provincial or Local) on individuals, businesses and goods or services under prevailing law, without any direct personal return or benefit to the taxpayer in exchange. In the words of Prof. Seligman, “A tax is a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to special benefits conferred.” In Nepal, domestic taxes are administered by the Inland Revenue Department (IRD) under the Ministry of Finance.

Four major objectives of levying tax are:

1. Collection of public revenue: Tax is the primary source of government income. It pays for administrative expenses, the salaries of public employees, defense and the public services the government provides every year.
2. Infrastructure and economic development: Tax revenue finances roads, bridges, hydropower, schools, hospitals and drinking water projects. Such infrastructure raises production and employment and speeds up the country’s economic development.
3. Reduction of economic inequality: Under progressive taxation, people with higher incomes pay at higher rates: the first Rs. 10,00,000 of an individual’s yearly employment income is taxed at only 1%, while the rate rises through 10%, 20% and 27% to a top rate of 29%. The revenue is then spent on social security, scholarships and subsidies for low-income citizens.
4. Protection of domestic industries: Higher customs duty on imported luxury and competing goods makes them costlier than domestic products. This shields domestic manufacturers from foreign competition and encourages local production.

The chapter lists a fifth objective: control of harmful consumption and inflation, through heavy excise duties on tobacco, alcohol and luxury items.

2. Differentiate between Direct Tax and Indirect Tax in five points with suitable examples.

A Direct Tax is levied directly on the income, profit or wealth of a person or institution, and the same person bears its burden. Examples in Nepal are Income Tax, Remuneration Tax, Property (House and Land) Tax and Vehicle Tax. An Indirect Tax is levied on the production, import, export or sale of goods and services, and its burden is shifted to the final consumer through the price. Examples are Value Added Tax (VAT), Customs Duty and Excise Duty. They differ as follows:

3. What is Value Added Tax (VAT)? Explain the features and importance of VAT in Nepal’s revenue system.

Value Added Tax (VAT) is a multi-stage consumption tax levied on the value added to goods and services at each stage of production and distribution. In Nepal it is governed by the Value Added Tax Act, 2052, administered by the Inland Revenue Department and charged at a single standard rate of 13%. At each stage, a registered business charges VAT on its sales and deducts the VAT it has already paid on its purchases, so in effect it pays tax only on the value it has added. For example, a trader who buys goods for Rs. 1,000 (+ Rs. 130 VAT) and sells them for Rs. 1,500 (+ Rs. 195 VAT) pays 195 - 130 = 65 to the government, which is 13% of 500 = 65 on the Rs. 500 of value added.

Features of VAT in Nepal:

1. Multi-stage tax: VAT is collected at every stage, from the manufacturer or importer to the wholesaler and retailer, but each business pays only on its own value added. Tax is therefore not charged again on tax already paid at an earlier stage.
2. Single standard rate: All taxable goods and services carry one rate of 13%. Exports are taxed at 0%, and basic agricultural, medical and educational items are exempt.
3. Indirect consumption tax: Businesses collect and deposit it, but its burden is shifted forward to the final consumer as part of the price.
4. Registration and VAT invoice: Businesses dealing in taxable goods with an annual turnover above Rs. 50,00,000 (Rs. 30,00,000 for services or mixed transactions) must register for VAT and issue VAT invoices that show the 13% tax separately.

Importance of VAT in Nepal’s revenue system:

1. Major source of revenue: VAT is charged on most goods and services consumed in the country, so its base is broad and it brings in a large and steady share of government revenue.
2. Control of tax evasion: A business can deduct only the VAT shown on proper invoices, so buyers ask for VAT invoices and sales get recorded at every stage. This leaves a trail of transactions that the Inland Revenue Department can check.
3. Promotion of exports: Since exports are taxed at 0%, Nepalese goods are sold abroad without VAT, which makes them more competitive in foreign markets.
4. Simplicity and transparency: One standard rate, shown separately on every invoice, makes the tax easy to calculate for businesses and clear to consumers, which fits the canons of certainty and simplicity.

Chapter 5 Solutions: Business Accounting

Answers to the Chapter 5 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Business Accounting?

Business Accounting is the systematic process of recording, classifying and summarizing the monetary transactions of a business in order to find its profit or loss for an accounting period and show its financial position (assets, liabilities and equity) on a given date.

2. Write the full forms of NAS, NFRS, GAAP, and ICAN.

NAS: Nepal Accounting Standards. NFRS: Nepal Financial Reporting Standards. GAAP: Generally Accepted Accounting Principles. ICAN: Institute of Chartered Accountants of Nepal.

3. Why is Cost Accounting used in a manufacturing business?

A manufacturing business uses Cost Accounting to find the exact total cost and per-unit cost of the goods it produces, to control wastage and unnecessary costs, and to fix a competitive selling price.

4. What is a Chart of Accounts?

A Chart of Accounts is a systematic, coded list of all the ledger accounts kept by a business, classified under five main groups: Assets, Liabilities, Equity (Capital), Revenue and Expenses.

5. For which organizations has NFRS been made mandatory in Nepal?

NFRS is mandatory for multinational companies, commercial banks and financial institutions (BFIs), insurance companies, state-owned enterprises, and public listed companies that issue shares to the public.

Group B: Short Answer Questions (5 Marks Each)

1. Define Business Accounting and explain any four objectives of maintaining business accounts.

Business Accounting is the systematic process of identifying, measuring, recording, classifying, summarizing and interpreting the financial transactions of a business enterprise that can be expressed in money. Its purpose is to find the operating result (Profit or Loss) for an accounting period and to present the true financial position (Assets, Liabilities and Equity) of the business on a specific date.

Four objectives of maintaining business accounts are:

1. Systematic and permanent record: Human memory is limited, and a business makes too many transactions for anyone to remember. Accounting records every transaction in date order in the Journal and classifies it in the Ledger, so the record can be checked at any time and used as evidence.
2. Ascertainment of profit or loss: At the end of the fiscal year, the Trading and Profit & Loss Account (Income Statement) is prepared from the accounts. It shows the net profit or loss of the year, so the owner knows whether the business is doing well and what needs to change.
3. Depiction of true financial position: The Balance Sheet prepared from the accounts shows the total assets, liabilities and owner’s capital on a specific date. It tells the owner and outsiders what the business owns and what it owes.
4. Information to internal and external stakeholders: Owners, management, banks, investors, creditors, employees and tax authorities all need reliable financial information. Accounting provides it in the form of financial reports, on which these users base their decisions about the business.

The other objectives are the assessment of tax liability, since audited accounts are the evidence on which Income Tax and VAT are assessed, and the prevention and detection of errors and fraud through double-entry bookkeeping and the Trial Balance.

2. Differentiate between Financial Accounting and Cost Accounting in five points.

Financial Accounting records the monetary transactions of the business as a whole, while Cost Accounting works out what each product or service costs. They differ as follows:

3. What are Accounting Standards? Describe Nepal Accounting Standards (NAS) and Nepal Financial Reporting Standards (NFRS).

Accounting Standards are authoritative written policies, rules and principles issued by a national or international accounting body. They govern how accounting transactions are recognized, measured, treated, presented and disclosed in financial statements. They are needed to bring uniformity and consistency to the financial statements of different organizations, to make comparison between firms and between years possible, to prevent manipulation and window-dressing, and to increase transparency and credibility for domestic and foreign investors.

In Nepal, accounting standards are formulated by the Accounting Standards Board (ASB), Nepal, established by the Government of Nepal in 2002 A.D. (2059 B.S.) through an amendment to the Nepal Chartered Accountants Act, 1997 (2053 B.S.). The Institute of Chartered Accountants of Nepal (ICAN) pronounces the standards and enforces compliance with them.

1. Nepal Accounting Standards (NAS): NAS are the national benchmarks and rules formulated by ASB Nepal. Business and public entities in Nepal must follow them when preparing their financial statements, so that statements prepared by different entities follow the same rules and can be compared. For the smallest entities, NAS for Micro Entities applies.
2. Nepal Financial Reporting Standards (NFRS): NFRS have been implemented since 2013 A.D. (2070 B.S.) in full convergence with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). They are mandatory for multinational companies, commercial banks and financial institutions (BFIs), insurance companies, state-owned enterprises, and public listed companies that issue shares to the public. Smaller entities follow NFRS for SMEs.

Because NFRS follows IFRS, the financial statements of Nepal’s large and listed entities can be understood and compared by investors anywhere in the world.

4. Explain the five main categories of accounts under a Chart of Accounts with examples of each.

A Chart of Accounts is a systematic, coded list of all the accounts kept in an organization’s general ledger, classified by their financial nature so that transactions can be recorded accurately and computerized easily. Its five main categories are:

1. Assets Account, 1000 series: Assets are the economic resources owned by the business that will give it future economic benefit. They include non-current or fixed assets such as Land & Building, Plant & Machinery, Furniture, Goodwill and Patents, and current assets such as Cash in hand, Cash at bank, Inventory (Stock), Sundry Debtors, Bills Receivable and Prepaid Expenses. Asset accounts normally have a debit balance.
2. Liabilities Account, 2000 series: Liabilities are the debts and obligations the business owes to outside parties. They include long-term liabilities such as Bank Loans, Debentures and Bonds, and current liabilities such as Sundry Creditors, Bills Payable, Bank Overdraft, Outstanding Expenses and Advance Income. Liability accounts normally have a credit balance.
3. Shareholders’ Equity / Capital Account, 3000 series: Equity is the owner’s residual claim on the assets of the business, worked out as Equity = Assets - Liabilities. It includes Owner’s Capital, Ordinary and Preference Share Capital, Reserves and Retained Earnings. Equity accounts normally have a credit balance.
4. Revenue / Income Account, 4000 series: Revenue is the inflow the business earns from its main operations and from other sources. Examples are Sales Revenue, Service Fee Revenue, Commission Received, Interest Received, Rent Received and Discount Received. Revenue accounts normally have a credit balance.
5. Expenses Account, 5000 series: Expenses are the costs incurred to earn revenue and run the business. Examples are Purchases, Wages, Salaries, Office Rent, Depreciation, Insurance, Electricity and Water, Advertisement, Bad Debts and Interest Paid. Expense accounts normally have a debit balance.

