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Management Accounting

(2015-16)
Roll No.______________
Date: 4thJuly 2015

GMP

Quiz 1 (Closed Book Examination)


Maximum Time: 30 minutes
Maximum Marks: 10 Marks
Instructions (please read before answering)
1. Answer all questions in ink. Answers written in pencil will NOT be evaluated.
2. Please write the final answers only in the space provided for answering
3. Being humane & helping your friends & neighbors is definitely a good deed. Such
practice will reward BOTH of you with an F grade in the entire course as per the
policies of the institute. So please do ensure that you evaluate the costs & benefits of the
same before being generous.
Q.1. You are required to pass the journal entries for each of the following transactions in
the books of Mr. A & Sons.
a) Received an order from a customer for goods worth Rs. 50,000. The customer also
made an advance payment of Rs. 10,000.
b) Purchased office equipment for Rs. 75,000. Paid Rs. 50,000 in cash and agreed to
pay the rest next month
(Maximum 1Mark *2 = 2 Marks)
Ans.
Journal of Mr. A & Sons
Particulars
Dr
Cr
Cash A/c Dr
Customer A/c Cr

10,000

Office Equipment A/c Dr


Cash A/c Cr
Supplier A/c Cr

75,000

10,000

50,000
25,000

Page 1 of 5

Management Accounting
(2015-16)
Roll No.______________
Date: 4thJuly 2015

GMP

Q.2. You are required to prepare the ledger account of Mr. Gangadeen in the books of
A.Frazier & Sons for the month of February 2015. (No need to write the dates for each
transaction)
Mr. Gangadeen is a regular customer of A. Frazer& Sons. At the close of last month (January
2015) his a/c balance stood at Rs. 2,10,000. Suppose that on 4 February Gangadeen returned
goods to the value of Rs. 10,000. On 6 February he paid his January a/c, after deducting the
returned goods and also received a 2% discount on the balance. On 12 February, Gangadeen
purchased a further Rs. 1,00,000 worth of goods. Gangadeen then purchased a further Rs.98,000
worth of goods on 18 February and Rs. 22,000 worth of goods on 26 February. All sales in
February were on credit.
(Maximum 2 Marks)
Ans.
Ledger A/c of Mr. Gangadeen (February 2015)
Dr.

Cr.
Particulars

Opening Balance

Amount
(Rs)
2,10,000

Goods Returned

Amount
(Rs)
10,000

Sales

1,00,000

Discount to Customers

5,000

Sales

98,000

Cash A/c

1,95,000

Sales

22,000
Closing Balance

2,20,000

Total

4,30,000

Total

4,30,000

Particulars

Page 2 of 5

Management Accounting
(2015-16)
Roll No.______________
Date: 4thJuly 2015

GMP

Q.3. Halliburton Company is one of the worldslargest oil-field service companies. In 1989, the
management decided that the company would be recording actual cost-overruns as entirely
recoverable from its sub-contractors from then on. However, the issue of cost-overrun recovery
from sub-contractors was still in the early stages of dispute in various courts of law. Due to this
accounting policy change, the annual profits during 1989-2002 were higher by amounts ranging
from $ 100 million to $250 million, i.e. an amount almost equal to 10 % of its reported revenues.
The management chose not to disclose the disputes with its sub-contractors until it was forced by
the SEC to do so in 2002. However, it provided a break-up of its revenue (including cost-overrun
recovery) in a footnote.
A group of 5 analysts were discussing the above situation. The following were the statements
made by them.
A. The company has not violated the objectivity concept as it has recorded these
transactions on the basis of documented figures for cost-overruns
B. The company has violated the objectivity concept as it has recorded these transactions
without sufficient evidence that it is entitled to the amount of cost-overruns
C. The company has not violated the prudence concept as it is not using an estimate for the
amount of cost over-runs.
D. The company has violated the prudence concept as it is in effect making a judgment on
the recoverability of the cost-overruns.
E. The company has violated the materiality concept but not the adequate disclosure
concept.
Which of the above statements are incorrect?
1.
2.
3.
4.
5.
6.

