Book Keeping 2

Course Title: Financial and Managerial Accounting
Course Code: Hum 223

Course Teacher: Mohammad Shamsus Sadekin
Details of Subject:
Topics:
Introduction: Definition of Bookkeeping and Accounting, Objectives and advantages of bookkeeping, Users
of accounting information, Accounting concepts and conventions, Definition of business transaction, Nature
of business transaction, Accounts, Principles of double entry system of bookkeeping
Accounting Cycle: Journal, Ledger, Trial Balance, Income Statement, Owners Equity Statement, Cash Flow
Statement, Retained Earning Statement and Balance Sheet, Analysis of Financial Statements
Depreciation: Definition, Objectives of depreciation, Methods of proving depreciation.
Cost Accounting: Introduction, Objectives and advantages of cost accounting, Preparation of cost sheet,
store ledger, overhead allocation.
Marginal Costing: Break-even-point, p/v ratio, Margin of safety, fixed cost and variable cost.
Standard costing: Definition of variance, Calculation of material, labor and overhead variance.
Managerial Costing: Use of accounting information in Project evaluation and other decision making, Capital
budgeting.
Department of Electrical and Electronic Engineering
Course Title: Financial & Managerial Accounting
Financial Accounting
Details of Subject:
Topics:
Introduction: Definition of Bookkeeping and Accounting, Objectives and advantages of
bookkeeping, Users of accounting information, Accounting concepts and conventions, Definition
of business transaction, Nature of business transaction, Accounts, Principles of double entry
system of bookkeeping
Accounting Cycle: Journal, Ledger, Trial Balance, Income Statement, Owners Equity Statement,
Cash Flow Statement, Retained Earning Statement and Balance Sheet, Analysis of Financial
Statements
Depreciation: Definition, Objectives of depreciation, Methods of proving depreciation.
.
Department of Electrical and Electronic Engineering
Course Title: Financial & Managerial Accounting
Managerial Accounting
Details of Subject:
Topics:
Cost Accounting: Introduction, Objectives and advantages of cost
accounting, Preparation of cost sheet, store ledger, overhead allocation.
Marginal Costing: Break-even-point, p/v ratio, Margin of safety, fixed

cost and variable cost.
Standard costing: Definition of variance, Calculation of material, labor

and overhead variance.
Managerial Costing: Use of accounting information in Project evaluation

and other decision making, Capital budgeting.
Department of Mechanical Engineering
Hum-331
Industrial Law and Accounting
Industrial Law
Industrial law in Bangladesh, Various laws relating to wages, working hours, health, safety and other condition
of work. Legislation affecting employment in factories, shops, mines and agriculture.
Laws governing labor relations: Collective bargaining, trade union, arbitration and conciliation, labor contract,
lay off, lock out, strike and their legality, labor court and tribunals.
ILO: The influence of ILO on labor relations and welfare of labors.
Law of Social Insurance, legislation for the control of industries.
Accounting:
Definition of accounting, accounting concept and convention, Definition of bookkeeping, objective and
advantage of bookkeeping, principles of double entry system of bookkeeping.
The nature of transaction, classification of accounts, rules for debit and credit, kinds of cheque and treatment of
cheque in accounts.
Journal posting, balancing and closing, trial balance, functions, preparation of trial balance, limitations of trial
balance, financial statements, analysis of financial statement.
Cost accounting: introduction, reason for cost accounts, recorded cost, estimated cost, standard cost, element of
cost, cost statement, sources of cost data, distribution of overhead charges, store ledger, marginal costing,
break-even- point, margin-of- safety, p/v ratio.
Budgeting: Types of budgets, preparing budgets and -------
Hum-331
Industrial Law
Industrial law in Bangladesh, Various laws relating to wages, working
hours, health, safety and other condition of work. Legislation affecting
employment in factories, shops, mines and agriculture.
Laws governing labor relations: Collective bargaining, trade union,
arbitration and conciliation, labor contract, lay off, lock out, strike and
their legality, labor court and tribunals.
ILO: The influence of ILO on labor relations and welfare of labors.
Law of Social Insurance, legislation for the control of industries.
Hum-331
Accounting
Definition of accounting, accounting concept and convention, Definition of

bookkeeping, objective and advantage of bookkeeping, principles of double entry
system of bookkeeping.
The nature of transaction, classification of accounts, rules for debit and credit,
kinds of cheque and treatment of cheque in accounts.
Journal posting, balancing and closing, trial balance, functions, preparation of trial
balance, limitations of trial balance, financial statements, analysis of financial
statement.
Cost accounting: introduction, reason for cost accounts, recorded cost, estimated
cost, standard cost, element of cost, cost statement, sources of cost data,
distribution of overhead charges, store ledger, marginal costing, break-even- point,
margin-of- safety, p/v ratio.
Budgeting: Types of budgets, preparing budgets and -------
Department of Computer Science & Engineering
Hum-241
Industrial Management & Accountancy
Industrial Management
Administration, Management and organization, Authority and responsibility, Management
theories, Organization structure, Organization chart, Span of control, Selection and recruitment
of employees, Wages system and incentive, Job evaluation and merit ratings, Plant lay out of
physical facilities, Transportation and storage, Material handling, Maintenance, Maintenance
policy, production control in intermittent and continuous manufacturing industry, Function of
production control, Purchasing procedures, Factory act-1965; various laws working hours,
health, safety and other conditions, laws governing labor relation; CBA, Trade Union, Lay off,
Lock out, Strike, Labor court, Marketing management, Inventory need and methods of control,
Factor affecting inventory building-up, Economic lot size and reorder point.
Accountancy
Basic accounting principles, cash book, Trial Balance, Balance Sheet, Bank reconciliation
statement, cost accounts and objectives, Elements of costs, Direct cost, Overhead allocation,
preparation of a cost sheet, computation of break-even-point, Standard costing, Job order
costing, Process costing, Cost variance.
Hum-241
Industrial Management
Administration, Management and organization, Authority and responsibility,
Management theories, Organization structure, Organization chart, Span of
control, Selection and recruitment of employees, Wages system and incentive,
Job evaluation and merit ratings, Plant lay out of physical facilities,
Transportation and storage, Material handling, Maintenance, Maintenance
policy, production control in intermittent and continuous manufacturing
industry, Function of production control, Purchasing procedures, Factory act-
1965; various laws working hours, health, safety and other conditions, laws
governing labor relation; CBA, Trade Union, Lay off, Lock out, Strike, Labor
court, Marketing management, Inventory need and methods of control, Factor
affecting inventory building-up, Economic lot size and reorder point.
Hum-241
Accountancy
Basic accounting principles, cash book, Trial Balance, Balance