In short, Assets and Expenses normally carry debit balances, while Liabilities, Equity and Revenue normally carry credit balances.

Chapter 6 Solutions: Bank Reconciliation Statement

Answers to the Chapter 6 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and full working for the numerical problem.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is a Bank Reconciliation Statement?

A Bank Reconciliation Statement (BRS) is a statement prepared by an account holder on a specific date to find and reconcile the causes of difference between the bank balance shown by the Cash Book and the balance shown by the Pass Book (Bank Statement).

2. State any two causes of disagreement between the Cash Book and Pass Book balances.

(1) Cheques issued but not yet presented for payment, and (2) cheques deposited into the bank but not yet collected or credited by the bank.

Group B: Short Answer Numerical Questions (5 Marks Each)

1. Practice Problem 1: On 30th Chaitra, the Cash Book of Everest Enterprises showed a bank balance of Rs. 50,000. On comparing with the Pass Book, the following differences were noted:

• (a) Cheques issued for Rs. 12,000 were not presented for payment.
• (b) Cheques sent for collection amounting to Rs. 15,000 were not credited by the bank up to 30th Chaitra.
• (c) Bank charges of Rs. 400 and electricity bill of Rs. 2,600 paid by the bank were not recorded in the Cash Book.
• (d) A debtor directly deposited Rs. 8,000 into the bank account.
• (e) Bank credited Rs. 1,000 as interest in the Pass Book.

We start from the Cash Book balance, so the Pass Book is the target book. For each item, ask whether it makes the Pass Book balance higher (add) or lower (deduct) than the Cash Book balance.

Everest Enterprises
Bank Reconciliation Statement
As on 30th Chaitra

Answer: Balance as per Pass Book = Rs. 53,000.

Working notes:

• Added items (Pass Book higher): the unpresented cheques have already been deducted in the Cash Book but not yet in the Pass Book; the debtor’s direct deposit and the interest are in the Pass Book but not yet in the Cash Book. 12,000 + 8,000 + 1,000 = 21,000.
• Deducted items (Pass Book lower): the uncollected cheques are already added in the Cash Book but not yet in the Pass Book; the bank charges and the electricity bill have been taken out of the Pass Book only. 15,000 + 400 + 2,600 = 18,000.
• Check: 50,000 + 21,000 - 18,000 = 53,000.

Chapter 7 Solutions: Accounting Errors and Their Rectification

Answers to the Chapter 7 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points or full working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What are accounting errors?

Accounting errors are unintentional mistakes made by bookkeepers and accountants while recording, posting, totaling or balancing financial transactions, or while transferring balances to the Trial Balance.

2. What is an Error of Principle? Give one example.

An Error of Principle is an error committed by violating a fundamental accounting principle, such as treating capital expenditure as revenue expenditure; for example, debiting the purchase of machinery to Purchase Account instead of Machinery Account.

3. Why is a Suspense Account opened?

A Suspense Account is opened temporarily to put the difference of a disagreed Trial Balance in it when one-sided errors cannot be located immediately and the Final Accounts cannot wait; it closes once those errors are found and rectified.

Group B: Short Answer Questions (5 Marks Each)

1. Explain the four types of errors that are NOT disclosed by the Trial Balance, with one example of each.

Some errors leave the Debit and Credit totals of the Trial Balance equal, because they affect both sides by the same amount or affect neither side. A Trial Balance that agrees is therefore not proof that the books are free of errors. The four types are:

1. Errors of Omission: A transaction is completely left out of the book of original entry, so neither its debit nor its credit is recorded and the totals still agree. Example: Goods sold to Sita on credit for Rs. 10,000 were not entered in the Sales Book at all.
2. Errors of Commission: Clerical mistakes such as posting to the wrong personal account or recording a wrong figure on both sides. The amounts on both sides stay equal. Example: Goods sold to Ram for Rs. 5,000 were debited to Shyam’s Account.
3. Errors of Principle: Errors made by ignoring an accounting principle, mainly by mixing up capital and revenue expenditure. The right amount is debited, but to the wrong kind of account. Example: Wages paid for installing new machinery, Rs. 8,000, were debited to Wages Account instead of Machinery Account.
4. Compensating Errors: Two or more errors of equal amount on opposite sides cancel each other’s effect on the Trial Balance. Example: Purchase Account (Dr.) is undercast by Rs. 2,000 and Sales Account (Cr.) is also undercast by Rs. 2,000.

These errors are found only by checking vouchers and books in detail, and are corrected with rectifying journal entries between the accounts concerned, without a Suspense Account.

2. Rectify the following errors by passing Journal Entries (5 Marks):

• (a) Wages paid for installation of Plant Rs. 6,000 was debited to Wages Account.
• (b) Goods purchased from Binod on credit for Rs. 8,500 was recorded in the Purchase Book as Rs. 5,800.
• (c) Repair of office computer Rs. 2,500 was debited to Computer Account.
• (d) Purchase Book was overcast by Rs. 4,000.
• (e) Cash received from Suman Rs. 3,000 was wrongly credited to Sujan’s Account.

Rectifying Journal Entries

Working notes:

• (a) Error of principle: Wages for installing a fixed asset are part of the asset’s cost (capital expenditure), so Plant is debited and the wrongly debited Wages Account is credited.
• (b) Error of commission: The wrong figure went to both Purchase Account and Binod’s Account, so only the shortfall is corrected: 8,500 - 5,800 = 2,700. The Trial Balance was not affected, so no Suspense Account is used.
• (c) Error of principle: Repair of an existing asset is revenue expenditure, so Repair Account is debited and the wrongly debited Computer Account is credited.
• (d) One-sided error: An overcast Purchase Book put Rs. 4,000 too much on the Debit side of Purchase Account only. Purchase Account is credited to cancel the excess, and the Suspense Account takes the other side.
• (e) Error of commission: Suman should have been credited (the giver), so Sujan’s Account is debited to cancel the wrong credit and Suman’s Account is credited.

Chapter 8 Solutions: Final Accounts

Answers to the Chapter 8 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and full working for the 8-mark numerical problem.

Group A: Very Short Answer Questions (1 Mark Each)

1. Why is a Trading Account prepared?

A Trading Account is prepared to find the Gross Profit or Gross Loss made by a business from buying (or manufacturing) and selling goods during an accounting period.

2. How do you record outstanding salary expenses at the end of a year in the Final Accounts?

Outstanding salary given as an adjustment is added to Salary on the Debit side of the Profit & Loss Account and shown as a liability on the Capital & Liabilities side of the Balance Sheet.

3. What is a Balance Sheet?

A Balance Sheet is a statement prepared on the last day of an accounting period that shows the financial position of a business: its capital and liabilities on one side and its assets on the other.

Group C: Long Answer Numerical Practice (8 Marks)

1. Practice Problem: From the following Trial Balance of Gokarneshwor Traders as on the last day of Ashadh 2083, prepare Trading Account, Profit & Loss Account, and Balance Sheet:

• Debit Balances: Opening Stock Rs. 30,000; Purchases Rs. 1,50,000; Wages Rs. 15,000; Custom Duty Rs. 5,000; Salaries Rs. 35,000; Rent Rs. 12,000; Land & Building Rs. 2,00,000; Equipment Rs. 60,000; Debtors Rs. 50,000; Cash in Hand Rs. 43,000 (Total = Rs. 6,00,000).
• Credit Balances: Capital Rs. 2,20,000; Sales Rs. 3,10,000; Creditors Rs. 40,000; Commission Received Rs. 10,000; Bank Overdraft Rs. 20,000 (Total = Rs. 6,00,000).
• Adjustments: (i) Closing Stock Rs. 45,000; (ii) Outstanding Rent Rs. 3,000; (iii) Appreciate Land & Building by 10% and Depreciate Equipment by 10%.

Gokarneshwor Traders
Trading and Profit & Loss Account
For the year ended on the last day of Ashadh 2083

Gokarneshwor Traders
Balance Sheet
As on the last day of Ashadh 2083

Answer: Gross Profit = Rs. 1,55,000; Net Profit = Rs. 1,29,000; Balance Sheet Total = Rs. 4,12,000.

Working notes:

• Direct expenses (Trading Account): Wages and Custom Duty are costs of bringing goods ready for sale, so they go to the Debit side of the Trading Account with Opening Stock and Purchases: 30,000 + 1,50,000 + 15,000 + 5,000 = 2,00,000. Gross Profit = (3,10,000 + 45,000) - 2,00,000 = 1,55,000.
• Indirect expenses (Profit & Loss Account): Salaries 35,000, Rent with the outstanding amount 12,000 + 3,000 = 15,000, and Depreciation on Equipment 10% of 60,000 = 6,000, a total of 56,000.
• Indirect incomes: Commission Received 10,000 and Appreciation on Land & Building 10% of 2,00,000 = 20,000. Net Profit = 1,55,000 + 10,000 + 20,000 - 56,000 = 1,29,000.
• Each adjustment twice: Closing Stock is credited in the Trading Account and shown as an asset; Outstanding Rent is added to Rent and shown as a liability; the appreciation is an income and is added to Land & Building; the depreciation is an expense and is deducted from Equipment.
• Bank Overdraft is a current liability, so it goes on the Capital and Liabilities side.

Chapter 9 Solutions: System of Government Accounting in Nepal

Answers to the Chapter 9 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. When was the New Accounting System formally approved in Nepal?