B&C
A, C & E
B&D
A&E
A&D
None of the above
(Maximum 2 Marks)

Page 3 of 5

Management Accounting
(2015-16)
Roll No.______________
Date: 4thJuly 2015

GMP

Q.4. XYZ Inc. is a manufacturer of televisions. The domestic market for electronic goods is currently not
doing well, and therefore many entities in this business are switching to exports. As per the audited
financial statements for the year ended December 31, 20XX, the entity had net losses of $2 million. At
December 31, 20XX, its current assets aggregate to $20 million and the current liabilities aggregate to
$25 million. Due to expected favorable changes in the government policies for the electronics industry,
the entity is projecting profits in the coming years. Furthermore, the shareholders of the entity have
arranged alternative additional sources of finance for its expansion plans and to support its working needs
in the next 12 months.
Required
a) Should XYZ Inc. prepare its financial statements under the going concern assumption?
(Maximum 0 Marks)
Yes / No
b) Provide reasons to support your answer in a) above
(Maximum 1.5 Marks)
Justification for Yes:
1. The loss-making situation is expected to last for only a short-time due to the expected favorable change in
government policy
2. The shareholders have made arrangements to provide the additional funding that will be required during the
next 12 months.
No
Justification for No:
1. The company is not in a position to meet its short-term obligations, increasing the possibility of triggering
default. One has to evaluate whether the additional funds being brought in by shareholders will be sufficient.
2. It appears that the additional funds are being injected by shareholders on the premise of possible favorable
government policy change. However, one cannot predict with any kind of certainty as to what the new policy
would be & whether and when a policy change would actually happen. Hence, one has to carefully analyze
the situation and develop reasonable estimates of the likelihood of policy change.
3. Even if the likelihood of the policy change is high but there is a good possibility of delays in the
implementation of the policy change, there is no guarantee that shareholders will bring in more money to tide
over the additional period. So the additional money infused now would at most postpone the possible defaults.
Note for students (not part of answer): One important practical issue faced is that if the company decides that the
going concern assumption is not valid, it would weaken its ability to convince shareholders to provide additional funds
(in event of delay in policy implementation) and even its suppliers and customers to deal with them. Hence, even
though it may be conceptually correct that the going concern assumption is violated; practical considerations may lead
companies to behave as if the assumption is not violated. Violation of the going concern assumptionusually creates a
self-fulfilling prophecy that could in turn lead to the eventual bankruptcy of the business.

Page 4 of 5

Management Accounting
(2015-16)
Roll No.______________
Date: 4thJuly 2015

GMP

Q.5. Equipment purchases of Rs. 17, 00,000 were partly financed during the year through the
issuance of a Rs. 11, 00,000 notes payable. The company offset the equipment against the notes
payable and reported plant assets at Rs. 6, 00,000.
Which of the following statement is correct regarding the above transaction?
A. The company has recorded the above transaction correctly.
B. The company has not recorded the above transaction correctly as it has violated the
going concern and matching concepts
C. The company has not recorded the above transaction correctly as it has violated the
prudence and objectivity concepts
D. The company has not recorded the above transaction correctly as it has violated the
entity concept
E. None of the above
(1.5 Marks)
Q.6. The Walt Disney Companyhad the following assets and liabilities (in $ millions) as of
September 29, 2007- Assets 60,928 Liabilities 30,175. During the year 2007-08, assets increased
by 3,569, liabilities decreased by 1, 250, and the company paid a dividend of 500. What is the
amount of profit earned during 2007-2008?
(Maximum 1 Mark)
Ans:____________________5319__________________________________________
Rough Work
Opening
A= L+O
60,928 = 30175 + O
O = 30753
Closing
A = L + O + (I-E) - D
64497 = 28925 + 30753 + (I-E) -500
(I-E) = 5319

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