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Title Name Amity Solved Assignment PGDM 1st Sem for Accounting for Manager
University AMITY
Service Type Assignment
Course PGDM-(Financial-Management)
Semister Semester-I Cource: PGDM-(Financial-Management)
Short Name or Subject Code Accounting for Manager
Commerce line item Type Semester-I Cource: PGDM-(Financial-Management)
Product Assignment of PGDM-(Financial-Management) Semester-I (AMITY)

Solved Assignment


  Questions :-

                                                                                                       Accounting for Manager

Assignment - A

Question 1a): What do you understand by the concept of conservatism? Why it is also called the concept of prudence? Why it is not applied as strongly today as it used to be in the Past?

Question 1 b): What is a Balance Sheet? How does a Funds Flow Statement differ from a Balance Sheet? Enumerate the items which are usually shown in a Balance Sheet and a Funds Flow Statement.

Question 2a: Discuss the importance of ratio analysis for inter-firm and intra-firm comparisons including circumstances responsible for its limitations .If any

Question 2b: Why do you understand by the term ´pay-out ratio´? What factors are taken into consideration while determining pay-out ratio? Should a company follow a fixed pay-out ratio policy? Discuss fully.

Question 3a: From the ratios and other data given below for Bharat Auto Accessories Ltd. indicate your interpretation of the company´s financial position, operating efficiency and profitability.

Question 4: Bose has supplied the following information about his business to Summary of Cash book for the year ended 31st March, 2004 is as follows:   

Assets and Liabilities

On 1st April 2003

 

(Rs.)

On 31st March, 2004 

(Rs.)

Sundry debtors

 

Stock

 

Machinery

 

Furniture

 

Sundry creditors

1,81,000

 

1,50,000

 

2,50,000

 

40,000

 

1,10,000

1,93,000

 

1,40,000

 

?

 

?

 

1,25,000

 

          

Receipts

Rs.

Payments

Rs.

To Opening balance

 

To Cash sales

 

To Receipt from debtors

 

To Misc. receipts

 

To Loan from Dass @ 9% per annum (taken on  1.10.2003)

5,000 

 

61,000

 

 

7,53,000

 

2,000

 

 

1,00,000

By Payments to creditors

 

By wages

 

By Salaries

 

By Drawings

 

By Sunday office expenses

 

By Machinery purchased (on  1.10.2003)

 

By Closing balance

 

3,50,000

 

1,60,000

 

1,50,000

 

40,000

 

 

1,10,000

 

 

95,000

 

 

16,000

 

9,21,000  

 

9,21,000

 

 

Discount allowed totaled Rs.7,000 and discount received was Rs.4,000. Bad debts written off were Rs.8,000. Depreciation was written off on furniture @5% per annum and machinery @10% per annum under the straight line method of depreciation. The office expenses included Rs.5,000 paid as insurance premium for the year ending 30th June, 2004. Wages amounting to Rs.20,000 were still due on 31st March, 2004.

Prepare trading and profit and loss account for the year ended 31sl March, 2004 and the balance sheet as on that date.

Question (5a) What procedure would you adopt to study the liquidity of a business firm?

Question 5 b: Who are all the parties interested in knowing this accounting information?

Question 5c: What ratio or other financial statement analysis technique will you adopt for this.

  1. From the following particulars, determine the bank balance as per pass book of Priya & Co. as on 28th February 2008.

a)     Credit balance as per cash book on 28th February, 2008 was Rs. 15,000

b)    Interest charged by the bank up to 28th February Rs. 500 was recorded in the pass book.

c)     Bank charges made by the bank Rs. 125 were also recorded only in the pass book.

d)    Out of the cheques of Rs. 25,000 paid into the bank, cheques of Rs. 18,750 were cleared and credited by the bankers

e)     Two cheques of Rs. 7,500 and Rs. 15,000 were issued but out of them only one cheque of Rs. 7,500 was presented for payment upto 28th February.

Dividends on shares Rs. 4,500 were collected by the bankers directly, for which Priya & Co. did not have any information.

7.

8(a).

(b).

 

 

 

CASE STUDY

Question 1: Describe the impact of different types of standards on motivations, and specifically, the likely effect on motivation of adopting the labor standard recommended for Geeta & Company by the engineering firm.

Question 2: Please advise the company in reviewing the standards.

 

 

 

Assignment - C

Question No: 1

Which of the following statements is true concerning assets?

  1. They are recorded at cost and adjusted for inflation.
  2. They are recorded at market value for financial reporting because historical cost is arbitrary.
  3. Accounting principles require that companies report assets on the income statement.
  4. Assets are measured using the cost concept.

 

 

Question No: 2

When the concept of conservation is applied to the Balance Sheet, it results in

  1. Overstatement of Capital
  2. Understatement of Capital
  3. Overstatement of Assets
  4. Understatement of Assets.

 

 

Question No: 3

Which of the following is a correct expression of the accounting equation?

  1. Assets - Liabilities + Owners’ Equity
  2. Assets = Liabilities - Owners’ Equity
  3. Assets + Owners’ Equity = Liabilities
  4. Assets = Liabilities + Owners’ Equity

 

 

Question No: 4

How is the balance sheet linked to the other financial statements?

  1. The beginning retained earnings balance on the statement of retained earnings becomes the amount of retained earnings reported on the balance sheet.
  2. Retained earnings is added to total assets and reported on the balance sheet.
  3. Net income increases retained earnings on the statement of retained earnings, which ultimately increases retained earnings on the balance sheet.
  4. There is no link between the balance sheet and the other statements.

 

 

Question No: 5

The process of recording the economic effects of business transactions in a book of original entry:

  1. Double entry system
  2. Debit
  3. Credit

      4. Journalizing

 

Question No: 6

If the sum of the debits and credits in a trial balance is not equal, then

  1. There is no concern because the two amounts are not meant to be equal.
  2. The chart of accounts also does not balance.
  3. It is safe to proceed with the preparation of financial statements.
  4. Most likely an error was made in posting journal entries to the general ledger or in preparing the trial balance.