Sheet, Bank reconciliation statement, cost accounts and
objectives, Elements of costs, Direct cost, Overhead
allocation, preparation of a cost sheet, computation of break-
even-point, Standard costing, Job order costing, Process
costing, Cost variance.
Department of Electronic & Telecommunication Engineering
Hum-281
Financial Accounting & Management
Accounting:
Accounting: Meaning and importance of accounting; some relevant accounting principles; journal-and ledger; trial
balance; final accounts ( Income statements and balance sheet); considering adjusting entries.
Costing: Concept of cost, classification of costs, labor, overhead and job costing; managerial costing and operating
costing.
Management:
Management and Organization: Brief history of development of management theories; management functions;
principles of management; organization structure; type of organization; line of command and response; span of
control; centralization and de-centralization; authority and responsibility relationship.
Personal Management: Management function; principles of management and industrial relations; manpower
planning; recruitment and development; discipline; leadership; type of leading; communication skills; morale and
motivation; human needs and theories of motivation; reaction to frustration; job rotation; enlargement and enrichment.
Performance Appraisal and Compensation: Job evaluation; merit rating; salary and wages; wages incentive plans;
wages and productivity; fringe benefits.
Marketing Management: Purchasing procedures; contracts and sub-contracts; purchasing problem; marketing
concepts; industrial and consumer selling; distribution channels of goods; marketing problems; sales promotion
techniques; advertising; organization for purchasing and selling; sales department.
Hum-281
Accounting:
Meaning and importance of accounting; some relevant accounting

principles; journal-and ledger; trial balance; final accounts ( Income
statements and balance sheet); considering adjusting entries.
Costing: Concept of cost, classification of costs, labor, overhead and job
costing; managerial costing and operating costing.
Hum-281
Management:
Management and Organization: Brief history of development of management theories;
management functions; principles of management; organization structure; type of organization;
line of command and response; span of control; centralization and de-centralization; authority
and responsibility relationship.
Personal Management: Management function; principles of management and industrial
relations; manpower planning; recruitment and development; discipline; leadership; type of
leading; communication skills; morale and motivation; human needs and theories of
motivation; reaction to frustration; job rotation; enlargement and enrichment.
Performance Appraisal and Compensation: Job evaluation; merit rating; salary and wages;
wages incentive plans; wages and productivity; fringe benefits.
Marketing Management: Purchasing procedures; contracts and sub-contracts; purchasing
problem; marketing concepts; industrial and consumer selling; distribution channels of goods;
marketing problems; sales promotion techniques; advertising; organization for purchasing and
selling; sales department.
Book references for Accounting
Principles of Accounting- Md. Abdur Rouf
Hazi Book Depot Publication
01711831991
Cost Accounting Md. Abdur Rouf
Management Accounting- Md. Abdur Rouf
Intermediate Accounting Weygandt, Kieso, Kimmel
Accounting Principles-Weygandt, Kieso, Kimmel
Basic Accounting- Hafiz Uddin
Book references for Accounting & Costing
Cost Accounting- Bhabatosh Banerjee
Theory and Practice of Costing- Basu & Dash
Cost Accounting; Martz & Uzray
Financial Management- M.Y. Khan & P.K.Jain
Financial Management I. M. Panday
Management
Management: Theory & Application Griffin
Management; A Global Perspective- Koontz & Heinz
Management; Theory & Practice- G.A.Cole
History of Accounting
In 1494 an Italian Mathematician Luca Pacioli
first gave the concept of double entry system of
bookkeeping in his book The Summa de
arithmetica, Geometria, Proportioni et
Proportionalita.So Mr. Luca Pacioli is called
the father of accounting.
Accounting
Accounting is an information system that identifies, records and communicates the
economic events of an organization to interested users.
-Weygandt, kieso and kimmel
Accounting is an information and measurement system that identifies records and
communicates relevant, reliable and comparable information about an organizations
business activities.
-Larson, Wild and Chiappetta
Accounting is the art of recording classifying and summarizing in a significant manner

and in terms of money transactions and events which are in a part at-least of a financial
character and interpreting the results there of.
- American Institute of Certified Public Accountants
Accounting is the process of identifying measuring and communicating economic

information to permit informed judgments and decisions by the users of the
information.
- The American Accounting Association
Accounting
Financial Accounting: Financial accounting is concerned with providing information to
stockholders, creditors and others who are outside an organization. Financial
accounting provides the scorecard by which a companys overall past performance
is judged by others.
Managerial Accounting: Managerial Accounting is concerned with providing

information to managers- that is, people inside the organization who direct and
control its operation. Managerial accounting provides the essential data with which
the organizations are actually run. Managerial accounting also termed as
management accounting or cost accounting.
Accounting information system: The system that collect and processes transaction data
and disseminates financial information to interested parties is known as the accounting
information system.
-Weygandt, kieso and kimmel
Objectives of Accounting
i) To maintain a permanent record of all economic activities.
( )
ii) To ascertain the result of financial transactions of all types of organizations.
( )
iii) To ascertain the exact financial position of the organization.
( )
iv) To ascertain total debtors (accounts receivable) and total creditors (accounts payable) of the
concern.
( )
v) To control expenditure in conformity with income.
( )
vi) To control over assets and liabilities of the concern.
( )
vii) To attain success in management.
( )
Objectives of Accounting
i) To maintain a permanent record of all economic activities.
ii) To ascertain the result of financial transactions of all types of
organizations.
iii) To ascertain the exact financial position of the organization.
iv) To ascertain total debtors (accounts receivable) and total creditors
(accounts payable) of the concern.
vi) To control over assets and liabilities of the concern.
vii) To attain success in management.
Scope of Accounting:
Accounting has got a very wide scope and area of application. Its use is not confined to the
business world alone, but spread over in all the spheres of the society and in all professions.
Now-a-days, in any social institution or professional activity, whether that is profit earning or
not, financial transactions must take place. So there arises the need for recording and
summarizing these transactions when they occur and the necessity of finding out the net
result of the same after the expiry of a certain fixed period. Besides, there is also the need for
interpretation and communication of those information to the appropriate persons. Only
accounting use can help overcome these problems.
In the modern world, accounting system is practiced not only in all the business institutions
but also in many non-trading institutions like Schools, Colleges, Hospitals, Charitable Trust
Clubs, Co-operative Society etc. and also Government and Local Self-Government in the
form of Municipality, Panchayat. The professional persons like Medical practitioners,
practicing Lawyers, Chartered Accountants etc. also adopt some suitable types of accounting
methods. As a matter of fact, accounting methods are used by all who are involved in a series
of financial transactions.
The scope of accounting as it was in earlier days has undergone lots of changes in recent
times. As accounting is a dynamic subject, its scope and area of operation have been always
increasing keeping pace with the changes in socio-economic changes. As a result of
continuous research in this field the new areas of application of accounting principles and
policies are emerged. National accounting, human resources accounting and social
Accounting are examples of the new areas of application of accounting systems.
Scope of Accounting
Now a day the whole financial activities of a man or an organization is included in
the scope of accounting.
Accounting scope is classified by three parts of our life.
a) Personal life: All of us are bound to maintain accounting system in our personal
life. Man should manage all expenditure by his income. If it would not possible then
liabilities will create. It can be possible for man to manage all expenditure in
conformity with income if he follows accounting system in every financial activities
of his life.
b) Family life: In our family life accounting plays a vital rule in all the financial
transactions. Family means the combination of parents and children (Single family)
and Grand father & Grand mother and their next generations (Joint family). They
try to manage their total expenditure by their total income and to understand their
total income and expenditure they are bound to follow accounting system.
c) Social life: Almost all persons are ready to expend money for himself and for their
family or relatives. But normally he doesnt try to expend this for his society. For
this reason accounting is too much essential in our social life.
Scope of Accounting
We can classify the scope of accounting by three of the followings:
Scope of accounting
Personal life Family life Social life
Business Organization - Service Organization