The New Accounting System was formally approved by King Mahendra on 2018 Chaitra 2 B.S. (1962 March 15 A.D.) and implemented from Fiscal Year 2019/20 B.S.

2. Give any two examples of government offices that use Central Level Accounting.

Two examples are the Ministry of Finance and the Ministry of Education, Science and Technology; departments and constitutional bodies also keep central level accounts.

3. Who approves the accounting forms (AGF) used in government offices of Nepal?

The Office of the Auditor General (OAG) approves all the AGF forms used in government offices of Nepal, and the Financial Comptroller General Office (FCGO) implements them.

4. On which basis of accounting is the Government Accounting System of Nepal primarily based?

It is primarily based on the Cash Basis of Accounting, in practice a modified cash basis, under which revenue and expenditure are recorded only when cash is actually received or paid.

Group B: Short Answer Questions (5 Marks Each)

1. What is Government Accounting? Explain any four main features of the Government Accounting System of Nepal.

Government Accounting is the scientific and systematic process of recording, classifying, summarizing, reporting and auditing the financial transactions of government offices at the Federal, Provincial and Local levels. It covers the collection of public revenue, the release of budget, the expenditure of public funds, store management and retention (trust) accounts, and it is kept in accordance with the Constitution, the Financial Procedures and Fiscal Accountability Act, and the formats approved by the Office of the Auditor General (OAG).

Four main features of the Government Accounting System of Nepal are:

1. Based on the double-entry principle: Every financial transaction has an equal debit and credit effect. Transactions are journalized in vouchers such as the Revenue Journal Voucher (AGF 103) and the Journal Voucher (AGF 203), which keeps the accounts complete and arithmetically accurate.
2. Budgetary control: No expenditure can exceed the approved budget limit under each specific 5-digit budget sub-head. Spending is recorded against its sub-head in the Budget Sheet (AGF 208), so an office always knows how much of its budget remains.
3. Banking transactions and the Treasury Single Account: All receipts and payments are routed through commercial banks and the Treasury Single Account (TSA) rather than physical cash. This reduces the handling of cash and the risk of theft and misuse, and every transaction leaves a bank record.
4. Uniform prescribed forms: Every government office must use the exact AGF forms prescribed by the OAG and implemented by the FCGO. Since Fiscal Year 2076/77 B.S., these forms have been organized into an 8-series (100 to 800 series) system used across Federal, Provincial and Local governments, so the accounts of all offices are uniform and easy to consolidate and audit.

The other features are the classification into Central Level and Operating Level Accounting and the mandatory internal and final audit, carried out by the DTCO/PTCO and the Office of the Auditor General respectively.

2. Differentiate between Government Accounting and Business Accounting in five points.

Government Accounting records public revenue and expenditure for public service, while Business Accounting records the transactions of an enterprise run for profit. They differ as follows:

3. Distinguish between Central Level Accounting and Operating Level Accounting with suitable examples.

Nepal’s government accounting system divides offices, and the accounts they keep, into two levels:

• Central Level Accounting is kept by ministries, departments and constitutional bodies. These offices receive budget authorization, pass it on to the offices under them, oversee those offices and compile their accounts.
• Operating Level Accounting is kept by district and field offices that carry out programs, spend the budget and collect revenue.

For example, a ministry passes budget authorization to the district offices under it and keeps central level accounts of that budget, while each district office, such as the District Administration Office, spends its share, collects revenue and keeps operating level accounts.

Chapter 10 Solutions: Revenue Accounting

Answers to the Chapter 10 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, five marks’ worth of explained points, tables or working for 5 marks, and an introduction, explained points and a conclusion for 8 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Revenue Accounting System?

The Revenue Accounting System is the systematic process of collecting the government’s tax and non-tax revenue, issuing official receipts, recording the collections in the prescribed forms, depositing them into the Revenue Bank Account (Consolidated Fund) and reporting them, according to prevailing laws and standards.

2. Who is responsible for maintaining revenue records up to getting the final audit done in a government office?

The Head of Office holds the legal responsibility for maintaining accurate revenue records and getting them audited, up to the final audit.

3. Within how many days after the end of a month must a revenue-collecting office submit the monthly revenue statement to the superior office?

The Monthly Revenue Report (AGF No. 109) must be submitted to the superior office and the DTCO within 7 (seven) days after the end of the month.

4. Who conducts the internal audit of revenue accounts of Federal Government offices?

The District Treasury Comptroller Office (DTCO) of the district concerned conducts the internal audit of the revenue accounts of Federal Government offices.

5. Under which revenue code is recovered audit irregularity deposited?

It is deposited under Revenue Code 15000 (Recovery of Irregularities and Prior Year Cash Balance), in the sub-head 15111: Recovery of Audit Irregularities.

6. What is the AGF number of the Revenue Journal Voucher?

The Revenue Journal Voucher is AGF No. 103.

Group B & C: Short and Long Answer Questions (5 & 8 Marks)

1. What is a Revenue Accounting Code? Write any five revenue codes with their titles. (5 Marks)

A Revenue Accounting Code is the 5-digit number assigned to every source of government revenue so that revenue can be classified, recorded and tracked in a uniform way. The codes are used in the Revenue Management Information System (RMIS) of the FCGO, in the Daily Revenue Book (AGF 102), which totals each day’s revenue code by code, and in the Revenue Journal Voucher (AGF 103), where each revenue account is credited under its code.

Revenue codes are grouped under four major headings: 11000 Tax Revenue, 13000 Grants Receipt, 14000 Other / Non-Tax Revenue and 15000 Recovery of Irregularities & Prior Year Cash Balance.

Five revenue codes with their titles:

2. Explain the step-by-step process of Revenue Accounting in Nepal. (8 Marks)

Government Revenue is the public income the government collects through compulsory taxes, such as Income Tax, VAT, Customs Duty and Excise Duty, and through non-tax sources, such as service fees, passport and license fees, royalties, fines, dividends and grants, without any direct obligation to repay it. Revenue Accounting is the process of collecting this revenue, issuing receipts, recording it in the prescribed 100-series forms, depositing it into the Revenue Bank Account (Consolidated Fund) and reporting it. The Head of Office is legally responsible for keeping these records accurate and getting them audited. The revenue accounting cycle follows six steps:

1. Collection of revenue and issue of receipt (AGF 101): When a taxpayer or service-seeker pays cash or a cheque at the office counter, the office immediately issues a Cash / Receipt Slip (AGF No. 101) as official proof of payment. Alternatively, the payer may deposit the amount directly in the bank with a bank voucher or pay electronically through RMIS or ConnectIPS, in which case the bank voucher is the proof.
2. Posting to the Daily Revenue Book (AGF 102): At the close of each working day, all the AGF 101 receipts issued during the day are entered in the Daily Revenue Book in date order. This gives the day’s total revenue under each revenue code.
3. Mandatory bank deposit into the Consolidated Fund: The office cannot spend any cash collected at its counter. It must deposit the money into the designated commercial bank’s Revenue Account on the same day or the very next working day, so that public money is not held or used in the office.
4. Revenue Journal Voucher (AGF 103) and Revenue Bank Cash Book (AGF 108): Each transaction is journalized in the Revenue Journal Voucher. Cash collected at the counter is recorded as Dr. Cash Account, Cr. the Revenue Code Account (for example, 14221 Passport Fee); its deposit into the bank as Dr. Bank (Consolidated Fund) Account, Cr. Cash Account; and revenue paid directly into the bank as Dr. Bank (Consolidated Fund) Account, Cr. the Revenue Code Account. The multi-column Revenue Bank Cash Book then shows the revenue received each day, the amount deposited into the bank and the cash still waiting to be deposited.
5. Automatic transfer through the Treasury Single Account (TSA): The revenue deposited in the bank is transferred automatically through the TSA to the Government’s Consolidated Fund. No revenue stays in the office’s hands, and the Ministry of Finance can see the revenue position each day.
6. Monthly and annual reporting: The office prepares the Monthly Revenue Report (AGF No. 109) and submits it to the superior office and the District Treasury Comptroller Office (DTCO) within 7 days after the end of every month. At the end of the fiscal year, it submits the Annual Revenue Statement within 35 days for the Final Audit by the Office of the Auditor General, while the DTCO conducts the internal audit of the revenue accounts of Federal Government offices.

Conclusion: Revenue accounting follows public money from the moment it is received at the counter, or paid into the bank, until it reaches the Consolidated Fund and is reported and audited. Because every step leaves a receipt, a voucher or a bank record, no revenue can be held back or misused without the shortfall showing up in the accounts.

3. Review how banking arrangements (TSA and online payment) are used in Revenue Accounting in Nepal. (8 Marks)

In Nepal, revenue offices do not keep the revenue they collect as cash. All government revenue is routed through banks: counter collections are deposited into a designated Revenue Account in a commercial bank, revenue is moved automatically into the Consolidated Fund through the Treasury Single Account (TSA), and taxpayers can increasingly pay online through the Revenue Management Information System (RMIS) developed by the FCGO. These banking arrangements are used in revenue accounting as follows:

1. Designated revenue bank account: Every revenue-collecting office deposits its counter collections into the Revenue Account of a designated commercial bank on the same day or the very next working day. The office cannot spend the revenue it collects, so the bank account keeps public money separate from the office’s own funds.
2. Direct deposit by bank voucher: Taxpayers and service-seekers can deposit revenue directly into the bank and bring the bank deposit voucher to the office. The office then records Dr. Bank (Consolidated Fund) Account, Cr. the concerned Revenue Code Account in the Revenue Journal Voucher (AGF 103), and no cash passes through its counter at all.
3. Online payment through RMIS (E-Challan): RMIS allows taxpayers to generate an electronic revenue voucher (E-Challan) from home and pay taxes, passport fees, traffic fines and other non-tax revenue online. The voucher carries the revenue code, so the payment is classified correctly from the start.
4. Digital payment channels: RMIS payments can be made through ConnectIPS, mobile banking, digital wallets or international cards. Citizens no longer need to stand in queues at revenue counters, and payment is possible at any time and from any place.
5. Treasury Single Account (TSA): Instead of each office holding separate idle bank accounts, all government bank accounts are consolidated into a single treasury structure managed through the DTCOs and Nepal Rastra Bank. Revenue deposited in the bank is transferred automatically through the TSA to the Consolidated Fund, which removes idle cash balances and reduces the government’s need for short-term borrowing.
6. Real-time reporting and monitoring: RMIS reports revenue in real time, and the TSA gives the Ministry of Finance a daily cash position for the whole government. Revenue offices, the DTCO and the FCGO can therefore see collections as they happen instead of waiting for monthly reports.
7. Basis for recording and reconciliation: Bank vouchers and E-Challans are the source documents for the Revenue Journal Voucher (AGF 103) and the Revenue Bank Cash Book (AGF 108). Matching them with the bank statement shows that every rupee recorded as revenue has actually reached the bank, and the totals feed the Monthly Revenue Report (AGF 109).
8. Transparency and prevention of leakage: Because revenue moves through banks and online systems instead of cash drawers, there is less scope for theft or embezzlement. The digital record of every payment also makes the internal audit by the DTCO and the final audit by the Office of the Auditor General quicker and more reliable.