 

 

Question No: 7

Z Ltd had Rs1800 of supplies on hand at January 1, 2006. During 2006, supplies with a cost of Rs7, 000 were purchased. At December 31, 2006, the actual supplies on hand amounts to Rs2, 300. After the adjustments are recorded and posted at December 31, 2006, the balances in the Supplies and Supplies Expense accounts will be:

  1. Supplies, Rs7, 000; Supplies Expense, Rs2, 300.
  2. Supplies, Rs1, 800; Supplies Expense, Rs7, 000.
  3. Supplies, Rs2, 300; Supplies Expense, Rs6, 500.
  4. Supplies, Rs2, 300; Supplies Expense, Rs3, 900.

 

 

Question No: 8

In the statement of changes in financial position, uses of resources are defined as:

  1. Transaction debits
  2. Fund increases
  3. Transaction credits
  4. Fund decreases

 

 

Question No: 9

Most firms elected to define funds in the statement of changes in financial position as:

  1. Cash
  2. Working capital
  3. Current assets
  4. Owners’ Equity

 

 

Question No: 10

The funds flow statement included:

  1. All sources and uses of resources.
  2. Only cash transactions.
  3. Only transactions affecting current assets.
  4. Only transactions affecting fund accounts.

 

 

Question No: 11

Which of the following is not an example of a non-fund adjustment to income required in preparing the statement of changes in financial position when funds were defined as working capital?

  1. Depreciation expense
  2. Gain from asset disposal
  3. Interest expense
  4. Amortization of premium on debt

 

 

Question No: 12

In the cash flow statement, cash is defined as:

  1. Quick assets
  2. Literal cash on hand or on demand deposit, plus cash equivalents.
  3. Literal cash on hand or on demand deposit, plus marketable securities.
  4. All of the above.

 

 

Question No: 13

Flexible budgets

  1. Accommodate changes in the inflation rate.
  2. Accommodate changes in activity levels.
  3. Are used to evaluate capacity utilization.
  4. Are static budgets that have been revised for changes in prices.

 

 

Question No: 14

Which of the following statements regarding changing inventory methods is true?

  1. A change in inventory methods can be justified if the change is made to better match profits with revenue.
  2. The effect of changing inventory method does not need to be disclosed.
  3. Tax advantages are valid justification for changing inventory methods.
  4. One place that the reader of an annual report would be able to identify that a company changed inventory methods is the footnotes to the financial statements.

 

 

Question No: 15

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

The difference of Rs200 between the amount of the note (Rs6, 200) and the sales price of the merchandise (Rs6, 000)

  1. Is the interest explicitly included in the amount of the note.
  2. Will be recorded in a contra account, Discount on Notes Receivable, by Co.
  3. Will be recorded as interest revenue on October 1, 2006.
  4. Is an error made in preparing the note.

 

 

Question No: 16

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

The difference of Rs200 between the amount of the note (Rs6, 200) and the sales price of the merchandise (Rs6, 000)

Which of the following combination of financial statements would provide the most in-    depth information to help understand a company’s liquidity?

  1. Income statement and statement of cash flows.
  2. Balance sheet and statement of cash flows.
  3. Balance sheet and income statement.
  4. Statement of retained earnings and statement of cash flows.

 

 

Question No: 17

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

Y Ltd sold equipment for Rs4, 000. This resulted in a Rs1, 500 loss. What is the impact of this sale on the working capital?

  1. Reduces working capital.
  2. Increases working capital.
  3. Has no affect on working capital at all.
  4. The increase offsets the decrease.

 

 

Question No: 18

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

If a company’s asset turnover rate increased from 2005 to 2006, which of the following conclusions can be made?

  1. The company was less efficient during 2006 in using its assets to produce profits.
  2. The company produced more sales in 2006 for each dollar invested in assets.
  3. The company was more profitable in 2005.
  4. The company is over-invested in assets in 2006.

 

 

Question No: 19

X Ltd’s master budget calls for the production of 6,000 units of product monthly. The master budget includes indirect labor of Rs396,000 annually; X Ltd considers indirect labor to be a variable cost. During the month of September, 5,600 units of product were produced, and indirect labor costs of Rs30,970 were incurred. A performance report utilizing flexible budgeting would report a flexible budget variance for indirect labor of:-

  1. Rs170 unfavorable.
  2. Rs170 favorable
  3. Rs2, 030 unfavorable.
  4. Rs2, 030 favorable.

 

 

Question No: 20

Which of the following is not an advantage for using standard costs for variance analysis?

  1. Standards simplify product costing.
  2. Standards are developed using past costs and are available at a relatively low cost.
  3. Standards are usually expressed on a per unit basis.
  4. Standards can take into account expected changes planned to occur in the budgeted period.

 

 

Question No: 21

The main purpose of cost accounting is to-

  1. Maximize profits
  2. Provide information to management for decision making
  3. help in fixing selling price
  4. To watch cash flows

 

 

Question No: 22

Conversion cost is total of:

  1. Direct material and direct wages
  2. Direct material, direct wages, and production overheads
  3. Direct wages and production overheads.
  4. None of the above

 

 

Question No: 23

A cost, which does not involve cash outlay, is called:

  1. Historical cost.
  2. Imputed cost
  3. Out of pocket cost.
  4. Explicit cost.

 

 

Question No: 24

Committed fixed costs are those, which:

  1. Arise from yearly budget appropriations
  2. Are incurred because management can afford.
  3. Arise from additional capacity.
  4. All the above

 

 

Question No: 25

Cost of research undertaken at the request of the customer should be:

  1. Charged to costing profit and loss account.
  2. Charged to selling overheads.
  3. Recovered from the customer.
  4. All the above.