a) Sole proprietorship a) Profit Organization:
b) Partnership i) Lower agency
c) Joint stock company ii) Constriction agency
i) Private limited company iii) Transportation agency
ii) Public limited company iv) Medical agency
d) Co-operative business b) Nonprofit organization:
i) School
ii) College
iii) University
Scope of accounting
Preparation and collection of data
Historical Predictive
Processing Method Processing Data Accounting Theory Evaluation of Data
Accounting Method
Reporting of Data
External Internal
Scope of Accounting
Business Organization:
a) Sole proprietorship: A sole proprietorship is a business owned by one person and
operated for his profit.
b) Partnership: A partnership is an association of people who carry on business together
for the purpose of making profit. Under the partnership business act 1932 this type of
business operate their activities in Bangladesh.
c) Joint stock company: A company is a voluntary association or organization of many
persons who contribute money or moneys worth to a common stock and comply it in
some trade or business and who share the profit or loss arising there from. Under the
company act 1994 this types of organization operate their activities in Bangladesh.
d) Co-operative business: Cooperative society is a form of organization, where in
person voluntarily associate together as human being on a business of equality for the
promotion of economic interest of themselves. Under Cooperative business act- 1947
this kind of business was operated its activities in Bangladesh. After independence this
act was amendment. Now this type of organization runs under co-operative society
ordinance, 1984 & co-operative society rules, 1987.
e) Government Organization: Government organization is a kind of business of which
51% or more then this shares owned by the government. And the main objective of
these business is to provide service to the population, not to earn profit.
Branches of accounting
i) General accounting / Financial accounting: It provides the record of business transactions in
financial terms and also the periodical preparation of financial statements from those records.
(
)
ii) Auditing: It involves the verification of the records and report prepared by the accountants of
an enterprise in order to check errors.
(
)
iii) Cost accounting: Cost accounting emphasizes the determination of business cost especially
unit cost of production and distribution.
(
)
iv) Budgetary accounting: It refers to a systematic forecasting of business operations in financial

terms.
( )
iv) Management accounting: It based upon the concept of accounting as a method of
management or as a tool by which managerial effectiveness is enhanced. It seeks to
assure specific managerial planning and sound managerial decisions by furnishing
historical data and projections of the consequences of alternative decisions.
v) Tax accounting: It refers to the determination of the correct liabilities for taxes,
especially income taxes and social security taxes and preparation of necessary returns.
(
)
vi) Industrial accounting: It refers to the integrations of financial accounting and cost
accounting for planning and control of an industry. Actually in the area of industrial
accounting we find the integrated roles of general accounting, cost accounting and
management accounting.
(
)
vii) Government and municipal accounting: It specifies in the transaction of political
units such as state or municipalities. The main accounting problem in governmental
units is to maintain records to tax returns and preparation of budgets for future
revenue and expenditure.
(
)
viii) Social accounting: Social accounting is to deal with measurement of social and
national income and national wealth.
( )
ix) Human resources accounting: If refers to determine the effectiveness and

ineffectiveness of stuff that works to the organization.
( )
i) General accounting / Financial accounting: It provides the record of business transactions in
financial terms and also the periodical preparation of financial statement from those records.
ii) Auditing: It involves the verification of the records and report prepared by the accountants of
an enterprise in order to check errors.
iii) Cost accounting: Cost accounting emphasizes the determination of business cost especially
unit cost of production and distribution.
iv) Budgetary accounting: It refers to a systematic forecasting of business operations in financial
terms.
iv) Management accounting: It based upon the concept of accounting as a method of

management or as a tool by which managerial effectiveness is enhanced. It seeks to assure
specific managerial planning and sound managerial decisions by furnishing historical data and
projections of the consequences of alternative decisions.
v) Tax accounting: It refers to the determination of the correct liabilities for taxes, especially
income taxes and social security taxes and preparation of necessary returns.
vi) Industrial accounting: It refers to the integrations of financial accounting and cost accounting
for planning and control of an industry. Actually in the area of industrial accounting we find the
integrated roles of general accounting, cost accounting and management accounting.
vii) Government and municipal accounting: It specifies in the transaction of political
units such as state or municipalities. The main accounting problem in governmental
units is to maintain records to tax returns and preparation of budgets for future
revenue and expenditure.
viii) Social accounting: Social accounting is to deal with measurement of social and
national income and national wealth.
ix) Human resources accounting: If refers to determine the effectiveness and

ineffectiveness of stuff that works to the organization.
Users of accounting information
Users of accounting information is classified into two types:
i) Internal Users: Managers who plan, organize and direct the business:
a) Marketing managers: To compare with the competitor.

(
b) Production managers: To know how cost effectively the organization can produce its product.
(
)
c) Production supervisor: To know how efficiently the organization can produce its product.
(
)
d) Finance director: To know the efficient use of fund of the organization.

( )
e) Company officers: To know the profitability of the organization. As they have personal interest to demand
bonus or increment, if the companys financial condition is strength.
(
)
) External users:
a) Investors: Those who make decision to buy, hold or sale stock.
b) Creditors: To evaluate the risk of their loan.
c) Taxing authority: To know the company complies with tax law.
d) Regulatory agencies: To know whether the company is operating within
prescribed rules.
External users:
d) Regulatory agencies: To know whether the company is operating
within prescribed rules.
ii) ) External users:
d) Regulatory agencies: To know whether the company is operating within
prescribed rules.
Nature of accounting information
The nature features or characteristics of accounting information can be discuss as follows:
i. Relevance: The main feature of accounting information is, it should be relevant with the
present and future activity of the trader.
( )
ii) Timeliness: The accounting information should be send to the users with in right time, i.e. timeliness is the
another feature of the accounting information.
(
)
iii) Reliability: Accounting information should must be reliable.
( )
iv) Consistency: Accounting information should be consistent between the accounting period, otherwise it
will not helpful for decision making.
( )
v) Cost benefit: In case of discloser of accounting information, the trader should consider the cost benefit of
the organization.
( )
Nature of accounting information
The nature features or characteristics of accounting information can be discuss as follows:
i) Relevance: The main feature of accounting information is, it should be relevance with the
present and future activity of the trader.
ii) Timeliness: The accounting information should be send to the users with in right time, i.e. timeliness is the
another feature of the accounting information.
iii) Reliability: Accounting information should must be reliable.
iv) Consistency: Accounting information should be consistent between the accounting period, otherwise it
will not helpful for decision making.
v) Cost benefit: In case of discloser of accounting information, the trader should consider the cost benefit of
the organization.
Accounting Concepts and Conventions
Accounting concept means to connote necessary assumptions or conditions upon which

accounting are based.
Accounting convention is used to signify customs or traditions as a guide to the