Conclusion: The TSA and online payment through RMIS have made revenue accounting in Nepal faster, safer and more transparent, and have made paying revenue easier for taxpayers. These systems still face challenges, such as the shortage of trained IT and accounting staff in remote areas, internet and power disruptions, cyber-security risks and server downtime at the end of the fiscal year. Better connectivity, secure systems and staff training will let these banking arrangements reach every revenue office in the country.

Chapter 11 Solutions: Accounting of Government Expenditure

Answers to the Chapter 11 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and full working for the numerical problem.

Group A: Very Short Answer Questions (1 Mark Each)

1. Write the AGF numbers of Journal Voucher, Budget Sheet, Bank Cash Book, and Statement of Expenditure.

Journal Voucher = AGF No. 203, Budget Sheet = AGF No. 208, Bank Cash Book = AGF No. 209, and Statement of Expenditure = AGF No. 210.

2. What are the 5-digit budget sub-head numbers for Employee Remuneration, Office Supplies, and Machinery & Equipment?

Employee Remuneration = 21111, Office Supplies and Stationery = 22311, and Machinery and Equipment = 31122.

3. Why is a Budget Sheet (AGF No. 208) prepared?

A Budget Sheet is prepared to keep budgetary control: it records the annual appropriation, releases and expenditure under each budget head so that spending never exceeds the approved budget.

Group B & C: Short and Long Numerical Questions (5 & 8 Marks)

1. Practice Problem (Journal Voucher & Bank Cash Book): Prepare Journal Vouchers (AGF No. 203) and post them into a Bank Cash Book (AGF No. 209) for District Health Office, Lalitpur for Mangsir 2083:

• 2083/08/03: Paid Rs. 15,000 for Water and Electricity (22111) by payment order.
• 2083/08/08: Purchased computers and printers (31122) for Rs. 85,000 through payment order.
• 2083/08/15: Issued payment order of Rs. 30,000 as advance to Storekeeper Mr. Bikash Gurung for purchasing office stationery (22311).
• 2083/08/24: Mr. Bikash Gurung submitted stationery purchase bills of Rs. 34,000; his advance was cleared and the excess Rs. 4,000 was paid by payment order.
• 2083/08/29: Distributed monthly salary of Rs. 3,30,000 (21111 including government EPF contribution) after deducting EPF Rs. 60,000 and Social Security Tax Rs. 3,000, and deposited the deducted amounts to the concerned offices on the same day.

Part 1: Journal Vouchers

Government of Nepal
District Health Office, Lalitpur
Journal Voucher (AGF No. 203)

Working notes for the vouchers:

• Voucher 4 (Case 3C, bill more than advance): the whole bill 34,000 is the budget expenditure; the advance of 30,000 is cleared; the shortfall 34,000 - 30,000 = 4,000 is paid by payment order.
• Voucher 5a: net salary paid = 3,30,000 - 60,000 - 3,000 = 2,67,000. The EPF of 60,000 is 20% of the basic salary of 3,00,000 (10% deducted from employees plus the 10% government contribution included in the Rs. 3,30,000).

Part 2: Bank Cash Book

Under the Treasury Single Account system, the DTCO releases exactly the amount of each payment order, so each release is shown on the Debit side of the Bank column and, as the other half of the entry, on the Credit side of the Miscellaneous column. Nothing passes through cash, so the Cash columns are left out. Following the chapter’s posting rules, an advance given is entered in the Budget Expenditure column, and when it is cleared only the difference between the bill and the advance (34,000 - 30,000 = 4,000) is added there.

Government of Nepal
District Health Office, Lalitpur
Bank Cash Book (AGF No. 209)
Fiscal Year: 2083/84 | Month: Mangsir

Answer:

• Budget expenditure for Mangsir: Rs. 4,64,000, made up of 21111 Employee Remuneration Rs. 3,30,000, 22111 Water and Electricity Rs. 15,000, 22311 Office Supplies & Stationery Rs. 34,000 (30,000 + 4,000) and 31122 Machinery and Equipment Rs. 85,000.
• Budget released: Rs. 4,64,000, equal to the expenditure, so the bank (TSA) balance at the end of Mangsir is nil.
• Advance: Rs. 30,000 given and Rs. 30,000 cleared, so no advance remains uncleared.
• Miscellaneous accounts: EPF and Social Security Tax were credited Rs. 63,000 when deducted and debited Rs. 63,000 when deposited, so both are closed; the Rs. 4,64,000 credited to Budget Release matches the budget expenditure.

Check: 15,000 + 85,000 + 30,000 + 4,000 + 3,30,000 = 4,64,000, and Bank Cr. 15,000 + 85,000 + 30,000 + 4,000 + 2,67,000 + 63,000 = 4,64,000.

Chapter 12 Solutions: Store Accounting

Answers to the Chapter 12 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Store Accounting?

Store Accounting is the systematic process of keeping records of the receipt, issue and balance of all consumable and durable physical goods in an office, using the 400-series forms (AGF No. 401 to 418) approved by the Office of the Auditor General.

2. Write the names of any four forms used in Store Accounting with their AGF numbers.

Four forms used in Store Accounting are the Store Requisition Form (AGF No. 401), the Purchase Order (AGF No. 402), the Store Entry / Dakhila Report (AGF No. 403) and the Consumable Store Ledger (AGF No. 407).

3. What is a Dakhila Report (Submission/Entry Report)?

A Dakhila Report (AGF No. 403) is the official form the storekeeper prepares after inspecting goods received by purchase, transfer or grant, to enter them formally into the Store Ledger (AGF 407 or 408); without it, the Accounts Section cannot pay the supplier’s bill.

4. Write any two points of importance of Store Accounting.

(1) It protects public goods from theft, loss and misuse by keeping exact accountability for every item, and (2) it shows the exact stock balance of every consumable and durable item at any time.

Group B: Short Answer Questions (5 Marks Each)

1. What is Store Accounting? Write any four uses/importances of it.

Store Accounting is the systematic process of keeping quantity and money records of all consumable and durable physical goods purchased, received, stored, issued, written off and remaining in stock in an office. It uses the prescribed forms of the 400 Series (AGF No. 401 to 418) approved by the Office of the Auditor General. Since a large part of an office’s annual budget is spent on stationery, furniture, computers, machinery and vehicles, these goods need records as careful as those kept for cash.

Four uses and importances of Store Accounting are:

1. Protection against misuse, theft and loss: Every item purchased is recorded from the moment it enters the store until it is used up or disposed of. This fixes exact accountability for each item, so goods cannot go missing or be misused without it being noticed.
2. Shows the exact stock position: The store ledgers show the opening balance, receipts, issues and closing balance of every item. The storekeeper and the Head of Office can therefore know what is in stock at any time without counting it.
3. Prevents over-stocking and under-stocking: Knowing the stock balance tells the storekeeper when to reorder goods. Daily office work is never halted for want of supplies, and public funds are not locked up in idle inventory.
4. Facilitates physical verification and annual inspection: The ledger balances give the annual Store Inspection Committee (AGF No. 411) a record against which to check the physical stock. Shortages are detected, and damaged or obsolete goods are identified for auction or write-off.

Store Accounting also ensures a smooth handover-takeover when a storekeeper or office chief is transferred or promoted, because every item to be handed over is already on record.

2. Differentiate between Consumable (Non-durable) Store Ledger (AGF 407) and Non-consumable (Durable) Store Ledger (AGF 408) in five points.

Both ledgers belong to the 400 Series, and goods enter both through the Dakhila Report (AGF No. 403), but they record different kinds of goods:

3. Explain the purpose and importance of: (a) Store Requisition Form (AGF 401), (b) Purchase Order (AGF 402), and (c) Store Inspection Report (AGF 411).

(a) Store Requisition Form / Demand Form (AGF No. 401): A section or employee prepares this form whenever goods are needed from the store or need to be purchased from the market. The demanding employee fills in the name, specification and quantity of the goods and signs it, the Storekeeper recommends it after checking whether the item is available in stock or must be bought, and the Head of Office approves it. Its importance is that:

• no goods leave the store without a written and approved demand, which prevents misuse;
• the Storekeeper’s check stops unnecessary purchases of goods already in stock; and
• it is the source document for recording issues in the Store Ledger (AGF 407) and shows who demanded and who approved each item.