 

 

Question No: 26

Salaries due for the month of March will appear

  1. On the Receipt side of the Cash Book
  2. On the Payment side of the Cash Book
  3. As a contra entry
  4. Nowhere in the Cash Book.

 

 

Question No: 27

Liabilities of business are Rs. 11,220 and owner´s equity is Rs. 15,000. The assets of the business will be.

  1. 3,780
  2. 26,220
  3. 11,220.
  4. 15,000.

 

 

Question No: 28

An entry of Rs. 320 has been debited to Eknath´s account at Rs. 230. If is an error of

 1. Principles

2.Omission

3. Commission

4. Compensatory

 

Question No: 29

Unearned revenues are:

  1. Payments
  2. Liabilities
  3. Temporary accounts.
  4. Both a and b above.

 

 

Question No: 30

The revenue recognition principle requires that sales revenues be recognized:

  1. When cash is received.
  2. When the merchandise is ordered.
  3. When the goods are transferred from the seller to the buyer.
  4. None of the above.

 

 

 

Question No: 31

All of the following are “other receivables” except:

  1. Petty cash.
  2. Interest receivable.
  3. Income taxes refundable.
  4. Advances to employees.

 

 

Question No: 32

Depreciation is dependent on a number of estimates. When a change in an estimate is required, the change is made:

  1. in the current year
  2. in the future year
  3. to prior periods
  4. both a and b above

 

 

Question No: 33

In order to pay a dividend:

  1. The corporation must have adequate retained earnings.
  2. The board of directors must declare a dividend.
  3. The corporation must have adequate cash.
  4. All of the above.

 

 

Question No: 34

Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income are referred to as:

  1. Investing activities.
  2. Financing activities.
  3. Operating activities.
  4. All of the above.

 

 

Question No: 35

All of the following are used in preparing a statement of cash flows except:

  1. A trial balance.
  2. Comparative balance sheet.
  3. Current income statement.
  4. Additional information.

 

 

Question No: 36

Depreciation is result of

  1. Usage
  2. Time
  3. Obsolsences
  4. All of the above.

 

 

Question No: 37

Outstanding Expenses are the examples of

  1. Personal Accounts.
  2. Real Accounts.
  3. Nominal Accounts.
  4. None of the above.

 

 

Question No: 38

Liquid Assets are inclusive of all current assets except

  1. Investories
  2. Prepaid Expenses.
  3. Cash
  4. Both (a) and (b) above.

 

 

Question No: 39

Management Accounting is mainly related to

  1. Presentation of Figures from Financial Accounting.
  2. Presentation of Figures from Cost Accounting.
  3. Principles
  4. Both (a) and (b) above

 

 

Question No: 40

Variance Analysis is done with regards to actuals with-

  1. Standards
  2. Budgeted Figures.
  3. Benchmarks
  4. All of the above.
  Answers :-

                                                                                                              Accounting for Manager

Assignment - A

Question 1a): What do you understand by the concept of conservatism? Why it is also called the concept of prudence? Why it is not applied as strongly today as it used to be in the Past?

Answer: Concept of ideology implies exploitation ideology whereas making ready monetary statements i.e. financial gain shouldn´t be accounted for unless it´s truly been attained however expenses, albeit simply anticipated ought to be provided for. In line with this idea, revenues ought to be recognized only they´re accomplished, whereas expenses ought to be recognized as before long as they´re fairly attainable. As an example, suppose a firm sells 100units of a product on credit for Rs.10, 000. Till the payment is received, it´ll not be recorded within the accounting books. However, if the firm receives data that the client has lost his assets and is probably going to default the payment, the attainable loss is instantly provided for within the firm’s books. The rule is acknowledge to acknowledge} revenue once it´s fairly bound and recognize expenses as before long as they´re fairly attainable. The explanations for accounting during this manner area unit so monetary statements don´t amplify the company’s monetary position.

It is additionally known as the construct of prudence because it primarily involves exercise prudence in recording financial gain and expenses/losses within the monetary statements so anticipated financial gain aren´t recorded whereas doubtless losses area unit provided for.

However, this idea isn´t applied as powerfully nowadays because it won’t to be within the past for the rationale that the trendy world saw a substantial increase in company frauds e.g. Enron case in USA and Satyam in Asian nation. Also, there´s a decline in presumptuous company social responsibilities because of superfluous problems with gaining content and whole building. These 2 major problems require accrued transparency in monetary statements and thus, the decline in use old-time recent construct of ideology.

Question 1 b): What is a Balance Sheet? How does a Funds Flow Statement differ from a Balance Sheet? Enumerate the items which are usually shown in a Balance Sheet and a Funds Flow Statement.

Answer: A record may be a style of budget of associate degree entity, indicating the monetary position at a given purpose of your time. It’s the statement of Assets and Liabilities as on a specific date. The varied things of a record are often sorted underneath 2 heads, visa: assets and liabilities.

Funds Flow statement determines the sources money of money} flowing into the firm and therefore the application of that cash by the firm. The varied things of a Funds Flow Statement are often sorted underneath 2 heads, visa: flow of funds (sources) or outflow of funds (applications).

While the record shows solely the price of every supply and application of funds at the top of the year, funds flow statement depicts the extent of changes in every supply and application of funds throughout the year.

If we tend to take the record for 2 consecutive years and total the amendment for every item, we tend to ar ready to attain the Funds Flow Statement things.