preparation of accounting statement.
GAAP
General Principles of Accounting
GAAP: Generally Accepted Accounting Principles are a set of rules and practices that
are recognized as a general guide for financial reporting purposes.
Accounting Concepts: Accounting concepts is used to connote necessary
assumptions or conditions upon which accounting are based.
Accounting Conventions: Conventions is used to signify customs or
traditions as a guide to the preparation of accounting statements.
Accounting Principles:
i) Going concern concept : Under this assumption organization will not
stop any time and will continue forever.
ii) Consistency concept: If any organization follow any rules from
many alternatives then that organization will bound to follow that
methods forever and will not able to change it in future.
iii) Conservatism concept :
iv) Dual aspect concept :
v) Accounting periodic concept:
General Principles of Accounting
v) Separate entity concept : Under this concept organization and proprietor are separate
entity. Proprietor is the investor of the organization.
vi) Money measurement concept or Monetary concept: Each and every transaction
must be evaluated by its monetary value.
vii) Accounting equation concept: (A=L+P) is the accounting equation. The equation
means all assets will equal with all liabilities.
viii) Recognition of law concept: Any organization is bound to follow the rules of that
territory, where the organization is operating it activities.
ix) Historical cost concept:
x) Realization concept:
xi) Objective evidence:
xii) Accrual concept:
xiii) Materiality concept:
xiv) Full discloser concept:
Accounting Concepts and Conventions
Monetary Accountants do not account for items unless they can be quantified in monetary terms.
measurement Items that are not accounted for (unless someone is prepared to pay something for them)
include things like workforce skill, morale, market leadership, brand recognition, quality
of management etc.
Separate Entity This convention seeks to ensure that private transactions and matters relating to the
owners of a business are segregated from transactions that relate to the business.
Realization With this convention, accounts recognize transactions (and any profits arising from them)
at the point of sale or transfer of legal ownership - rather than just when cash actually
changes hands. For example, a company that makes a sale to a customer can recognize
that sale when the transaction is legal - at the point of contract. The actual payment due
from the customer may not arise until several weeks (or months) later - if the customer
has been granted some credit terms.
Materiality An important convention. As we can see from the application of accounting standards and
accounting policies, the preparation of accounts involves a high degree of judgment.
Where decisions are required about the appropriateness of a particular accounting
judgment, the "materiality" convention suggests that this should only be an issue if the
judgment is "significant" or "material" to a user of the accounts. The concept of
"materiality" is an important issue for auditors of financial accounts.
Accounting Concepts
Four important accounting concepts underpin the preparation of any set of accounts:
Going Concern Accountants assume, unless there is evidence to the contrary, that a
company is not going broke. This has important implications for the
valuation of assets and liabilities.
Consistency Transactions and valuation methods are treated the same way from year
to year, or period to period. Users of accounts can, therefore, make more
meaningful comparisons of financial performance from year to year.
Where accounting policies are changed, companies are required to
disclose this fact and explain the impact of any change.
Conservatism Profits are not recognized until a sale has been completed. In addition, a
cautious view is taken for future problems and costs of the business (the
are "provided for" in the accounts" as soon as their is a reasonable
chance that such costs will be incurred in the future.
Matching (or Income should be properly "matched" with the expenses of a given
"Accruals") accounting period.
Conservatism Concept
Basically the concept says that whenever there are alternative procedures or values, the
accountant will choose the one that results in a lower profit, a lower asset value and a
higher liability value. The concept is summarized by the well- known phrase anticipate
no profit and provide for all possible losses.
Revenue and profits are included in the balance sheet only when they are realized (or
there is reasonable certainty of realizing them) but liabilities are included when there
is a reasonable possibility of incurring them.
The conservatism Concept assumes:

Assets should not be overvalued
Liabilities should not be undervalued
The financial statements does not reflect overstatement or understatement of gains or
losses but neutral
Profit or revenue only recorded when they are realized.
Matching Concept
Expenses should be matched with revenues in the period in which the
revenues are earned.
Accrual Concept
The Accruals concept assumes that revenue and expenses are taken
account of when they occur and not when the cash is received or paid
out.
Materiality Concept
An accountant might be allowed to violate another accounting principle if an amount is
insignificant. Professional judgment is needed to decide whether an amount is
insignificant or immaterial.
Full Disclosure Principle
If certain information is important to an investor or lender using the

financial statements, that information should be disclosed within the
statement or in the notes to the statement. It is because of this basic
accounting principle that numerous pages of "footnotes" are often
attached to financial statements.
. Historical Cost Concept

From an accountant's point of view, the term "cost" refers to the amount spent (cash or
the cash equivalent) when an item was originally obtained, whether that purchase
happened.
The most commonly encountered convention is the "historical cost convention". This
requires transactions to be recorded at the price ruling at the time, and for assets to be
valued at their original cost
Under the "historical cost convention", therefore, no account is taken of changing
prices in the economy.
The other conventions you will encounter in a set of accounts can be summarized as
follows:
Time Period Assumption
Recognition of law concept ( )

Dual Aspect Concept ( )
Objective Evidence Concept
Economic Entity Assumption
The accountant keeps all of the business transactions of a sole proprietorship separate
from the business owner's personal transactions. For legal purposes, a sole
proprietorship and its owner are considered to be one entity, but for accounting
purposes they are considered to be two separate entities.
Monetary Unit Assumption

Economic activity is measured in U.S. dollars, and only transactions that can be
expressed in U.S. dollars are recorded.
Because of this basic accounting principle, it is assumed that the dollar's purchasing
power has not changed over time. As a result accountants ignore the effect of inflation
on recorded amounts. For example, dollars from a 1960 transaction are combined (or
shown) with dollars from a 2013 transaction.
Limitation of Accounting
Recording of monetary transaction: Every transaction is recorded by its monetary value.
Identify the monetary value (Value of taka).
Money value fixed: Accounting ignores value of money.

Ignore money inflation and deflation.
Recommendation of alternative methods: Possible to select only one method.

For calculating depreciation, goodwill etc. organization is bound to maintain only one method from many
alternatives.
Limitation of accounting principles: Not able to find out accurate figure of depreciation and some others.
Record of future events

Accounting can record only past and present transactions but not possible to record future events.
Allocation problem: written off fixed assets is not fully correct.
Maintaining security: Many parties and persons involved in accounting process. So it is not possible to
maintain security of information.
Tendency of creating secret reserves: This is not allowed by the accounting principle but the managers
wants to create secret reserve.
Objectives of Financial Reporting
The objectives of financial reporting are to provide information that is
i) Useful in investment and credit decisions: Financial reporting is useful to present and potential investor
and creditors and other users in making rational investment, credit and similar decisions.
ii) Useful in assessing cash flow prospects: Financial reporting helps present and potential investors, creditor
and other users assess the amounts, timing and uncertainty of prospective cash receipts from dividends o
interest and the proceeds from the sale, redemption or maturity of securities or loans.
iii) Information about the company resources and claims to those resources and changes in them: Financia
reporting clearly describe the economic resources of an enterprise, the claims to those resources and the effect o
transactions, events and circumstances' that changes in resources and claims to those resources..
Bookkeeping
Bookkeeping is the recording branch of accounting.
- Encyclopedia Britannica.
Bookkeeping is the science and art of correctly recording in book

of account all those business transactions that result in the
transfer of money and moneys worth.
Bookkeeping is the science of recording transactions in money or