(b) Purchase Order (AGF No. 402): When the demanded goods are not available in the store and the Head of Office approves their purchase on AGF No. 401, the office issues a Purchase Order. It instructs the selected vendor or supplier to supply the specified goods within a stipulated date at the agreed rate and terms. Its importance is that:

• it is the office’s written authority to the supplier, so only approved demands turn into purchases;
• it fixes the item, specification, quantity, rate and delivery date, which avoids disputes with the supplier; and
• when the goods arrive, the storekeeper checks them against the order before preparing the Dakhila Report (AGF No. 403), so the office pays only for what it ordered.

(c) Store Inspection Report (AGF No. 411): Every government office must form a Store Inspection Committee at least once a year, at the end of the fiscal year, to physically inspect all consumable and durable store items. The committee submits its findings to the Head of Office in the Store Inspection Report. Its importance is that it identifies:

• goods in good working condition and goods that need repair, so repairs can be made in time;
• obsolete or unserviceable goods that should be auctioned or written off, so they do not take up store space and any remaining value is recovered; and
• any difference between the physical stock and the Store Ledger balances, so shortages and losses come to light and responsibility can be fixed.

Chapter 13 Solutions: Fund Accounting and Retention Account

Answers to the Chapter 13 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is a Fund?

A Fund is a distinct pool of financial resources (cash and bank balances) set aside under constitutional or legal provisions for a specific governmental, developmental, emergency or welfare purpose, together with all the revenues received into it and the expenditures made from it.

2. What is Consolidated Fund?

The Consolidated Fund is the single government treasury account into which all revenues received by the Government of Nepal, all loans raised on the security of revenues and all repayments of loans granted by the government are credited, under Article 116 of the Constitution of Nepal. No money can be withdrawn from it except through an Appropriation Act (Budget Act) passed by Parliament.

3. In what ratio are VAT and Internal Excise Duty distributed from the Federal Divisible Fund among Federal, Provincial, and Local governments?

VAT and Internal Excise Duty are distributed monthly as 70% to the Federal Government, 15% to the Provincial Governments and 15% to the Local Governments, each share being credited to the respective Consolidated Fund.

4. What is Retention Money?

Retention Money is a refundable security deposit kept by a contractor, supplier, bidder or individual with a government office or court as a financial guarantee for fulfilling a contract or legal obligation. It is refunded when the obligation is fulfilled, or forfeited into government revenue if the depositor breaches the contract.

Group B: Short Answer Questions (5 Marks Each)

1. What is a Government Fund? Explain the three main types of government funds in Nepal (Consolidated, Divisible, and Contingent Fund).

Meaning: A Government Fund is a separate pool of public money (cash and bank balances) established under the Constitution or an Act for a specific governmental, developmental, emergency or welfare purpose, together with all the revenue received into it and the expenditure made from it. Each fund is kept as an independent, self-balancing account (fund accounting), so that public money is spent only for its legally authorized purpose and not for earning profit. Under Part 10 (Federal Financial Procedures), Part 16 (Provincial Financial Procedures) and Part 19 (Local Financial Procedures) of the Constitution of Nepal and the Inter-Governmental Fiscal Arrangement Act, 2074, government funds in Nepal are of three main types:

1. Consolidated Fund: All revenues received by the government, all loans raised on the security of revenues and all repayments of loans granted under an Act are credited into one treasury account called the Consolidated Fund. Only revenues credited to religious Guthi funds or other specific separate funds are kept out of it. Federal Nepal has three levels of Consolidated Fund: the Federal Consolidated Fund (Article 116), a Provincial Consolidated Fund in each of the 7 Provinces (Article 204) and a Local Consolidated Fund in each of the 753 Local Levels (Article 229), managed through SuTRA. No money can be withdrawn from it except through an Appropriation Act passed by the respective Parliament or Assembly, or for charges that the Constitution places on the fund.

2. Divisible Fund: This fund is set up under the Inter-Governmental Fiscal Arrangement Act, 2074 to collect shared taxes and natural resource royalties that do not belong to only one tier of government, and to distribute them among the three tiers by a fixed formula. VAT and Internal Excise Duty go into the Federal Divisible Fund at Nepal Rastra Bank and are shared monthly as 70% Federal, 15% Provincial and 15% Local. Royalties from mountaineering, electricity, forests, mines and water are shared as 50% Federal, 25% to the concerned Province and 25% to the concerned Local Level(s), and a Provincial Divisible Fund shares Vehicle Tax and House/Land Registration Fees between the Province and its Local Levels.

3. Contingent / Emergency Fund: Under Article 124 of the Constitution, a permanent Contingent Fund is established by Federal or Provincial Act, and a fixed sum is deposited into it from time to time. It is used to meet unforeseen natural disasters, epidemics, earthquakes, floods or sudden national emergencies, when there is no time to obtain parliamentary approval first. Any expenditure made from the Contingent Fund must later be reimbursed from the Consolidated Fund.

In short, the Consolidated Fund holds and spends public money under the approved budget, the Divisible Fund shares revenue among the Federal, Provincial and Local Governments, and the Contingent Fund keeps money ready for emergencies.

2. What is a Divisible Fund? Write any four uses/importances of the Divisible Fund in Nepal’s federal system.

Meaning: A Divisible Fund is a special fund established under the Inter-Governmental Fiscal Arrangement Act, 2074 to collect shared taxes and natural resource royalties that do not belong exclusively to a single tier of government, and to distribute them transparently among the Federal, Provincial and Local Governments according to constitutional and legal sharing formulas. For example, VAT and Internal Excise Duty deposited in the Federal Divisible Fund at Nepal Rastra Bank are shared monthly as 70% Federal, 15% Provincial and 15% Local, while natural resource royalties are shared as 50% Federal, 25% to the concerned Province and 25% to the concerned Local Level(s).

Uses/importance of the Divisible Fund:

1. Fiscal federalism and fair sharing of revenue: The Divisible Fund puts federalism into practice in money matters. Revenue from VAT, excise duty and royalties is not kept by one tier of government alone but is shared among all three tiers by a fixed legal formula. In this way, every tier gets a fair share of the national revenue.
2. Regular resources for Provincial and Local Governments: Because the fund is distributed every month, the 7 Provinces and 753 Local Levels receive a regular and predictable flow of money. They can plan and pay for development works and for public services such as local roads, drinking water, schools and health services without waiting for one-time grants.
3. Prevention of double taxation and fiscal disputes: Since the law fixes in advance which tax or royalty is shared and in what ratio, the same tax is not levied again by each level of government. It also leaves little room for disputes between the Federal, Provincial and Local Governments over who should receive the revenue.
4. Sharing the benefit of natural resources: Under the royalty formula, 25% of the royalty goes to the concerned Province and 25% to the concerned Local Level(s) where the mountains, rivers, forests or mines lie. The people of those areas therefore share directly in the income from their resources, and their governments have a reason to protect and develop those resources.

3. Define Retention Accounting. Mention any three conditions in which retention deposit should be kept, and list the forms used in Retention Accounting.

Meaning: Retention Accounting is the part of government accounting in which an office records the receipt, refund and forfeiture of retention money, using the 600-series AGF forms. Retention money is a refundable deposit kept by a contractor, supplier, bidder or individual as a financial guarantee. When received, it is neither government revenue nor budget expenditure but a trust liability, so it is kept in a separate retention bank account and recorded separately from revenue and expenditure.

Three conditions in which retention deposit should be kept:

1. Bid Security / Earnest Money: When contractors or suppliers submit sealed tenders or quotations, they deposit usually 2% to 3% of the estimated cost, so that they do not withdraw their bid arbitrarily.
2. Performance Security / Retention Money: Usually 5% is deducted from each running bill, or deposited when the contract is signed, to guarantee that the construction or supply work is completed on time and meets quality standards during the defect-liability period.
3. Judicial Bail / Court Deposit: Courts and quasi-judicial bodies keep a deposit during legal proceedings or appeals to make sure the party appears and meets its legal obligations.

Retention is also kept as a lease, auction or advance guarantee deposit when government buildings or land are leased out or public auctions are held.

Forms used in Retention Accounting (600 Series):

1. Cash Receipt (AGF No. 101) / Bank Deposit Voucher: Used when the retention deposit is received.
2. Retention Journal Voucher (AGF No. 601): The book of original entry for recording the receipt, refund and forfeiture of retention money.
3. Individual Retention Ledger (AGF No. 602): A separate account for each depositor or contractor, showing how much was deposited, how much was refunded and how much remains.
4. Retention Bank Cash Book (AGF No. 603): Records all retention bank receipts, refunds, transfers to revenue and the remaining bank balance.
5. Monthly Statement of Retention (AGF No. 604): The monthly summary report submitted to the DTCO within 7 days after the end of the month.

Chapter 14 Solutions: Internal Control and Auditing

Answers to the Chapter 14 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, five marks’ worth of explained points, tables or working for 5 marks, and an introduction, explained points and a conclusion for 8 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. What is Internal Control?

Internal Control is the system of organizational plans, procedures, division of duties, internal checks and budgetary controls set up by the management or Head of Office within an organization to run daily operations smoothly, safeguard assets, prevent errors and fraud, and ensure compliance with laws and policies.

2. From which Latin word is the term ‘Audit’ derived and what does it mean?

The term ‘Audit’ is derived from the Latin word “Audire”, which means “to hear”.

3. Who conducts the Internal Audit and Final Audit of Federal Government offices in Nepal?

The Internal Audit of Federal Government offices is conducted by the District Treasury Comptroller Office (DTCO) under the FCGO during the fiscal year, and the Final Audit is conducted by the Office of the Auditor General (OAG) after the fiscal year ends.

4. What is Beruju (Audit Irregularity)?

Beruju is any financial transaction pointed out by the auditor during an audit as carried out contrary to prevailing laws, without the required supporting documents or accounts, in an irregular or unreasonable manner, or as an advance left unsettled (Section 2(t) of the Financial Procedures and Fiscal Accountability Act, 2076).