The various things sometimes shown in a very record are:

Assets side:

(1) Mounted assets

  1. Gross block
  2. Less depreciation
  3. Net block
  4. Capital work-in-progress

(2)Investments

(3)Current assets, loans, and advances:

  1. Inventories
  2. Sundry debtors
  3. Money and bank balances
  4. Alternative current assets
  5. Loans and advances

(4)Deferred Revenue Expenditure:

  1. Miscellaneous expenditure to the extent not written off or adjusted
  2. (Profit and Loss account

Liabilities side:

(1)Shareholder´s funds

  1. Capital
  2. Reserves and Surplus

(2)Loan funds

  1. Secured loans
  2. Unsecured loans

Current liabilities and provisions:

(a) Liabilities

  • Sundry Creditors
  • Outstanding expenses
  • Provision for tax

Similarly, things in a very Funds Flow Statement are:

Inflow of funds:

  • A decrease in assets
  • An increase in liabilities
  • An increase in shareholder’s funds Outflow of funds:
  • An increase in assets
  • A decrease in liabilities
  • A decrease in shareholder’s funds

Question 2a: Discuss the importance of ratio analysis for inter-firm and intra-firm comparisons including circumstances responsible for its limitations .If any

Answer: Ratio analysis implies the systematic use of ratios to interpret the monetary statements in order that the strength and weaknesses of a firm also as its historical performance and current monetary position will be determined. With the assistance of magnitude relation analysis conclusion will be drawn relating to many aspects like monetary health, profit and operational potency of the enterprise.

Ratio analysis is extremely helpful in creating inter-firm comparison because it helps to draw a comparison between the entities at intervals a similar trade or otherwise following a similar accounting procedure. It provides the relevant monetary info for the comparative corporations with a read to rising their productivity & profit.

Ratio analysis helps in intrafirm comparison by providing necessary knowledge. AN interfirm comparison indicates relative position. It provides the relevant knowledge for the comparison of the performance of various departments. If comparison shows a variance, the potential reasons of variations is also known and if results are negative, the action is also initiated directly to bring them in line.

However, in spite of being such a great tool, it´s not free from its limitations. One magnitude relation is of a restricted use and it´s essential to possess a comparative study. The bottom used for magnitude relation analysis visa: monetary statements have their own limitations. Also, they take into account solely the quantitative aspects of business transactions wherever as there are varied different non-quantitative aspects like quality of labor force that significantly have an effect on profit and productivity. Also, magnitude relation analysis as a tool is additionally restricted by changes in accounting procedures/policies.

Question 2b: Why do you understand by the term ´pay-out ratio´? What factors are taken into consideration while determining pay-out ratio? Should a company follow a fixed pay-out ratio policy? Discuss fully.

Answer: Pay-out quantitative relation suggests that the quantity of earnings paid call at dividends to shareholders. Investors will use the pay-out quantitative relation to work out what corporations do with their earnings. It are often calculated as:

A very low pay-out quantitative relation indicates that a corporation is primarily targeted on retentive its earnings instead of paying out dividends.

The pay-out quantitative relation conjointly indicates however well earnings support the dividend payment. The lower the quantitative relation, the safer the dividend as a result of smaller dividends area unit easier to pay-out than larger dividends.

The major issue to be thought of in decisive the pay-out quantitative relation is that the dividend policy of the corporate. Young, invasive corporation’s area unit generally targeted on reinvesting earnings so as to grow the business. As such, they typically sport low (or even zero) dividend pay-out ratios. At constant time, larger, more-established corporations will typically afford to come a bigger share of earnings to stockholders. Also, another issue to be thought of is that the variety of business during which the corporate is working. For instance, the banking sector typically pays out an oversized quantity of its profits. Sure alternative sectors like property investment trusts area unit needed by law to distribute an exact share of their earnings.

Funds demand of the corporate and it’s out there liquidity is another issue that is taken into account whereas decisive the pay-out.

Some corporations favor to follow a hard and fast pay-out quantitative relation policy regardless of the earnings created.

This is a welcome policy from the purpose of read of the investors. But, the corporate ought to take under consideration varied vital factors like it’s want for future investment and growth, money needs and debt obligations.

Question 3a: From the ratios and other data given below for Bharat Auto Accessories Ltd. indicate your interpretation of the company´s financial position, operating efficiency and profitability.

Year I

Year II

Year III

Current Ratio

265%

278%

302%

Acid Test Ratio

115%

110%

99%

Working Capital Turnover

2.75

3.00

3.25

(times)

Receivables Turnover

9.83

8.41

7.20

Average Collection Period

37

43

50

(Days)

Inventory to Working

95%

100%

110%

Capital

Inventory Turnover

6.11

6.01

5.41

(times)

Income per Equity Share

5.10

4.05

2.50

Net Income to Net Worth

11.07

8.5%

7.0%

Operating Expenses to

22%

23%

25%

Net Sales

Sales increase during the

10%

16%

23%

Cost of goods sold to Net

70%

71%

73%

Sales

Dividend per share

Rs. 3

Rs.3

Rs.3

Fixed Assets to Net Worth

16.4%

18%

22.7%

Net Profit on Net Sales

7.03%

5.09%

2.0%

Answer: The money position of a priority is principally judged by its current quantitative relation, appraisal quantitative relation, capital turnover, mounted assets to internet value.

In the given case of Asian nation car Accessories Ltd, the present quantitative relation has gone up from 265% to 302% over an amount of 3 years. It’s a live of the degree to that current assets cowl current liabilities (Current Assets / Current Liabilities). A high quantitative relation indicates an honest chance the enterprise will retire current debts. However, the appraisal quantitative relation has gone down from one hundred and fifteenth to ninety nine, that isn´t an awfully smart sign. It’s a live of the quantity of quick assets offered to offset current debt (Cash + assets / Current Liabilities). A healthy enterprise can invariably keep this quantitative relation at one.0 or higher. Also, the mounted plus to internet value quantitative relation is sixteen.4% for Yr. I and has gone up to twenty two.7% for Yr. III. This quantitative relation could be a live of the extent of associate degree enterprise´s investment in non-liquid and sometimes over valued mounted assets

(Fixed Assets / Liabilities + Equity). A ratio of .75 or higher is sometimes undesirable because it indicates doable over-investment.

