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Course MBA-Semester-1
Financial and
Subject
Accounting
Management
Subject Code MB0025-Set-1
1.Explain any two concepts of accounting with examples.
Ans.
Concepts are the basic assumptions or conditions upon which the science of
accounting is based. There are five basic concept of accounting, namely –
business entity concept, which is also termed as separate entity concept,
going concern concept, money measurement concept, periodicity concept
and accrual concept.
This principle also assumes the unit of measure is stable; that is,
changes in its general purchasing power are not considered sufficiently
important to require adjustments to the basic financial statements.
Ans.
In the first transaction, the business receives a capital of Rs. 80,000 cash
and so capital account and cash accounts are affected.
Capital is a liability and cash is an asset to the business.
This is shown in the transaction number 1, in the table.
Capital: Rs.80,000(Liability) = Cash: Rs.80,000(Asset)
ii. Purchased goods for cash –Rs 40,000 and on credit Rs. 30,000
In this transaction, cash account, goods account and liabilities account gets
affected.
Cash account reduces by Rs. 40,000
Goods account increases by Rs. 40,000
Liabilities account increases by Rs. 30,000
This is shown in the transaction number 2, in the table.
iii. Sold goods for cash –Rs. 40,000 costing Rs. 25,000
In this transaction, goods account, cash account and profit account gets
affected.
Cash account increases by Rs. 40,000
Goods account reduces by Rs. 25,000
Profit account being owner’s account, it gets credited with Rs 15,000
This is shown in the transaction number 3, in the table.
iv. Paid salary – Rs. 2,000 and salary outstanding Rs. 1,000
In this transaction, cash and salary accounts are affected.
Cash account reduces by Rs. 2,000 and salary account gets credited by Rs.
2,000
Outstanding salary is Rs. 1,000 which is not paid yet, hence non of the
accounts gets affected.
This is shown in the transaction number 4, in the table.
e. Cash received from Jadu Rs.8,640 has been posted to the debit of
Madhu’s a/c
Ans.
To Return account 90
4.The following balances are extracted from the books of Kiran Trading Co
on 31st March 2000. You are required to prepare trading and profit and loss
account and a balance sheet as on that date:
Opening Stock 5,000
Commission received 2,000
B/R 22,500
Return Outward 2,500
Purchases 1,95,000
Trade Expenses 1,000
Wages 14,000
Office furniture 5,000
Insurance 5,500
Cash in hand 2,500
Sundry Debtors 1,50,000
Cash at bank 23,750
Carriage Inwards 4,000
Rent and Taxes 5,500
Commission Paid 4,000
Carriage Outward 7,250
Interest on Capital 3,500
Sales 2,50,000
Stationery 2,250
Bills Payable 15,000
Return Inwards 6,500
Creditors 98,250
Capital 89,500
The closing stock was valued at Rs.1,25,000
Ans.
Trading account of M/s Kiran Trading Co
Trading Account
Dr Cr
Wages 14,000
368,500 368,500
Dr Cr
Staionary 2,250
155,000 155,000
Balance Sheet Account of M/s Kiran Trading Co
Balance Sheet
B/R 22,500
328,750 328,750
a. Outstanding Expenses
b. Prepaid Expenses
Ans
Outstanding expenses
Expenses due but not yet paid are known as outstanding expenses.
Wages, salaries, rent, commission etc payable in the current month are paid
in the following month. so they all come under nominal accounts which is
"debit all expenses and losses and credit all gains". Since they r unpaid
hence they must be credited....
If final accounts are prepared for year ending 31st December, then the
expenses payable for December will be paid in January of next year. The
extent to which the amount belongs to the current year but payable in the
next year is called outstanding expenses. To record that aspect, the journal
entry drawn in the Journal proper is:
Concerned Expenses account Dr
To outstanding Expenses account.
Outstanding expenses account indicates liability for the current ear and it will
appear in the balance sheet.
Example: Advertisement expenses for year 31-12-2003 outstanding is Rs.
5000. The journal entry is
Advertisement expenses account Dr 5000
To Outstanding expenses account 5000
Prepaid Expenses
Expenses paid in advance are regarded as prepaid expenses. Prepaid
expenses form an asset and therefore prepaid expenses account is debited.
For example, insurance premium is paid form April, 2004 to March, 2005 and
the amount is Rs. 3600. The financial year ends by 31st December, 2004.
Therefore the premium relating to Jan, Feb and March of 2005 Rs. 900 is said
to have been paid in advance. To record this internal adjustment, the entry is
Prepaid Expenses account Dr 900
To Insurance account 900
Note that outstanding or prepaid expenses accounts are regarded as personal
accounts.