Group B & C: Short and Long Answer Questions (5 & 8 Marks)

1. What is Auditing? Explain any four objectives/advantages of Auditing. (5 Marks)

Meaning: The word Audit is derived from the Latin word “Audire”, meaning “to hear”. Auditing is the independent, systematic and critical examination of the books of accounts, vouchers, supporting documents, store records and financial statements of an organization by a qualified and authorized auditor, to verify their regularity, economy, efficiency, effectiveness and propriety and to express an official audit opinion or report. In Nepal, public sector audit is governed by the Audit Act, 2075 under the Office of the Auditor General (OAG), while corporate audit follows the Nepal Standards on Auditing (NSAs) regulated by ICAN.

Four objectives/advantages of Auditing:

1. Verifying the accuracy and reliability of accounts: The auditor checks that every entry is supported by valid bills, receipts, vouchers and approvals, and that the books and financial statements give a true and fair picture of income, expenditure, assets and liabilities. Audited accounts can therefore be trusted by management, owners, the government and the public.
2. Detecting and preventing errors and fraud: Auditing brings to light clerical errors, omissions, overpayments, embezzlement and misuse of assets, so that they can be corrected or the money recovered. Because employees know that their work will be examined, auditing also acts as a moral check that discourages errors and fraud in the first place.
3. Ensuring compliance with laws, rules and the budget: The auditor examines whether transactions follow the prevailing laws (such as the Public Procurement Act and tax laws), financial rules and approved budget limits. In government offices, transactions that break these rules are reported as Beruju, which must then be recovered, regularized or settled.
4. Judging economy, efficiency and effectiveness: Beyond checking figures, the auditor assesses whether resources were obtained at a reasonable cost, used without waste and actually achieved the intended results. Its suggestions help management and the government get better value for money in the future.

Auditing also promotes accountability, since the OAG’s Annual Report reaches the Federal Parliament and its Public Accounts Committee, and audited statements are more readily accepted by banks, tax authorities and investors.

2. Differentiate between Internal Audit and Final (External) Audit in five points. (5 Marks)

Every government office in Nepal goes through two stages of audit: Internal Audit during the fiscal year and Final / External Audit after the fiscal year ends. They differ as follows:

3. What is Beruju? Explain the three main classifications of Beruju in Nepal’s government accounting system and how Beruju can be minimized. (8 Marks)

According to Section 2(t) of the Financial Procedures and Fiscal Accountability Act, 2076, Beruju (Audit Irregularity) is any financial transaction pointed out by the auditor during an audit as carried out contrary to prevailing laws, without the required supporting documents or accounts, in an irregular or unreasonable manner, or as an advance remaining unsettled. When the Office of the Auditor General conducts the Final Audit, it classifies all the Beruju it finds into three official categories. Beruju is a sign of weak financial discipline, so every office should both settle it and prevent it.

Three classifications of Beruju:

1. Recoverable Beruju: This covers overpayment, embezzlement, revenue leakage, or payment made without the actual delivery of goods or completion of work. Here public money has actually been lost, so the exact amount must be recovered in cash from the concerned official or contractor and deposited into the Consolidated Fund (Revenue Code 15111). For example, if a contractor has been paid for work that was never done, that amount is recovered from the contractor.
2. Beruju to be Regularized / Adjusted: Here the work was genuinely performed and no money was misappropriated, but procedural formalities, bills, receipts or approvals were incomplete. It has four sub-types:
   • Unreasonable / Improper: a procedural rule was bypassed, so the expenditure needs regularization by the superior authority or Parliament.
   • Unsupported by Documents: a bill, receipt or Dakhila report is missing, and the Beruju is cleared by submitting the missing proof.
   • Responsibility Not Taken: a balance was not carried forward into the next year’s books.
   • Reimbursement Not Taken: foreign aid or grant money was spent, but the reimbursement has not yet been claimed.
3. Unsettled Advance Beruju: Advances given to employees, contractors or institutions, or opened as Letters of Credit (LC), that have not been cleared within the legal deadline by the end of the fiscal year become Beruju. They are settled when the advance holder submits the bills for the work done or returns the unspent amount.

How Beruju can be minimized:

1. Strong internal control system: Every office should prepare and follow the Internal Control Guideline required under the Financial Procedures and Fiscal Accountability Act, 2076. Duties should be separated, so that the person who purchases goods, the storekeeper who verifies the Dakhila and the accountant who makes the payment are different people, and no one person can complete a whole transaction alone.
2. Following laws, rules and budget limits: All purchases and payments should strictly follow the Public Procurement Act, tax laws and financial rules, and no expenditure should exceed the approved budget head. Computerized systems such as CGAS and TSA help here by blocking payment orders that exceed the approved budget.
3. Complete supporting documents and up-to-date records: No voucher should be passed without valid bills, receipts, Dakhila reports and approvals, and all records should be kept in the prescribed AGF forms. Balances should be carried forward properly into the next year’s books, and reimbursements from donors should be claimed on time.
4. Timely clearance of advances: The accounts section should keep track of every advance and see that employees, contractors and institutions clear it with bills, or return the unspent amount, within the legal deadline and before the fiscal year closes.
5. Acting promptly on audit findings and fixing responsibility: Errors pointed out in the DTCO’s internal audit should be corrected before the Final Audit. When the preliminary audit report arrives, the Accounting Officer and Head of Office must recover the amounts, submit missing documents or clear advances within 35 days. Officials who cause Beruju should be held responsible, and accounting staff should be trained regularly in financial rules.

Conclusion: Beruju shows where public money has been spent against the law, without proper documents or through unsettled advances. The OAG classifies it as recoverable, to be regularized, or unsettled advance, and its reports are reviewed by the Public Accounts Committee of Parliament. A strong internal control system, strict compliance, complete documentation, timely clearance of advances and prompt action on audit findings can keep Beruju to a minimum and strengthen public trust in government accounts.

Chapter 15 Solutions: Agencies Involved in Government Accounting System of Nepal

Answers to the Chapter 15 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, five marks’ worth of explained points, tables or working for 5 marks, and an introduction, explained points and a conclusion for 8 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. Which is the apex (supreme) auditing body in Nepal?

The Office of the Auditor General (OAG) is the apex constitutional auditing body of Nepal, governed by Part 22 (Articles 240 and 241) of the Constitution of Nepal.

2. When was the Office of the Auditor General established in Nepal?

The Office of the Auditor General was established on 2016 Ashadh 15 B.S. (1959 June 29 A.D.), under the Constitution of the Kingdom of Nepal, 2015.

3. Who appoints the Auditor General in Nepal and what is their tenure?

The President of Nepal appoints the Auditor General on the recommendation of the Constitutional Council for a single term of 6 (six) years from the date of appointment.

4. Define Province Treasury Comptroller Office (PTCO).

The Province Treasury Comptroller Office (PTCO) is the provincial-level treasury agency, set up in each of the 7 Provinces under the Provincial Ministry of Economic Affairs and Planning, that manages the Provincial Consolidated Fund, operates the provincial TSA, releases budget to provincial offices and conducts their internal audit.

Group B & C: Short and Long Answer Questions (5 & 8 Marks)

1. Write any five major functions of the Ministry of Finance. (5 Marks)

The Ministry of Finance (MoF), established in 2008 B.S. (1951 A.D.), is the apex central executive ministry of the Government of Nepal, responsible for public finance, the national budget, fiscal policy, revenue administration, foreign aid and the overall economic stability of the country. Its five major functions are:

1. Formulating and presenting the annual national budget: The MoF prepares the annual estimate of revenue and expenditure of the Government of Nepal and presents it through the Budget Speech on Jestha 15 every year, as required by Article 119 of the Constitution. After the budget is passed, it monitors how the ministries and offices implement it.
2. Formulating fiscal, tax and revenue policies: The MoF frames the policies on direct tax (income tax) and indirect taxes (VAT, customs and excise). It carries out these policies through the Inland Revenue Department and the Department of Customs.
3. Mobilizing foreign aid, grants and public debt: The MoF negotiates bilateral and multilateral grants and loans with development partners such as the World Bank, ADB and IMF. It also manages the government’s internal and external public debt.
4. Supervising the FCGO and public enterprises: The MoF oversees the government’s treasury management through the Financial Comptroller General Office (FCGO) and coordinates with Nepal Rastra Bank on monetary policy. It also monitors the state-owned enterprises.
5. Managing inter-governmental fiscal transfers: The MoF manages fiscal equalization, conditional, complementary and special grants to the Provincial and Local Governments. It does this in coordination with the National Natural Resources and Fiscal Commission (NNRFC).

2. Introduce the Financial Comptroller General Office (FCGO) and explain its major functions. (5 Marks)

Introduction: The Financial Comptroller General Office (FCGO) is the main department-level central agency under the Ministry of Finance, responsible for operating and administering the Government Accounting System and Treasury Management of Nepal. It was first established as the Accountant General Office on 2008 Ashwin 6 B.S., and was upgraded and renamed the FCGO from 2032 Shrawan 1 B.S. (1975 A.D.). It is headed by the Financial Comptroller General, a Special Class (Secretary-level) officer of the Government of Nepal, and works in the districts through the 77 District Treasury Comptroller Offices (DTCOs).

Major functions of the FCGO:

1. Implementing and reforming government accounting forms: The FCGO puts into use, in every government office, the AGF accounting forms approved by the Office of the Auditor General. It also gives technical training to accounting personnel so that the forms are used correctly.
2. Managing the Consolidated Fund and Treasury Single Account: The FCGO operates and maintains the central accounts of the Federal Consolidated Fund, the Contingent Fund and the Divisible Funds. It prepares the Annual Consolidated Financial Statement of the Government of Nepal.
3. Supervising DTCOs and internal audit: The FCGO directs and supervises all 77 DTCOs to ensure that budget is released and payments are processed on time. Through them, it gets the Internal Audit of all federal offices carried out.
4. Operating Public Financial Management (PFM) IT systems: The FCGO develops and runs the national financial software systems, including TSA, CGAS, SuTRA, RMIS, PAMS and EFT, which make government accounting computerized, fast and transparent.
5. Managing pension, gratuity and public debt records: Through the Pension Management Office (Nivrittibharan Vyavasthapan Karyalaya), the FCGO administers civil, police and teacher pensions. It also keeps track of government investments and loans.