The operational potency of a priority will be viewed by its assets turnover, average assortment amount, inventory turnover, and operational expenses to income. The assets turnover has gone down from nine.83 to 7.20, reflective that expenses as a share of revenue or earnings has gone down over the 3 year amount that could be a smart sign. Associate degree increasing average assortment amount indicates that the priority is giving too liberal credit terms and has inefficient credit assortment. The inventory turnover has gone down from half-dozen.11 to 5.41 times indicating declining sales and excessive inventory that once more reflects poor operational potency.

The overhead to income has accrued from twenty second to twenty fifth that indicates that the organization has lowered its ability to come up with profits just in case of declining revenues.

The indicators of profit square measure financial gain per equity share, profits to internet value, and profit on income. Of these ratios have declined significantly over the 3 year amount. This means declining profit over the years.

Thus, on a review of the varied ratios, we have a tendency to conclude that Asian nation car Accessories Ltd doesn´t have a robust money position, isn´t terribly economical in its operations and is undergoing a amount of declining profit.

Question 4: Bose has supplied the following information about his business to Summary of Cash book for the year ended 31st March, 2004 is as follows:      

Assets and Liabilities

On 1st April 2003

 

(Rs.)

On 31st March, 2004 

(Rs.)

Sundry debtors

 

Stock

 

Machinery

 

Furniture

 

Sundry creditors

1,81,000

 

1,50,000

 

2,50,000

 

40,000

 

1,10,000

1,93,000

 

1,40,000

 

?

 

?

 

1,25,000

          

Receipts

Rs.

Payments

Rs.

To Opening balance

 

To Cash sales

 

To Receipt from debtors

 

To Misc. receipts

 

To Loan from Dass @ 9% per annum (taken on  1.10.2003)

5,000 

 

61,000

 

 

7,53,000

 

2,000

 

 

1,00,000

By Payments to creditors

 

By wages

 

By Salaries

 

By Drawings

 

By Sunday office expenses

 

By Machinery purchased (on  1.10.2003)

 

By Closing balance

 

3,50,000

 

1,60,000

 

1,50,000

 

40,000

 

 

1,10,000

 

 

95,000

 

 

16,000

 

9,21,000  

 

9,21,000

Discount allowed totaled Rs.7,000 and discount received was Rs.4,000. Bad debts written off were Rs.8,000. Depreciation was written off on furniture @5% per annum and machinery @10% per annum under the straight line method of depreciation. The office expenses included Rs.5,000 paid as insurance premium for the year ending 30th June, 2004. Wages amounting to Rs.20,000 were still due on 31st March, 2004.

Prepare trading and profit and loss account for the year ended 31sl March, 2004 and the balance sheet as on that date.

Answer)          Trading and Profit and Loss Account for the yr ended 31st Mar 2004

                                                                 Dr.                                                                         Cr.

PARTICULARS

AMOUNT

PARTICULARS

AMOUNT

To opening stock

1,50,000

By Cash Sales

61,000

To purchases

3,69,000

By Credit Sales

7,80,000

To wages

1,80,000

To salaries

1,50,000

By closing stock

1,40,000

To Sunday office expenses

1,08,750

To Gross Profit c/d

23,250

TOTAL

9,81,000

TOTAL

9,81,000

To Discount allowed

7,000

By Gross Profit b/d

23,250

To Bad debts w/o

8,000

By Discount received

4,000

To Depreciation

By misc income

2,000

-

Furniture @5%

By net loss c/d

26,750

2,000

-

Machinery @10%

36,500

34,500

To interest on loan from Dass

4,500

TOTAL

58,500

TOTAL

58,500

Balance Sheet as at 31st Mar 2004

LIABILITIES

AMOUNT

ASSETS

AMOUNT

FIXED ASSETS

OWNER’S CAPITAL

Op balance

5,16,000

Machinery

3,45,000

Less drawings

40,000

Less dep

34,500

Less loss

26,750

4,49,250

Net block

3,10,500

Furniture

40,000

UNSECURED LOAN

Less dep

2,000

Dass @9%

1,00,000

Net block

38,000

3,48,500

INVESTMENTS

CURRENT LIABILITIES &

CURRENT ASSETS,LOANS &

PROVISIONS

ADVANCES

Sundry Creditors

1,25,000

Stock

1,40,000

Wages outstanding

20,000

Sundry Debtors

1,93,000

Interest on loan

4,500

Bank

16,000

Unexpired insurance

1,250

TOTAL

6,98750

TOTAL

6,98,750

WORKING NOTES:

1) Opening balance of Owner’s capital = stock + debtors + bank + machinery + furniture

–sundry creditors

=1,50,000 +1,81,000+5,000+2,50,000+40,000-1,10,000 =5,16,000

Question (5a) What procedure would you adopt to study the liquidity of a business firm?

Answer: Liquidity is that the ability of the firm to convert assets into money. it´s conjointly known as marketability or short economic condition. In different words, it´s the flexibility of the firm to satisfy its day-to-day obligations.

In order to check the liquidity of the firm, we want to totally examine its plus structure, chiefly this assets. this assets, visa: stock, debtors, bank balance and different current assets got to be seen to work out at what rate a firm will convert these into money. A business that collects its assets in a median of twenty days typically has more money reachable than a business that needs forty five days. Similarly, a business that turns over its inventory fifteen times a year has more money reachable than an organization that turns its inventory solely ten times a year. A business that keeps surplus money or associate idle bank balance could also be without delay able to meet its short or daily obligations however it´s not effectively utilizing its income.

Another issue to work out the liquidity is to ascertain the profitableness of the firm. The additional profitable the firm is, the more money resources it shall have.

Last, however not the smallest amount, we tend to use build use of sure money quantitative relations like current ratio, fast or acid-test quantitative relation, internet capital to work out the liquidity of the firm.

Question 5 b: Who are all the parties interested in knowing this accounting information?

