Financial Accounting

ASSIGNMENT A
Q 1. Define Accounting. How does it differ from book-keeping?
Answer: Accounting means systematic record keeping, classifying and
summarizing of past events and transactions of financial nature, with a view
to enabling the user of accounts to interpret the resulting summary. Booking
keeping is part of accounting, and is concerned with record keeping or
maintaining of books of accounting which is often routine and clerical in
nature.
Differences between accounting and book keeping:
Scope
Book keeping involves the identification, measurement, recording and
classification of transaction where as accounting involves summarising
classified transactions, analysing, interpreting and communicating the same.
Stage
Bookkeeping is a primary stage while accounting is secondary stage, it starts
where book keeping ends.
Basic objectives
The basic objective of book keeping is to maintain systematic records and
for accounting is to ascertain net results of operations and financial position
of the company.
Who performs?
Book keeping is performed by junior staff and accounting performed by
senior staff.
Knowledge level
Book keeping does not require a high level of knowledge whereas
accounting needs a high level of knowledge.
Analytical Skill
Analytical Skills are not required in book keeping but are required in
accounting.
Nature of Job
Bookkeeping is routine & clerical while accounting is analytical.
Supervision & Checking
Book keeping is supervised by an accountant whereas accounting work is
not supervised by a book-keeper.

Q 2. What is basic accounting equation?

Answer: Assets = Liability + Capital

Q 3. What is Journalizing? Give a format of Journal & briefly explain its

content.
Answer: Journalising is a systematic process of recording financial
transaction. Such recording are made in terms of debit and credit. In it,
financial transactions are recorded in the original book. Every financial
transaction of a business organization has dual effect. It means that every
financial transaction of a business involves at least two accounts. One
account is debited and the other account is credited.
Format:
DATE

PARTICULARS

LEDGER FOLIO DEBIT(Rs) CREDIT(Rs)

Date: Under the date column you write the date on which transactions have
taken place.
Particulars: Two aspects of the transaction are recorded in the particular
column, and a brief description of the transaction.
Ledger Folio: It is meant for writing the number of the page in the ledger in
which the particular transaction is entered.
Debit: Amount to be debited is entered in the debit column.
Credit: Amount to be credited is entered in the credit column.

Q 4. What are the advantages of special Journal & list them.

Answer: Advantages of special journal:

 Facilitates division of work.

Permits the installation of internal check system.
Permits the use of specialized skill.
Time and labour saving in journalizing and posting.
Q 5. State the reasons for the difference between the cash book balance &
pass book balance.
Answer:
Reasons for the difference between cash book balance and pass book
balance:
1. Cheques issued by the business to its suppliers or other parties
may not have been presented for payment.
2. Cheques received from customers and deposited may not have
been collected by the banker.
3. Deposits may have been directly made by the customers into the
bank account of the enterprise.
4. Collection charges, service charges and interest on overdraft are
charged by the banker. The business can ascertain the exact
amount of charges and record them in the Cashbook only after the
receipt of the bank statement.
5. Interest credited by bank for the balance maintained with it and
any other income such as interest on securities, dividend, etc.
collected by the bank on behalf of the business can be ascertained
only from the bank statement.
6. Wrong entries made by the business in the Cashbook or errors
committed by the bank in its ledger.
7. Omission of entries in the two sets of books.
8. Dishonor of customers cheques deposited in the bank account

ASSIGNMENT B
Q1. Define depreciation. Differentiate, with suitable example, between
Diminishing Balance Method & Straight Line Method of charging
depreciation.

Depreciation: Depreciation is the acquisition cost of an asset (less the

expected salvage value) spread over the economic life of that asset. The
purpose of charging depreciation over the economic life of the asset is to
match the cost of the asset over the period for which revenue is earned by
using the asset.

Depreciation Methods difference:

Straight Line
1 A fixed amount of depreciation is
charged
2 The rate of depreciation is the
reciprocal of the life of the asset
3 The asset may or may not have scrap
value
4 The amount of depreciation per year
is same
5 In the first year, the depreciation is
charged on the cost of the asset, less
scrap value, if any
6 At the end of its life, the book value
of the asset becomes zero

Diminishing Balance
A fixed rate of depreciation is
charged
The rate of depreciation is
ascertained by applying the
formula
The asset must have a significant
scrap value
The amount of depreciation goes
on reducing with each passing
year.
In the first year, the depreciation
is charged on the asset
The book value of the asset
never reduces to zero.

Examples:
Straight Line Method of Depreciation:
Depreciation =

Cost Salvage Value

Life in Number of Periods

On Jan 1, 2011 Company A purchased a vehicle costing Rs 20,000. It is

expected to have a value of Rs 5,000 at the end of 4 years.
Depreciation =(Rs 20,000.00 Rs 5,000)/4 = Rs 3,750.00

Diminishing Method of Depreciation:

Under this method the depreciation charged in the various years will not be equal

over the useful life of the asset. This is because the depreciation charge
every year is calculated as a percentage of the outstanding balance of the
asset as at the beginning of that particular year and not on the original
cost of the asset.
Example
Motor vehicles have a useful life of 4 years purchased at P200 000.00
depreciation @ 25%
Year
Cost
Depreciation Accumulated Net Book
25%
Depreciation Value
1
200 000
50 000
0
150 000
2
150 000
37 500
87 500
112 500
3
112 500
28 125
115 625
84 375
4
84 375
21 094
136 719
63 281

Q2. Define Bills of Exchange and explain the parties involved in it.
Answer: A bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to pay a
certain sum of money only to, or to the order of, a certain person or to the
bearer of the instrument.
Parties Involved:
Drawer: The person who draws the bill.
Drawee: . The person who accepts the order.
Payee: The person to whom the amount has to be paid to.

Q3. Distinguish between capital expenditure & revenue expenditure.

Capital expenditure refers to expenditure that the benefit of which is not
fully derived in one year but spread over several periods. Examples for
capital expenditure are acquisition of assets for the purpose of earning,
additions to fixed assets to improve its capacity, expenditure resulting in
long-term benefit to the business. Revenue expenditure is an expenditure
incurred and the benefit of which is derived in the year in which the
expenditure was incurred. Examples are raw materials, repairs,
depreciation, rent, wages, etc. Such expenses are debited to Profit and Loss
account.

Q 4. Case Study:
Gupta-Statement of Comprehensive income as at 30 June 2001
Line Item
Sales
Cost of sales
Gross Profit
Expenses
Wages
Fuel and power
Carriage on sales
Salaries
General expenses
Depreciation
Insurance
Bad Debts Written off
Total expenses
Net Profit

Rs
98 100
(41 175)
56 925
(8 480)
(4 730)
(3 200)
(16 500)
(3 000)
(3 500)
(515)
(725)
(40 650)
16 275

ASSIGNMENT C

1B
2A
3C
4C
5C
6A
7D
8E
9D
10D

11D
12C
13A
14B
15A
16D
17E
18D
19D
20E

21E
22A
23B
24E
25C
26E
27D
28C
29D
30B

31D
32A
33D
34B
35B
36C
37B
38C
39B
40E