3. Explain the functions, duties, and powers of the Office of the Auditor General (OAG) under the Constitution of Nepal. (8 Marks)

The Office of the Auditor General (OAG) is the supreme constitutional auditing body of Nepal. It was first established on 2016 Ashadh 15 B.S. (1959 June 29 A.D.) under the Constitution of the Kingdom of Nepal, 2015, and is now governed by Part 22, Articles 240 and 241 of the Constitution of Nepal (2072) and the Audit Act, 2075. The Auditor General is appointed by the President of Nepal on the recommendation of the Constitutional Council for a single term of 6 (six) years. The functions, duties and powers of the OAG under Article 241 of the Constitution are explained below:

1. Final audit of all public accounts: The OAG conducts the final constitutional audit of the accounts of the Office of the President and Vice-President, the Supreme Court, the Federal Parliament, the Provincial Assemblies, the Provincial Governments, the 753 Local Levels, the Constitutional Bodies, Nepal Army, Nepal Police, the Armed Police Force and all Federal and Provincial government offices. Its audit therefore covers practically every body that spends public money.
2. Audit on the five bases of public audit: Every audit is done with due consideration to Regularity, whether transactions follow the laws and rules; Economy, whether resources were obtained at a reasonable cost; Efficiency, whether the best output was obtained from the resources used; Effectiveness, whether the intended objectives were achieved; and Propriety, whether the spending was fair and reasonable in the public interest.
3. Audit of and consultation on corporate bodies: The OAG audits corporate bodies in which the government owns more than 50% of the shares or assets. It is also consulted when auditors are appointed for corporate bodies in which the government holds shares.
4. Approving government accounting forms (AGF): The OAG prescribes and approves all the accounting forms, ledgers and reporting formats used at the Federal, Provincial and Local levels. The FCGO then implements these forms in every office, which keeps government accounts uniform across the country.
5. Power to access all books, documents and explanations: The OAG has the constitutional power to inspect any accounting book, voucher or store record at any time. It can also demand an explanation from any chief or official, who must provide it.
6. Identifying and classifying Beruju: During the Final Audit, the OAG points out audit irregularities and classifies them as Recoverable Beruju, Beruju to be Regularized, and Unsettled Advance Beruju. The concerned offices must respond to its preliminary audit report and take action within 35 days.
7. Audit of the consolidated accounts of the government: The FCGO prepares the Annual Consolidated Financial Statement of the Government of Nepal, and the OAG audits it. This gives Parliament and the public independent assurance about the government’s overall accounts.
8. Submission of the Annual Report: The Auditor General submits an Annual Report on the audits to the President of Nepal, who causes it to be laid before the Federal Parliament. There it is discussed by the Public Accounts Committee, which holds the executive answerable for irregularities.

Conclusion: As an independent constitutional body free from executive interference, the OAG is the final guardian of public money in Nepal. By auditing every public office for regularity, economy, efficiency, effectiveness and propriety, prescribing uniform accounting forms and reporting its findings to Parliament through the President, it keeps the government accountable for how public funds are raised and spent.

Chapter 16 Solutions: Use of Information Technology in Office Operation and Accounting

Answers to the Chapter 16 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and five marks’ worth of explained points, tables or working for 5 marks.

Group A: Very Short Answer Questions (1 Mark Each)

1. Write the full forms of TSA, CGAS, SuTRA, LMBIS, RMIS, and PAMS.

• TSA: Treasury Single Account
• CGAS: Computerized Government Accounting System
• SuTRA: Sub-National Treasury Regulatory Application
• LMBIS: Line Ministry Budget Information System
• RMIS: Revenue Management Information System
• PAMS: Public Assets Management System

2. How does the use of computers in accounting help in cost control?

Computers cut paperwork, printing and stationery costs and prepare ledgers, the Trial Balance and reports automatically without extra clerical staff; in systems such as CGAS and TSA, they also block payment orders that exceed the approved budget, which prevents overspending and costly clerical errors.

3. Which accounting software is used by all 753 Local Levels of Nepal to manage their Consolidated Fund?

All 753 Local Levels use SuTRA (Sub-National Treasury Regulatory Application), a web-based system for the planning, budgeting, revenue collection, accounting and financial reporting of the Local Consolidated Fund.

Group B: Short Answer Questions (5 Marks Each)

1. Explain the importance of Information Technology (IT) in modern office operations and accounting.

Information Technology (IT) is the integrated use of computers, software applications, databases, internet networks, cloud computing and telecommunications to collect, process, store, secure and transmit administrative and financial information. Both private enterprises and the Government of Nepal have moved from manual paper registers to digital office management (e-governance) and computerized accounting systems. Its importance is:

1. Speed and accuracy through automation: Once a journal entry is made, the computer posts it automatically into the ledgers, Trial Balance, Budget Sheet and Final Accounts within seconds, without arithmetic errors. In CGAS, for example, a Journal Voucher (AGF 203) automatically generates the Budget Sheet (AGF 208), Bank Cash Book (AGF 209) and Monthly Statement of Expenditure (AGF 210).
2. Less paperwork and lower administrative cost: Computerized accounts remove the need for physical ledgers, printing and manual storage of vouchers. This directly reduces stationery costs and administrative overhead.
3. Real-time budget and cash control: CGAS and TSA automatically block any payment order that exceeds the approved budget, so overspending is prevented. The Ministry of Finance can also see the government’s daily cash position in real time.
4. Transparency and prevention of fraud: Digital audit trails show who entered or approved each transaction. Electronic Funds Transfer (EFT) and the online revenue portal (RMIS) reduce the handling of cash, which cuts the chances of leakage and embezzlement.
5. Instant reporting and secure backup: Monthly statements such as AGF 210, tax returns and daily national treasury reports can be produced instantly. Records are protected by secure cloud backup, so they are not lost through fire, theft or damage to paper files.
6. Efficient day-to-day office operations: Biometric e-attendance records staff arrival and departure accurately, and GIOMS handles electronic Darta-Chalani, digital Tippani routing and paperless file tracking. Digital signatures, legally recognized under the Electronic Transactions Act, 2063, authenticate documents and vouchers, while e-procurement (e-GP) and video conferencing save time and travel.

To enjoy these benefits safely, offices must also manage the risks of IT, such as hacking and server downtime, through role-based user IDs, two-factor authentication, regular encrypted backups, firewalls and staff training.

2. What is the Treasury Single Account (TSA) system? Write any four advantages of implementing TSA in Nepal.

Meaning: The Treasury Single Account (TSA) is the system under which all government bank accounts are consolidated into one unified treasury account structure managed through the District Treasury Comptroller Offices (DTCOs) and Nepal Rastra Bank, instead of thousands of government offices holding separate bank accounts in commercial banks. Under TSA, an operating office does not keep idle cash in its own account; it issues a Payment Order (AGF No. 204) or EFT instruction to the DTCO, which pays the exact amount directly from the TSA into the bank account of the supplier or employee.

Four advantages of TSA:

1. No idle cash in operating offices: Since government money stays in a single treasury account until it is actually paid out, cash balances no longer lie idle in the separate bank accounts of thousands of offices. The whole amount remains available to the government.
2. Less short-term borrowing: Because the government can see and use all its cash in one place, it needs less short-term borrowing or overdraft to meet its payments. This saves interest cost for the government.
3. Real-time cash position: TSA gives the Ministry of Finance the government’s daily cash balance in real time. This helps it plan budget releases, borrowing and payments accurately.
4. Strict budgetary control: Payments are released through the DTCO only within the approved budget ceilings, and a payment order that exceeds the budget is blocked. No office can therefore spend more than its approved budget.

TSA also makes payments faster and paperless, because salaries and vendor payments go by EFT directly into the payees’ bank accounts, and revenue collected by offices is transferred automatically to the Consolidated Fund.

3. Write short notes on: (a) CGAS, (b) SuTRA, and (c) RMIS.

(a) CGAS (Computerized Government Accounting System): CGAS is web-based accounting software developed and operated by the Financial Comptroller General Office (FCGO). It is used by Federal and Provincial operating-level offices. In CGAS:

• the office enters Journal Vouchers (AGF 203) and Payment Orders (AGF 204);
• the system automatically generates the Budget Sheet (AGF 208), Bank Cash Book (AGF 209) and Monthly Statement of Expenditure (AGF 210); and
• payments are made by direct Electronic Fund Transfer (EFT) to the payees’ bank accounts, and any payment order beyond the approved budget is blocked.

(b) SuTRA (Sub-National Treasury Regulatory Application): SuTRA is web-based public financial management software operated across all 753 Local Governments (Rural Municipalities and Municipalities) of Nepal. It:

• manages the Local Consolidated Fund of each Local Level;
• integrates local-level planning, budgeting, revenue collection, accounting (Journal Vouchers and ledgers) and financial reporting in a single system; and
• is linked with EFT, so that local payments are made directly into bank accounts.

(c) RMIS (Revenue Management Information System): RMIS is the online government revenue portal developed by the FCGO. Through it:

• taxpayers and service-seekers generate electronic revenue vouchers (E-Challan) from home;
• they pay government taxes, passport fees, traffic fines and non-tax revenues online through ConnectIPS, mobile banking, digital wallets or international cards; and
• revenue is reported in real time to revenue offices and the FCGO, which reduces cash handling and revenue leakage.