Answer: Paste your text here and click on "Next" to look at this text editor in chief do its factor.  Haven’t any text to check? Haven’t any text to check? Click "Select Samples”. The various parties inquisitive about deciding the liquidity of the firm would be the business house owners and managers, bankers, investors, creditors and monetary analysts.

Business house owners and managers use ratios to chart a company´s progress, uncover trends and purpose to potential downside areas in a very business. One also can use ratios to check your company´s performance with others inside the business.

Bankers and investors inspect a company´s ratios after they try to make your mind up if they require to lend you cash or invest in your company.

Creditors have an interest within the company’s short-run and long ability to pay its debts.

Financial analysts, WHO often concentrate on following sure industries, habitually assess the profitableness, liquidity, and economic condition of corporations so as to create recommendations concerning the acquisition or sale of securities, like stocks and bonds.

Question 5c: What ratio or other financial statement analysis technique will you adopt for this.

Answer: The relevant quantitative relations wont to assess the liquidity of the firm square measure current ratio, fast or acid – check quantitative relation, money quantitative relation and web assets.

Current quantitative relation

Provides a sign of the liquidity of the business by examination the number of current assets to current liabilities. A business´s current assets usually comprises money, marketable securities, assets, and inventories. Current liabilities embody accounts collectible, current maturities of semi- permanent debt, accumulated financial gain taxes, and different accumulated expenses that square measure due at intervals one year. In general, businesses opt to have a minimum of one dollar of current assets for each dollar of current liabilities. However, the conventional current quantitative relation fluctuates from business to business. A current quantitative relation considerably over the business average might indicate the existence of redundant assets. Conversely, a current quantitative relation considerably not up to the business average might indicate an absence of liquidity.

Current Assets

Current Liabilities

Acid Test or fast quantitative relation

A mensuration of the liquidity position of the business. The short quantitative relation compares the money and money equivalents and assets to the present liabilities. The first distinction between the present quantitative relation and therefore the fast quantitative relation is that the fast quantitative relation doesn´t embody inventory and postpaid expenses within the calculation. Consequently, a business´s fast quantitative relation are not up to its current quantitative relation. It’s a rigorous check of liquidity.

Formula

Cash + Marketable Securities + assets

Current Liabilities

Cash Ratio

Indicates a conservative read of liquidity like once an organization has pledged its assets and its inventory, or the analyst suspect’s severe liquidity issues with inventory and assets.

Formula

Cash Equivalents + Marketable Securities

Current Liabilities

Working Capital

Working capital compares current assets to current liabilities, and is the liquid reserve accessible to satisfy contingencies and uncertainties. A high assets balance is remitted if the entity is unable to borrow on short notice. The quantitative relation indicates the short-run economic condition of a business and in crucial if a firm pays its current liabilities once due.

Formula

Current Assets - Current Liabilities

 From the following particulars, determine the bank balance as per pass book of Priya & Co. as on 28th February 2008.

  1. a)     Credit balance as per cash book on 28th February, 2008 was Rs. 15,000
  2. b)    Interest charged by the bank up to 28th February Rs. 500 was recorded in the pass book.
  3. c)     Bank charges made by the bank Rs. 125 were also recorded only in the pass book.
  4. d)    Out of the cheques of Rs. 25,000 paid into the bank, cheques of Rs. 18,750 were cleared and credited by the bankers
  5. e)     Two cheques of Rs. 7,500 and Rs. 15,000 were issued but out of them only one cheque of Rs. 7,500 was presented for payment upto 28th February.

Dividends on shares Rs. 4,500 were collected by the bankers directly, for which Priya & Co. did not have any information.

Answer 6:

1) Bank balance as per pass book of Priya & Co. as on 28th Feb.2008:

(Rs.)

(Rs.)

Cr. Balance as per cash book on 28th Feb

15,000

Less:

interest charged by bank not recorded in cash book

500

Bank charges made by bank not recorded in cash book

125

Cheques paid into bank but not yet credited

6,250

6,875

8,125

Add:

Cheques issued but not yet presented

7,500

Dividends collected directly by bank

4,500

12,000

Bank balance as per pass book of Priya & Co as on 28th Feb 2008

20,125

Answer 7a:

Decision whether new product should be introduced –

Sale price of new product 2000@Rs.60 = Rs.1, 20,000

Less: Direct costs – Direct material 2000@16

=Rs.32,000

Direct labour 2000@15

=Rs.30,000

Direct expenses 2000@1.5

=Rs. 3,000

Rs.65,000

Indirect costs-Variable factory overheads

2000@2.00

=Rs. 4,000

Variable selling & distribution overheads

2000@1.50

=Rs. 3,000

Rs. 7,000

 Rs.72,000

CONTRIBUTION from new product

=120000-72000

 =     Rs.48,000

 

 

Answer 7b)

 

Profitability –

 

Profits from present production

Sales

5,40,000

Direct material

96,000

Direct labour

1,20,000

Direct expenses

19,000

2,35,000

Variable factory ohds 25,000

Variable S&D overheads 5,000

30,000

Net Profits

2,75,000

Fixed costs

Fixed factory overheads 1,75,000

Fixed adm’ve overheads 20,000

Fixed S&D overheads 19,000

2,14,000

Net Profits

Rs.61,000

Answer 8 a)

The master budget is a summary of company´s plans that sets specific targets for sales, production, distribution and financing activities. It generally culminates in cash budget,a budgeted income statement a budgeted balance sheet. In short, this budget represents a comprehensive expression of management´s plans for future and how these plans are to be accomplished.

It usually consists of a number of separate but interdependent budgets. One budget may be necessary before the other can be initiated. More one budget estimate effects other budget estimates because the figures of one budget is usually used in the preparation of other budget. This is the reason why these budgets are called interdependent budgets.