ASSIGNMENT
Course MBA-Semester-1
Financial and
Subject
Accounting
Management
Subject Code MB0025-Set-2
1.Budgetary Control is a technique of managerial control through budgets.
Elaborate.
Ans.
Budgetary control is essential for policy planning and control. It also acts as
an instrument of co-ordination. Budgetary Control can be a technique of
managerial control through budgets in the following ways:
1. To assist in policy formulation on the basis of proper and reliable data.
2. To ensure planning for future by setting up various budgets.
3. To determine short-term and long-term financial and physical targets.
4. To operate various cost centers and departments with efficiency and
economy.
5. To classify expenses according to their nature such as direct and indirect
expenses; fixed, variable and semi-variable expenses, etc.
6. To help administration as under this system, executives perform their
functions
according to pre-determined budgets.
7. To anticipate capital requirements and to make necessary arrangement for
it.
8. To make cost accounting more reliable and systematic.
9. To promote research in order to bring down cost, to increase efficiency
and to
achieve the targets of sales.
10. To develop co-ordination and co-operation among employees and
executives.
11. To eliminate wastes and increase in profitability.
12. To correct the variations from the established standards.
13. To fix the responsibility of various individuals in the organisation.
Calculate (1) Current assets (2) current liabilities (3) Liquid Asset
(4) Stock
Sales Rs.5,00,000
Purchases Rs.3,50,000
Ans.
a.
1.Current Asset
2.6 = CA/ 1
CA =2.6
2.Current Liabilities:
3. Liquid Asset:
4. Stock :
Current Assets-Stock = LR x CL
3. From the following Balance Sheet of William & Co Ltd., you are required to
prepare a Schedule of Changes in Working capital & Statement of Sources and
Application of funds.
Balance Sheet
4.Bring out the difference between cash flow and funds flow statement.
Ans.
ii. Fund Flow Statement shows the causes of the changes in net working
capital. Cash Fund Statement show the causes for the change in
cash.
iv. Fund Flow Statement is not based on the ledge mode. But Cash Flow
Statement is prepared on the basis of ledge principles.
v. In Fund Flow Statement, “to” and “by” are indicated. In Cash Flow
Statement there are indicated.
vi. In Fund Flow Statement, net effect of receipts and disbursements are
recorded. In Cash Fund Statement only cash receipts and payments
are recorded.
vii. Fund Flow Statement is concerned with the total provision of funds.
Cash Flow Statement is concerned with only cash.
viii. Fund Flow Statement is flexible but Cash Flow Statement is rigid.
Fund Flow Statement is more relevant for long range financial
strategy. Cash Flow Statement concentrates on short term aspects
mostly affecting the liquidity of the business
ix. Fund flow statement is related with accrued basis whereas Cash Flow
Statement is on cash basis. For this, it is necessary to convert the
accrued to cash basis
5.a. DELL computers sell 100 PCs at Rs.42,000. The variable expenses
amount to Rs.28,000 per PC. The total fixed expenses is
Rs.14,00,000. Prepare an income statement.
b. Calculate BEP and MOS
Sales at present are 55,000 units per annum. Selling price is Rs.6
per unit. Prime cost Rs.3 per unit. Variable overheads is Re.1 per
unit. Fixed cost Rs.80,000 per annum.
Ans.
a.Income Statement:
Solution:
Sales Revenue
6-(3+1)
MOS:
= 55000 x 6 – 240000
Ans.
We have several concepts of costs such as; Fixed Cost, Variable Cost,
Total Cost Average Cost, Marginal Cost, Money Cost, Real Cost, Implicit Cost,
Explicit Cost, Private Cost, Social Cost, Historical Cost, Replacement Cost And
Opportunity Cost.
Fixed costs are those costs which remain fixed, irrespective of the
output. They have to be incurred on equipment, building etc and they are
incurred even when the output is zero. Fixed costs are also called
Supplementary costs or Overheads or Indirect costs.
Variable costs are those costs which vary with the output. For example
the cost of raw materials, electricity, gas, fuel etc. the Variable costs are also
called Prime costs, Direct costs or Operating costs.
The difference between the short-run and long run production function
is based on the distinction between fixed and variable costs. In the short-run
production function, the output is increased only by employing more units of
variable factors; other factors of production remaining fixed. In the long run
all factors are variable and thus all costs are variable.
Cost variable analysis classification is the process of grouping costs
according to their common characteristics. A suitable classification of costs is
important, in order to identify the cost with cost centers or cost units