Model Question Paper Solutions

Answers to the full-length model question paper in the appendix. Each answer is written to the marks shown against its question: one sentence for each 1-mark question in Group A, five marks’ worth of points, tables or working in Group B (split as the paper shows, such as 1 + 4), and full working or a complete answer for each 8-mark question in Group C. Where a question offers a choice (OR), both options are answered.

Group ‘A’ — Very Short Answer Questions (11 × 1 = 11 Marks)

1. Name the two office procedures related to decision-making.

The two office procedures related to decision-making are Tippani and Resolution / Prastabana.

2. Which classification of filing requires a separate index card?

Numerical classification requires a separate (alphabetical) index card, because the files carry only numbers.

3. When was Nepal Rastra Bank established?

Nepal Rastra Bank was established on 2013 Baishakh 14 B.S. (1956 April 26 A.D.).

4. What is an indirect tax?

An indirect tax is a tax levied on the production, import, export or sale of goods and services whose burden the producer or seller shifts to the final consumer through the price, such as VAT, customs duty and excise duty.

5. Write the full form of NFRS.

NFRS: Nepal Financial Reporting Standards.

6. Why is a Bank Reconciliation Statement prepared?

A Bank Reconciliation Statement is prepared to find and explain the causes of difference between the bank balance in the Cash Book and the balance in the Pass Book on a given date, so that errors are detected and the Cash Book can be brought up to date.

7. How do you record outstanding salary expenses given in adjustments in the Final Accounts?

Outstanding salary is added to Salary on the Debit side of the Profit & Loss Account and shown as a liability on the Capital & Liabilities side of the Balance Sheet.

8. Give any two examples of government offices that use Central Level Accounting.

(1) The Ministry of Finance and (2) the Ministry of Education, Science and Technology.

9. What is a Revenue Accounting System?

A Revenue Accounting System is the systematic process of collecting the government’s tax and non-tax revenues, issuing receipts, recording them in the prescribed forms, depositing them into the revenue account and reporting them, according to prevailing laws.

10. Write any two points of importance of Store Accounting.

(1) It protects public goods from theft, loss and misuse, and (2) it shows the exact stock of consumable and durable goods at any time.

11. How does using computers in accounting help in cost control?

Computers reduce paperwork and stationery costs, prepare ledgers and reports automatically without extra clerical staff, and block payments that exceed the budget, which keeps costs under control.

Group ‘B’ — Short Answer Questions (8 × 5 = 40 Marks)

12. Define Tippani. Write any four considerations to be followed while drafting a Tippani. [1 + 4 = 5]

Tippani is a written official note started by a lower-level assistant or section officer and sent up through the administrative hierarchy to the authority who can decide, so that a formal decision can be made on a problem or new administrative matter.

Considerations while drafting a Tippani:

1. Clear subject heading: The subject is written clearly and briefly at the top, so the deciding officer knows at once what the note is about.
2. Left margin: About one-fourth of the sheet is left blank on the left side for the remarks and instructions of higher authorities.
3. Facts in order: The note starts with the background or problem, then gives the relevant legal provisions and budget availability, and ends with clear suggestions.
4. Supporting documents, language and signature: Relevant letters, bills or quotations are attached and indexed; the language is polite, simple and unbiased; and every official who forwards or decides on the Tippani signs with name, designation and date.

13. Differentiate between Horizontal (Flat) Filing and Vertical (Upright) Filing in five points. [5] OR Explain any five major functions of a Commercial Bank. [5]

First option: Horizontal vs. Vertical Filing

Second option: Functions of a Commercial Bank

1. Accepting deposits: The bank accepts current deposits (no interest, unlimited withdrawals for businesses), saving deposits (moderate interest, limited withdrawals) and fixed deposits (highest interest for a fixed period).
2. Granting loans and advances: It lends through overdrafts, cash credit, term loans, home, auto and education loans, and by discounting bills of exchange against collateral.
3. Remittance and fund transfer: It transfers money within the country and abroad through bank drafts, SWIFT and remittance networks.
4. Opening letters of credit: By opening an LC, the bank guarantees payment to a foreign exporter, which makes international trade safe.
5. Agency and utility services: It collects cheques, dividends and pensions for customers, makes utility payments on their behalf, and provides lockers for the safe custody of gold and documents.

14. What is Tax? Differentiate between Direct Tax and Indirect Tax in four points. [1 + 4 = 5]

Tax is a compulsory payment imposed by the government (federal, provincial or local) under law on individuals, businesses, and goods and services, without any direct personal return to the taxpayer.

15. From the following particulars, prepare a Bank Reconciliation Statement of Koshi Traders as on 30th Chaitra 2082: [5]

Koshi Traders
Bank Reconciliation Statement
As on 30th Chaitra 2082

Answer: Balance as per Pass Book = Rs. 47,500. Only the unpresented part of the cheques issued is reconciled: 15,000 - 9,000 = 6,000.

16. Rectify the following accounting errors by passing rectifying journal entries: [5]

(c) and (d) are one-sided errors, so the Suspense Account takes the other side; (a), (b) and (e) are two-sided errors corrected between the accounts concerned.

17. From the following details of District Police Office, Sindhuli, prepare a Statement of Expenditure (AGF No. 210) for the month of Poush 2082: [5]

Government of Nepal
District Police Office, Sindhuli
Statement of Expenditure (AGF No. 210)
Fiscal Year: 2082/83 | Month: Poush

• Total expenditure up to Poush (including advance): Rs. 21,20,000
• Less: uncleared travel advance: (Rs. 10,000)
• Net expenditure excluding uncleared advance: Rs. 21,10,000

Each row uses the chapter’s formulas: total up to this month = up to last month + this month, and remaining budget = annual budget - total up to this month.

18. Define Retention Accounting. Mention any three conditions in which retention deposit should be kept, and list any four forms used in Store Accounting. [1 + 2 + 2 = 5]

Retention Accounting is the accounting of refundable security deposits received by a government office: recording their receipt, their refund when the obligation is fulfilled, and their forfeiture into government revenue when it is not, in the 600-series forms.

Conditions in which retention deposit is kept:

1. Bid security: usually 2% to 3% of the estimated cost, kept when contractors or suppliers submit tenders or quotations, so they do not withdraw their bids.
2. Performance security: usually 5%, deducted from running bills or deposited at signing, to guarantee that the work is completed on time and to standard.
3. Judicial or court deposit: kept by courts and quasi-judicial bodies during legal proceedings or appeals.

Forms used in Store Accounting:

1. Store Requisition (Demand) Form, AGF No. 401
2. Purchase Order, AGF No. 402
3. Store Entry (Dakhila) Report, AGF No. 403
4. Consumable Store Ledger, AGF No. 407

19. Write any five functions of the Ministry of Finance, OR explain five differences between Internal Audit and Final Audit. [5]

First option: Functions of the Ministry of Finance

1. Annual budget: It prepares the annual estimates of revenue and expenditure, presents the budget on Jestha 15 every year, and monitors its implementation.
2. Fiscal and revenue policy: It frames policies on direct and indirect taxes through the Inland Revenue Department and the Department of Customs.
3. Foreign aid and public debt: It negotiates grants and loans with bilateral and multilateral partners such as the World Bank, ADB and IMF, and manages internal and external public debt.
4. Supervision of FCGO and public enterprises: It oversees the treasury system run by the FCGO, coordinates with Nepal Rastra Bank on monetary policy, and monitors state-owned enterprises.
5. Inter-governmental fiscal transfers: It manages fiscal equalization, conditional, complementary and special grants to provincial and local governments, with the National Natural Resources and Fiscal Commission.

Second option: Internal Audit vs. Final Audit

Group ‘C’ — Long Answer Questions (3 × 8 = 24 Marks)

20. Explain the three branches/methods of Business Accounting (Financial, Cost, and Management Accounting), and describe why Accounting Standards (NAS and NFRS) are necessary in Nepal. [4 + 4 = 8]

Business accounting identifies, records, classifies, summarizes and interprets the monetary transactions of a business to find its profit or loss and show its financial position. Different users need different information, so it has three branches.

Branches of business accounting:

1. Financial Accounting: The basic branch. It records past transactions in the Journal, posts them to the Ledger, prepares a Trial Balance and, at the end of the fiscal year, the Income Statement and Balance Sheet. Its users are mainly outsiders (shareholders, banks, creditors and the Inland Revenue Department) as well as the owners.
2. Cost Accounting: It records and allocates the cost of materials, labor and overheads to find the total and per-unit cost of a product or service. It helps control waste and unnecessary costs and fix a competitive selling price.
3. Management Accounting: It analyzes and interprets data from financial and cost accounting with tools such as ratio analysis, budgeting, break-even analysis and cash-flow forecasting, so that management can plan, control and make policy decisions.

Why Accounting Standards (NAS and NFRS) are necessary in Nepal:

Accounting Standards are authoritative rules on how transactions are recognized, measured, presented and disclosed. In Nepal, Nepal Accounting Standards (NAS) are formulated by the Accounting Standards Board, and Nepal Financial Reporting Standards (NFRS), in full convergence with IFRS, have applied since 2013 A.D. (2070 B.S.) to banks and financial institutions, insurance companies, state-owned enterprises and listed companies. They are necessary because:

1. Uniformity and consistency: Every organization prepares its statements on the same basis, year after year.
2. Comparability: Users can compare one firm with another, and one year with the next.
3. Prevention of manipulation: Common rules reduce window-dressing and accounting fraud.
4. Transparency and credibility: Statements become reliable and acceptable to domestic and foreign investors, lenders and regulators.

Conclusion: The three branches serve outsiders, cost control and management decisions respectively, and accounting standards make the resulting statements uniform, comparable and trustworthy.

21. From the following Trial Balance of Himalayan Trading House for the year ended 30th Chaitra 2082, prepare Trading Account, Profit and Loss Account, and Balance Sheet: [2 + 3 + 3 = 8]

Himalayan Trading House
Trading and Profit & Loss Account
For the year ended 30th Chaitra 2082