The master budget is a comprehensive planning document that incorporates several other individual budgets. A master budget is usually classified into two individual budgets: the Operational budget and the financial budget. The operation budget consists of eight individual budgets: Sales Budget, Production Budget, Direct Material Budget, Direct Labour Budget, Factory overhead Budget, Ending inventory budget, selling and administrative expenses budget, Budgeted income statement.

The second part of the master budget will include the financial budget. The financial budget consists of two individual budgets – Cash Budget and Budgeted Balance Sheet.

Thus, cash budget is a part of Master budget. The Cash budget will show the effects of all the budgeted activities on cash. By preparing a cash budget your business management will be able to ensure that they have sufficient cash on hand to carry out activities. It will also allow them enough time to plan for any additional financing they might need during the budget period, and plan for investments of excess cash. A cash budget should include all items that affect the business cash flow and should also include three major sections; cash available, cash disbursements, and financing.

Answer 8 b)

The various methods of inventory valuation are:

  1. FIFO(first-in-first-out) method
  2. LIFO(last-in-first-out)method
  • Weighted average method
  1. Moving average method
  2. Lower of cost or market value(LCM)
  3. Dollar value-LIFO
  • Gross Profit method
  • Retail method

During times of inflation, different methods have different effect on inflation.

FIFO gives the highest amount of gross profit because the lower unit costs of the first units purchased are matched against revenues, especially in times of inflation. LIFO gives the lowest amount of net income during inflationary times.

Average costs approach tends to give profit which lies in between that given by FIFO and LIFO method.

AS per Accounting Standard of ICAI (AS-2), inventory cost should comprise of all cost of purchases, cost of conversion and other costs incurred in bringing the inventories to the present location and condition. Cost of purchases should be exclusive of duties which are recoverable from the taxing authorities. (E.g. Cenvat).

Inventory should be valued at lower of cost or net realisable value. Inventory should be valued on FIFO (First in First Out) method or weighted average method. [LIFO is not permitted]. According to AS-2, inventory of raw materials should be valued at cost, without considering excise duty, as manufacturer.

Assignment - C

Question No: 1

Which of the following statements is true concerning assets?

  1. They are recorded at cost and adjusted for inflation.
  2. They are recorded at market value for financial reporting because historical cost is arbitrary.
  3. Accounting principles require that companies report assets on the income statement.
  4. Assets are measured using the cost concept.

Question No: 2

When the concept of conservation is applied to the Balance Sheet, it results in

  1. Overstatement of Capital
  2. Understatement of Capital
  3. Overstatement of Assets
  4. Understatement of Assets.

Question No: 3

Which of the following is a correct expression of the accounting equation?

  1. Assets - Liabilities + Owners’ Equity
  2. Assets = Liabilities - Owners’ Equity
  3. Assets + Owners’ Equity = Liabilities
  4. Assets = Liabilities + Owners’ Equity

Question No: 4

How is the balance sheet linked to the other financial statements?

  1. The beginning retained earnings balance on the statement of retained earnings becomes the amount of retained earnings reported on the balance sheet.
  2. Retained earnings is added to total assets and reported on the balance sheet.
  3. Net income increases retained earnings on the statement of retained earnings, which ultimately increases retained earnings on the balance sheet.
  4. There is no link between the balance sheet and the other statements.

Question No: 5

The process of recording the economic effects of business transactions in a book of original entry:

  1. Double entry system
  2. Debit
  3. Credit
  4.     4. Journalizing

Question No: 6

If the sum of the debits and credits in a trial balance is not equal, then

  1. There is no concern because the two amounts are not meant to be equal.
  2. The chart of accounts also does not balance.
  3. It is safe to proceed with the preparation of financial statements.
  4. Most likely an error was made in posting journal entries to the general ledger or in preparing the trial balance.

Question No: 7

Z Ltd had Rs1800 of supplies on hand at January 1, 2006. During 2006, supplies with a cost of Rs7, 000 were purchased. At December 31, 2006, the actual supplies on hand amounts to Rs2, 300. After the adjustments are recorded and posted at December 31, 2006, the balances in the Supplies and Supplies Expense accounts will be:

  1. Supplies, Rs7, 000; Supplies Expense, Rs2, 300.
  2. Supplies, Rs1, 800; Supplies Expense, Rs7, 000.
  3. Supplies, Rs2, 300; Supplies Expense, Rs6, 500.
  4. Supplies, Rs2, 300; Supplies Expense, Rs3, 900.

Question No: 8

In the statement of changes in financial position, uses of resources are defined as:

  1. Transaction debits
  2. Fund increases
  3. Transaction credits
  4. Fund decreases

Question No: 9

Most firms elected to define funds in the statement of changes in financial position as:

  1. Cash
  2. Working capital
  3. Current assets
  4. Owners’ Equity

Question No: 10

The funds flow statement included:

  1. All sources and uses of resources.
  2. Only cash transactions.
  3. Only transactions affecting current assets.
  4. Only transactions affecting fund accounts.

Question No: 11

Which of the following is not an example of a non-fund adjustment to income required in preparing the statement of changes in financial position when funds were defined as working capital?

  1. Depreciation expense
  2. Gain from asset disposal
  3. Interest expense
  4. Amortization of premium on debt

Question No: 12

In the cash flow statement, cash is defined as:

  1. Quick assets
  2. Literal cash on hand or on demand deposit, plus cash equivalents.
  3. Literal cash on hand or on demand deposit, plus marketable securities.
  4. All of the above.

Question No: 13

Flexible budgets

  1. Accommodate changes in the inflation rate.
  2. Accommodate changes in activity levels.
  3. Are used to evaluate capacity utilization.
  4. Are static budgets that have been revised for changes in prices.

Question No: 14

Which of the following statements regarding changing inventory methods is true?

  1. A change in inventory methods can be justified if the change is made to better match profits with revenue.
  2. The effect of changing inventory method does not need to be disclosed.
  3. Tax advantages are valid justification for changing inventory methods.
  4. One place that the reader of an annual report would be able to identify that a company changed inventory methods is the footnotes to the financial statements.