moneys worth in such a manner at any subsequent date, the
nature and effect of each transaction and the combined effect of
all transactions, may be clearly understood and so that the
accounts prepared at any time from the records thus kept may
show the owner of the books about his true financial position.
Objectives of bookkeeping
i) Permanent record of daily transactions: Bookkeeping is a permanent and systematic
written record of business transactions in book of account.
ii) To know daily business condition: Bookkeeping keeps the businessman in touch
with the day to day affairs of his business. So that he may take necessary measures
to control the expenses of business before it is too late.
iii) Identify profit and loss: Bookkeeping is to enable the businessmen to ascertain his
profit or loss at regular interval.
iv) Identify financial condition: Bookkeeping is to make it possible for the
businessmen to ascertain his correct position in regard to his debtor, creditor,
properties, capital and so on at any point of time.
v) Information supply to management: Bookkeeping is to supply to the management of
a business valuable data for future planning.
vi) To prevent corruption:
vi) Calculation of cash
vii) Take steps to increase profit:
Difference between bookkeeping and accounting
i) Bookkeeping is the recording branch of accounting.
ii) Bookkeeping ends where accounting starts.
iii) Bookkeeping is a part of broader field of accounting.
iv) Bookkeeping is simply the art of recording business transaction in the various
books of account. Accounting is the recording, classifying and interpretation of
the economic facts of business enterprise .
Double Entry system of bookkeeping
Double Entry system of bookkeeping: The double entry system of bookkeeping is a
system in which two fold aspect of each and every mercantile transactions in money
and moneys worth are recorded.
Advantages of double entry system of bookkeeping
i) Complete record of each transaction.

ii) Justifying the arithmetical accuracy of accounts.
iii) To concern the exact condition of the organization.
iv) To concern total debit and credit.
vi) To ascertain total assets and liabilities.
vii) To concern the cost of product and sales price.
viii)To prevent corruption.
ix) To compare with another period.
Fundamental principles of double entry
i) Every transaction has two fold; (a) Debit (b) Credit.
ii) system
For every transaction ofcredit
debit and bookkeeping.
will equal and total debit will equal with
total credit.
iii) Every debit must have corresponding credit and vice-versa.
iv) In every transaction the amount of receiver and giver will equal.
v) By this system proprietor and organization are separate entity.
vi) Proprietor is the investor of the organization.
Methods of bookkeeping:
Double entry system of bookkeeping: The double entry system of bookkeeping
is a system in which two fold aspect of each and every mercantile transactions
in money and moneys worth are recorded.
Single entry system of bookkeeping: It is a method or a verity of methods

employed for recording the transactions which ignores the two fold aspect and
consequently fails to provide the businessman with the information necessary
for him to be able to ascertain his position.
Transaction
(i) Anything that results in a transfer of money or moneys worth constitutes a
transaction.
(ii) Any event that brings about a change in financial position of a person or
institution is called a transaction of such a person or institution.
(iii) A transaction conduct by a trader or a trading concern in course of business is
called a business transaction.
(iv) Every financial change, which occurs in our business, is a transaction.
Nature of transaction
i) It brings about a change in the financial position
of the relevant trader or trading concern.
ii) It effect is measurable in term of money.
iii) It is not always visible to the ordinary eyes.
iv) Each transaction is self contained and independent
of other transactions.
v) It affects two parties or accounts at the same time.
vi) It happened structural change
Effect of transaction
i) Change owner's equity Drawing by proprietor.
ii) Change in assets-Increase or decrease assets.
iii) Change in liabilities- Cash paid to creditor or
Purcheses on credit.
iv) Financial change-Advertisement cost.
v) Structural change- Machine purchase or sales on
old furniture.
vi) Unseen change- Depreciation on furniture .
Different classes of transaction
i) Person and organization basis:
a) External transaction
b) Internal transaction.
ii) Objective basis:
a) Business transaction
b) Non-business transaction.
c) Personal transaction.
iii) Visibility basis:
a) Visible transaction
b) Invisible transaction
iv) Payment basis:
a) Cash transaction
b) Credit transaction
c) Non-cash transaction.
Accounting Cycle
The order or sequence in which accounting procedures are performed is known as
accounting cycle.
i) Identifying: This is the first stage of accounting cycle. Accountant will

identify which one is transaction and which is not from many events
arise according to the characteristics of transecting.
ii) Analyze the transaction: After identifying the accountant will analyze
this transaction that which accounts are effected by the transaction
and by which amount.
iii) Recording: When the accountant will determine that this event is a
transaction in respect of its character and these accounts are affected
by this amount then he will record this transaction in a book of
account is called journal.
iv) Posting: In journal book accountant records transactions only in

according to maintain time serial. These transactions are transferred
to that account in ledger book, which accounts are effected by this
transaction.
Accounting Cycle
iv) Summarizing: By collecting all the balances from the accounts of ledger
after a specific period of time the accountant prepares a separate
statement which called trial balance. By this statement users can justify
the arithmetical accuracy of accounts. Account collects the balances and
records these balances in trial balance at same side.
v) Adjusting entries: Adjusting entries are journal entries made at the end of
an accounting period to change the balance of certain accounts to reflect
economic activity that has taken place but not yet been recorded.
vi) Adjusted trial balance: After all adjusting entries have been journalized
and posted another trial balance is prepared from the ledger accounts is
called adjusted trial balance, to prove the equality of total debit balance
and total credit balance in the ledger. By adjusting adjustments with trial
balance another trial balance has been prepared. This trial balance is
called adjusted trial balance.
Accounting Cycle
vii) Work sheet: A worksheet is a multiple-column form that may be in the adjustment process and in
preparing financial statements. Work sheet is a ten columned book of account which shows the financial
condition of the organization. Before preparing financial statements this book is prepared to know about the
condition of the business. It is not compulsory step of accounting cycle.
viii) Financial statements: Financial statements are statements which are prepared for a specific period of time
to know the financial condition of business in each and every points.
ix) Closing entries: Closing entries are journal entries by which the income and expenditure related items of
financial statements have been closed. Because no income and expenditure is transferred to next period.
x) Reversing entry: Reversing entry used to avoid the double posting of adjusting entries. Reversing entries
are exact opposite of adjusting entry made in the previous period.
xi) Opening Journal entry: Opening Journal entry is journal entry by which all assets and liabilities of one
period have been transferred to next period.
xii) Post-closing Trial Balance: After all entries have been journalized and posted, another trial balance, called
post-closing trial balance, is prepared from the ledger account. The post-closing trial balance lists permanent
accounts and their balances after closing entries have been journalized and posted. The purpose of this trial
balance is to prove the equality of the permanent account balance that are carried forward into the next
accounting period.
xii) Analysis of financial statement: This is the last step of accounting cycle. By analyzing the financial
statements, necessary the ratios can be find out and by comparing this ratios with the ratio of another period
financial strength and weakness can be find out. Management can takes decisions by using this ratios.
Account
Account is the shortly description of all transaction of a specific period of time for a man or
material. -S.S.Basha
An account is a summarized record of all the transactions relating to a particular person,

institution, property, income or expenditure arranged under an appropriate heading according to
bookkeeping rules.
Classification of accounts
Accounts are basically two types.
i) Personal account: An account relating to a person or institution is called personal account.
ii) Impersonal account: An account which doesnt relate to any person or institution but
rather to a property, income or expenditure is called impersonal account.
Impersonal account is farther classified into the following two types:
a) Real account: An account relating to a property is called real account.
b) Nominal account or proprietary account: An account relating to an income or expenditure

is called nominal account.
Rules Determination for debit & credit
Accounting Equation: A = L + P or A = L + OE
Where, A = Asset, L = Liabilities, P = Proprietorship or OE = Owners Equity
Assets = Liabilities + Owners Equity Or Proprietorship
i) Personal account: If person or organization
receive then debit, if give then credit.
1. Assets: If assets increase then debit * Mr. Jamal paid to Mr. Kamal
Mr. Kamal debit, Mr. Jamal Credit
If assets decrease then credit ii) Real account: If assets come then debit, if
* Furniture purchased for cash assets go out then credit.
* Furniture purchased for cash
Furniture account Debit & Cash account credit. Furniture account debit, Cash account credit
iii) Nominal account: If income arise then credit,
2. Liabilities: If liabilities decrease then debit if expenditure arise then debit.
If liabilities increase then credit * Salary paid: Salary account debit, Cash
account credit or * Commission received: Cash
* Purchased furniture on credit. account debit, commission account credit
Furniture account debit & Account payable account credit.
3.Owners equity: If owners equity increase then credit.
If owners equity decrease then debit.
* The owner invested cash.
Cash account debit & owners capital account credit.
Capital expenditure & Revenue expenditure
Capital expenditure : All expenses incurred for the acquisition, enlargement or

increase in the use value of a permanent assets are called capital expenditures.
Any expenditure which is undertaken for the purpose of acquisition of permanent
assets which are intended to be continually used in the business for the purpose of
earning revenue is capital expenditure.
Revenue expenditure: The day to day expenses for smoothly caring on a

business for the purpose of earning profit are called revenue expenditures.
All establishment and other expenses incurred in the conduct and
administration of business
All expenses incurred by way of repairs, replacements and renewals of existing

assets which dont in any way add to their earning capacity but simply serve to
maintain the original equipment in an efficient working order.
Journal
Definition of journal
Journal is the book of account in which the transactions, being analyzed into
debit and credit, are recorded chronologically in such a manner that their
transfer to ledger is facilitated.
Types of journal entry

i) Simple journal entry: Simple journal entry is one which effect only two
accounts.
Date Particulars L.F. Debit Credit
example: January 2,2010,Furniture purchased for cash Tk.****.
(Taka) (Taka)
2010 Furniture a/c Dr. ****
January 2 To Cash a/c ****
(Being furniture purchased for cash.)
This is a simple journal entry

Types of Journal entry
ii) Compound journal entry: Compound journal entry is one which effects more than
two accounts.
Compound journal entry: January 2,2011 Mr.Jaman started business by bringing cash
Tk.50,000, furniture Tk.40,000, Machinery Tk.30,000 and equipment Tk.20,000
Journal entry is:
(Taka) (Taka)
2011 Cash a/c Dr. 50,000
January -2 Furniture a/c Dr. 40,000
Machinery a/c Dr. 30,000
Equipment a/c Dr. 20,000
To Mr. Jamans capital a/c 1,40,000
(Being Mr. Jaman started business by
bringing cash, furniture, machinery and
equipment.)
This is compound journal entry

iii) Opening journal entry: Opening journal entry is one by which all assets and liabilities
of one period can be transferred to next period.
Opening journal entry
(Taka) (Taka)
January All assets Dr. *****
01,2010 To All liabilities *****
iv) Closing Journal entry: Closing Journal entry is one by which all income and
expenditure related items of period can be closed at that period. Because no income
or expenditure will transfer to next period.
Closing journal entry

(Taka) (Taka)
All income Dr. ****
To Income summery *****
Income Summery Dr. *****
vi) Adjusting journal entry: Adjusting entries are journal entries made at the end of an
accounting period to change the balance of certain account to reflect economic
activities that has taken place but not yet been recorded.
Example:2010 January 31, Salaries dues Tk.***
(Taka) (Taka)
2010,January-31
Salary a/c Dr. ****
To Salary payable a/c ****
Rectifying Journal entry: Rectifying journal entry are those by which accountant can
rectify the errors made by him at the time of recording the transactions.
Example: 2010 January 10, Paid Tk.*** to Mr. Kamal. Erroneously recorded Mr. Jamal
instead of Mr. Kamal. Now rectifying Journal entry is
(Taka) (Taka)
2010,
January- Mr.Kamals a/c Dr, ****
31 To Mr. Jamals a/c ****
Transfer Journal Entry: Transfer Journal Entry is those by which the accountant
does transferred the ledger balance of one account to another logical account.
Example: Depreciation on furniture Tk.***
Journal is: Taka Taka
Depreciation on furniture a/c Dr. ****
to Accumulated depreciation on furniture a/c ****
Now the balance of accumulated depreciation on furniture a/c have to transferred to furniture
account. By which journal entry this balance will be transferred to furniture a/c, that is transfer
journal entry.

(Taka) (Taka)
2010
January-31 Accumulated depreciation a/c Dr. ****
To Furniture a/c ****
Advantages of Journal
Journal is original book of entries in which first time all business

transactions are recorded thoroughly. Its advantages are given below :-
1. Analyzing Debit and Credit: In journal, every transaction is
recorded after deep analysis of two accounts on the basis of double
entry system, so there is minimum chance of mistake in journal. In
the journal each transaction is analyzed into debit and credit; as a
result its transfer to ledger becomes easy.
2. Chronological Record: Journal provide records of all business
transactions in one place on time and date basis. Journal maintains a
concise and chronological record of transactions.
3. Minimum Errors: There is minimum chance to avoid any particular
transaction because in journal transactions are recorded date basis.
4. Rectifying Errors: If there is mistake in ledger, we can rectify it
with the help of rectifying journal entry.
Advantages of Journal
5. Narration of Entry: Accountant writes every journal entrys narration bellow of
that journal entry, so other auditor can know what the reason of that journal entry is.
6. Recording All Type of Transactions: All opening journal entries , closing journal
entries and all other transactions which is not recorded in any other subsidiary books ,
will be recorded in journal .
7. Accounting Software: Journal is also needed in every type of accounting software .