Question No: 15

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

The difference of Rs200 between the amount of the note (Rs6, 200) and the sales price of the merchandise (Rs6, 000)

  1. Is the interest explicitly included in the amount of the note.
  2. Will be recorded in a contra account, Discount on Notes Receivable, by Co.
  3. Will be recorded as interest revenue on October 1, 2006.
  4. Is an error made in preparing the note.

Question no: 16

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

The difference of Rs200 between the amount of the note (Rs6, 200) and the sales price of the merchandise (Rs6, 000)

Which of the following combination of financial statements would provide the most in-    depth information to help understand a company’s liquidity?

  1. Income statement and statement of cash flows.
  2. Balance sheet and statement of cash flows.
  3. Balance sheet and income statement.
  4. Statement of retained earnings and statement of cash flows.

Question No: 17

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

Y Ltd sold equipment for Rs4, 000. This resulted in a Rs1, 500 loss. What is the impact of this sale on the working capital?

  1. Reduces working capital.
  2. Increases working capital.
  3. Has no affect on working capital at all.
  4. The increase offsets the decreases

Question No: 18

Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months.

If a company’s asset turnover rate increased from 2005 to 2006, which of the following conclusions can be made?

  1. The company was less efficient during 2006 in using its assets to produce profits.
  2. The company produced more sales in 2006 for each dollar invested in assets.
  3. The company was more profitable in 2005.
  4. The company is over-invested in assets in 2006.

Question No: 19

X Ltd’s master budget calls for the production of 6,000 units of product monthly. The master budget includes indirect labor of Rs396,000 annually; X Ltd considers indirect labor to be a variable cost. During the month of September, 5,600 units of product were produced, and indirect labor costs of Rs30,970 were incurred. A performance report utilizing flexible budgeting would report a flexible budget variance for indirect labor of:-

  1. Rs170 unfavorable.
  2. Rs170 favorable
  3. Rs2, 030 unfavorable.
  4. Rs2, 030 favorable.

Question No: 20

Which of the following is not an advantage for using standard costs for variance analysis?

  1. Standards simplify product costing.
  2. Standards are developed using past costs and are available at a relatively low cost.
  3. Standards are usually expressed on a per unit basis.
  4. Standards can take into account expected changes planned to occur in the budgeted period.

Question No: 21

The main purpose of cost accounting is to-

  1. Maximize profits
  2. Provide information to management for decision making
  3. help in fixing selling price
  4. To watch cash flows

Question No: 22

Conversion cost is total of:

  1. Direct material and direct wages
  2. Direct material, direct wages, and production overheads
  3. Direct wages and production overheads.
  4. None of the above

Question No: 23

A cost, which does not involve cash outlay, is called:

  1. Historical cost.
  2. Imputed cost
  3. Out of pocket cost.
  4. Explicit cost.

Question No: 24

Committed fixed costs are those, which:

  1. Arise from yearly budget appropriations
  2. Are incurred because management can afford.
  3. Arise from additional capacity.
  4. All the above

Question No: 25

Cost of research undertaken at the request of the customer should be:

  1. Charged to costing profit and loss account.
  2. Charged to selling overheads.
  3. Recovered from the customer.
  4. All the above.

Question No: 26

Salaries due for the month of March will appear

  1. On the Receipt side of the Cash Book
  2. On the Payment side of the Cash Book
  3. As a contra entry
  4. Nowhere in the Cash Book.

Question No: 27

Liabilities of business are Rs. 11,220 and owner´s equity is Rs. 15,000. The assets of the business will be.

  1. 3,780
  2. 26,220
  3. 11,220.
  4. 15,000.

Question No: 28

An entry of Rs. 320 has been debited to Eknath´s account at Rs. 230. If is an error of

  1. Principles

2.Omission

  1. Commission
  2. Compensatory

Question No: 29

Unearned revenues are:

  1. Payments
  2. Liabilities
  3. Temporary accounts.
  4. Both a and b above.

Question No: 30

The revenue recognition principle requires that sales revenues be recognized:

  1. When cash is received.
  2. When the merchandise is ordered.
  3. When the goods are transferred from the seller to the buyer.
  4. None of the above.

Question No: 31

All of the following are “other receivables” except:

  1. Petty cash.
  2. Interest receivable.
  3. Income taxes refundable.
  4. Advances to employees.

Question No: 32

Depreciation is dependent on a number of estimates. When a change in an estimate is required, the change is made:

  1. in the current year
  2. in the future year
  3. to prior periods
  4. both a and b above

Question No: 33

In order to pay a dividend:

  1. The corporation must have adequate retained earnings.
  2. The board of directors must declare a dividend.
  3. The corporation must have adequate cash.
  4. All of the above.

Question No: 34

Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income are referred to as:

  1. Investing activities.
  2. Financing activities.
  3. Operating activities.
  4. All of the above.

Question No: 35

All of the following are used in preparing a statement of cash flows except:

  1. A trial balance.
  2. Comparative balance sheet.
  3. Current income statement.
  4. Additional information.

Question No: 36

Depreciation is result of

  1. Usage
  2. Time
  3. Obsolsences
  4. All of the above.

Question No:37

Outstanding Expenses are the examples of

  1. Personal Accounts.
  2. Real Accounts.
  3. Nominal Accounts.
  4. None of the above.

Question No: 38

Liquid Assets are inclusive of all current assets except

  1. Investories
  2. Prepaid Expenses.
  3. Cash
  4. Both (a) and (b) above.

Question No: 39

Management Accounting is mainly related to

  1. Presentation of Figures from Financial Accounting.
  2. Presentation of Figures from Cost Accounting.
  3. Principles
  4. Both (a) and (b) above

Question No: 40

Variance Analysis is done with regards to actuals with-

  1. Standards
  2. Budgeted Figures.
  3. Benchmarks
  4. All of the above.

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