These accounting software can make auto system of posting journal entries by their
automatic processing , but accountant must feed journal entries in journal and other
specific vouchers of journal .
8. Ledger Folio: In journal , there is one column of ledger folio . It is very important
for checking reference of each account's posting with its original journal entry .
9. Preparation of Financial Statements: If the transactions are first recorded in the
journal and then transfer to ledger it becomes easier to make financial statements from
ledger book.
Advantages of journal
i) In the journal it is possible to provide full explanation of each entry.
ii) In case of doubt or dispute with regard to a transaction, in future, necessary reference
may be made in the journal.
Sub-Division of Journal
i) Purchased book: For recording all goods purchased on credit.
ii) Sales book: For recording all goods sold on credit.
iii) Return out ward book: For recording purchased return to creditors.
iv) Return in ward book: For recording all sales returned by customer.
v) Bill receivable book: For recording all bill receivable.
vi) Bill payable book: For recording all bill payable.
vii) Cash book: For recording all cash receives and cash payments and also for
recording al discount receives and discount allows.
viii) Consignment in-ward book: For recording the consignment received by us from
others in consignment business.
ix) Consignment out-ward book: For recording the consignments sent by us to others
in consignment business.
x) General journal or journal proper: for recording those transactions which can not
conveniently be passed through the other books of original entry.
Functions of journal
i) To analyze each transaction into debit and credit.
ii) To analyze each transaction chronologically.
iii) To give narration for each entry to facilitate future reference.
Problem: Date Particulars L.F. Debit Credit
Journalize the (Tk.) (Tk.)
following transactions
in the book of Mr. 2006 Cash a/c Dr. 1,50,000
Jaman and show January-1
them by transferring To capital a/c 1,50,000
to ledger:
(As cash brought in
business as capital)
2006 January-1, Mr.
Jaman started a
business with a
capital of
Tk.1, 50,000 2006 Bank a/c Dr. 50,000
January-2 To Cash a/c 50,000
(As cash deposit into
2006 January-2, An Bank)
account was opened
at the bank in the
name of Mr.Jaman
and Tk.50, 000 was
deposited 2006 Furniture a/c Dr 20,000
Jannuary-3 To Cash a/c
20,000
2006 January-3, (As office furniture
Bought office furniture bought for cash)
for cash Tk.20, 000
Date Particulars L.F Debit Credit
(Tk.) (Tk.)
2006 January-4,
Bought goods for
cash Tk.3, 800 and January-4 Purchases a/c Dr 3,800
Tk.50 paid for To cash a/c 3,800
carriage (As goods bought for
cash)
January-4 Carriage inward a/c Dr 50

2006 January-4, To Cash a/c 50
Bought goods for (As cash paid for
cash Tk.3, 800 and carriage)
Tk.50 paid for
carriage January-5 Cash a/c Dr 16,000
To sales a/c 16,000
(As Goods sold for
cash)
January-5, Cash Carriage outward a/c Dr
January-5 175
sale Tk.16, 000 and To Cash a/c 175
paid for
carriageTk.175
. (Tk.) (Tk.)
January-6 Office Equipment a/c Dr 4,500
2006 January- 6, To Accounts Payable a/c 4,500
Bought a typewriter
(As Typewriter bought on
worth Tk.4, 500 from
M/s Motin & co. credit)
January-7 Purchases a/c Dr 3,000

2006 January,7 To Accounts Payable a/c 3,000
Bought goods Tk.3, (As credit purchases of goods)
000 from M/s
Rahman & co. on
credit. January-8 Accounts Payable a/c Dr 250
To Return outwards a/c 250
2006 January,8 (As some goods return back to
Goods Tk.250 were
returned back to M/s Rahman & co.)
Rahman & co.
2006 January, 9 January-9 Accounts Receivable a/c Dr 25,000

Goods Tk.25, 000 To Sales a/c
were sold on credit (As credit sales made) 25,000
to M/s Latif & sons.
(Tk.) (Tk.)
2006 January -12 M/s
January-12 Return inward a/c Dr 200
Latif & sons. To Accounts Receivable a/c 200
returned back goods (As goods returned from
Tk.200 M/s Latif & sons)
January-14 Accounts Payable a/c Dr 30,000
2006 January- 14 M/s To Bank a/c 30,000
Rahman & co. were (As Payment made by
paid a cheque Tk.30, cheque to M/s Rahman &
000 co.)
2006 January- 15 January-15 Cash a/c Dr 15,000

Received at a time a To Accounts Receivable a/c 15,000
(As payment received in
sum of Tk.15, 000 cash from M/s Latif and
from M/s Latif & sons a/c)
sons
January-16 Telephone expenses a/c Dr 1,240

2006 January- 16 Paid
To Cash a/c 1,240
telephone bill Tk.1, (As payment made of
240 telephone bill in cash)
(Tk.) (Tk.)
2006 January- 18 January-18 Advertisement a/c Dr 15,000

Paid for advertisement
To Cash a/c 15,000
Tk.15, 000
(As Payment made for
advertisement in cash)
2006 January- 19
January-19 Bank a/c Dr 25,000
Deposit into bank
To Cash a/c 25,000
Tk.25, 000
(As cash deposited into Bank)
January-20 Cash a/c Dr 2,000
2006 January- 20 To Commission received a/c 2,000
Received Tk.2, 000 as (As commission received)
commission.
Cash a/c Dr 17,000
January-22
To Sales a/c 17,000
2006 January- 22
Sold goods to Mr. Karim (As Goods sold for cash )
to cash Tk.17, 000
(Tk.) (Tk.)
Cash a/c Dr
17,000
2006 January- 22 January-22 To Sales a/c
17,000
Sold goods to Mr. (As Goods sold for cash)
Karim for cash
Tk.17, 000
2006 January- 23 January-23 Purchases a/c Dr 20,000

Bought goods on To Accounts Payable a/c 20,000
credit from Hanif (As Goods bought on credit
Mazumder for Tk.20, from Hanif Majumder)
000
January-23 Accounts Payable a/c Dr 12,000
2006 January- 23 To Cash a/c 12,000
Paid Tk. 12,000 to (Cash paid to Accounts
M/s Rahman & co. payable)
January-27 Accounts Receivable a/c Dr 3,000
2006 January- 27
To Sales a/c 3,000
Sold goods to
Tajuddin Ahamed (As Goods sold on credit to
Tk.3, 000 Tajuddin Ahamed)
2006 January- 29 (Tk.) (Tk.)
Withdrew from bank
Tk.13, 000 for
personal use. January-29 Mr.Jaman's Drawings a/c Dr 13,000
To Bank a/c
13,000
(As cash withdrew from Bank
2006 January- 30 for personal use)
Bought machinery for
Tk. 25,000 and
payment was made January-30 Machinery a/c Dr 25,000
by cheque.
To Bank a/c 25,000
(As Machinery bought and
2006 January- 31 payment made by cheque)
Paid salary to office
stuff Tk.20, 500
January-30 Salary a/c Dr 20,500
To Cash A/c 20,500
2006 January- 31 Paid
house rent Tk.20, 000 (As salary paid in cash)
January-30 House rent a/c Dr 20,000

To cash a/c 20,000
2006 January- 31 Paid (As House rent paid in cash)
wages Tk. 3,750
January-30 Wages a/c Dr 3,750

To Cash a/c 3,750
(As wages paid in cash)
(Tk.) (Tk.)
2006 January- 31 M/s January-31 Accounts Payable a/c Dr 4,500

Motin & co. was paid a To Bank a/c 4,500
cheque in full (As the amount of Tk.4,500
settlement of their owing to M/s Motin & co.
debts. paid in full by cheque)
Total 5,06,965 5,06,965

(Tk.) (Tk.)
January 1,Purchased goods from January-1 Purchase A/c Dr. 5,000

M/s X & Co. Tk.5,000 To Accounts Payable A/c 5,000
January- Accounts Payable Dr. 5,000

January 11, Paid Tk.4,500 in full 11 To Discount Receive A/c 500
settlement of M/s X & Co
To Cash A/c 4,500
January 21 No Entry
January 21 Hired a receptionist
at a salary of Tk.5,000 per month. Prepaid insurance Dr. 1,200
January 25 To Cash A/c 1,200
January 25, Paid one year
insurance policy Tk.1,200
January 31 Purchase A/c Dr. 12,000
To Cash A/c 5,000
January 31 Bought goods for
Tk.12,000 Paying Tk.5,000 cash To Note Payable A/c 7,000
and issuing a note for the balance
Insurance Exp. A/c Dr. 100
January 31 Recognized one- 100
To Prepaid Insurance
months prepaid insurance had
expired
No Entry
Mr. Jaman decided to purchase a
ultra-modern machine by
Tk.5000
Enter the following transections Date Particulars L.F. Debit Credit
in the Journal of Mr. X for the (Tk.) (Tk.)
month of June, 2014
June-01 Cash A/c Dr. 20,000

June 1,Started business with 5,000
cash Tk.20,000, office Office Equipment A/c Dr. 30,000
equipment worth Tk50,000, Motor Car A/c Dr. 55,000
His private car worth To Capital A/c
Tk.30,000 will henceforth be June-03 10,000
used solely for business Purchase A/c Dr. 10,000
To Cash A/c
purposes.
June-04 12,000
Jun 3, Bought goods for cash Cash A/c Dr. 12,000
from Tarafder Tk.10,0000 To Sales A/c
June 4, Sold goods for cash to Y June-05 15,000
Tk.12,000 Purchase A/c Dr. 15,000
To Accounts Payable A/c
June 5, Purchase goods from June-06 5,000
Raton Tk. 15,000 Bank A/c Dr. 5,000
To Cash A/c
June 6, Deposit cash into bank June-10

Accounts Payable A/c Dr. 2,000
Tk.5,000
To Return outward A/c 2,000
June 10, Return goods to Raton
Tk.2,000
Enter the following transections Date Particulars L.F. Debit Credit
in the Journal of Mr. X for the (Tk.) (Tk.)
month of June, 2014
June 12, Paid carriage on sale June-12 Carriage outward A/c Dr. 1,000
To Cash A/c 1,000
of goods Tk.1,000
June 13, Mr. Jaman advices to June-13 This is not a transaction

purchased furniture for Tk.50,000
June-15 Accounts Payable A/c Dr. 13,000

Jun15, Paid Raton in full due to To Bank A/c 13,000
him by cheque
June 18, Purchased one Steel June-18 Drawings A/c Dr. 20,000
Almirah for private use To Cash A/c 20,000
Tk.20,000
June-20 Bank A/c Dr. 100
June 20, Interest credited by the To Interest Received A/c 100
bank Tk.100
June-25 Rent A/c Dr. 2,000
June 25, Paid to land lord as rent To Cash A/c 2,000
Tk.2,000
June-28 Salaries A/c Dr. 5,000
June 28, Paid salaries Tk.5,000 To Cash A/c 5,000
June-30 Motor Car A/c Dr. 20,000

To Cash A/c 20,000
Purchased a car for office use
Tk.20,000
Problem:
Batali Hill began a general real estate agency called Batali Hill Realty and during a short period, he
completed these transactions:
a. Began a business by investing Tk.20,000 in cash.
b. Purchased a small office building and the office equipment of Eastern Realty, consisting of office
equipment Tk.4,000, land Tk.16,000 and building Tk.48,000. He paid Tk.18,000 in cash and signed a
mortgage contract to pay the balance.
c. Took his personal automobile, which had a Tk.6,000 fair value, for payment and exclusive use in the
business.
d. Earned and collected a Tk.8,000 commission from the sale of a house.
e. Purchased office supplies Tk.750 and office equipment Tk.800 from Office Supply Company on credit.
f. Paid the salary of office secretary Tk.1,200.
g. Complete property management services for Neal Able on credit Tk.600
h. Paid office supply company for the items purchased in transaction (e).
i. Receive Tk.600 from Neal Able for the services of transaction (g).
j. Purchased additional office supplies on credit Tk.300.
k. Earned and collected a Tk. 6,500 from the sale of a building lot.
l. Paid the salary of the office secretary Tk.3,000.
m. Paid for newspaper advertising that had appeared Tk.1,000.
n. Paid the telephone bill Tk.200.
o. Batali Hill withdrew Tk.600 from the business for personal expenses.
Prepare journal entries for the transactions.

Batali Hill
Journal
(a) Cash a/c Dr. 20,000
To Batalis Capital a/c
(Cash invested as capital) 20,000
(b) Building a/c Dr. 48,000
Land a/c Dr. 16,000
Office Equipment a/c Dr. 4,000 18,000
To Cash a/c 50,000
To Mortgage Loan a/c
( Purchased assets for cash and on mortgage loan)
Automobile a/c Dr. 6,000
To Batalis Capital a/c 6,000
(Invested personal automobile as capital)
(d) Cash a/c Dr. 8,000
To Commission Received a/c 8,000
(Commission earned and received for cash)
(e) Office Supplies a/c 750
Dr. 800
Office Equipment a/c Dr. 1,550
To Accounts Payable a/c
(Purchased office supplies and equipment's on credit)
Batali Hill
Journal
(f) Salary Expenses a/c 20,000
Dr.
To Cash a/c 20,000
(Salary paid for cash)
(g) Accrued Management Service a/c 600
Dr. 600
To Management Service Revenue a/c
(completed management work on credit)
(h) Accounts Payable a/c Dr. 18,000
To Cash a/c 50,000
(Paid account payable)
(i) Cash a/c Dr. 600
To Accrued Management Service a/c 600
(Cash received for accrued management service)
(j) Office Supplies a/c 300 300
Dr.
To Accounts Payable a/c
(k) (Purchased office supplies and equipment's on credit)
Cash a/c 6,500
Dr. 6,500
To Commission Revenue a/c
(l)
Batali Hill
Journal
(m) Advertisement Expenses 1,000
Dr.
To Cash sa/c 1,000
(n) Telephone Expenses a/c Dr. 200
To Cash a/c 200
(Telephone bill paid for cash)
(o) Batalis Drawing a/c
Dr. 600
To Cash a/c 600
(Batali withdrew from business)
Ledger
Ledger is the book of account which contains a condensed and classified record of
all the pecuniary transactions of a business.
Ledger has been drive from the English word ledge which means a bookshelf on
which the house hold articles are kept. A ledger is similar to a self.
Ledger is a permanent store house of all the transactions.
Ledger is an organized store house for accounting data.
Advantages of ledger
i) It helps to ascertain the amount owing by the business by others and the amount owing by the
business to other.
ii) It helps to ascertain the profit or loss of the business for a certain period of time.
iii) It helps to ascertain for financial position of the business on a particular date.
iv) It supplies such information to the management that they can take proper measures of control
in different matters of the business.
v) It helps detection and prevention of errors and frauds on the part of the officers and
employees of the business.
IMPORTANCE/ADVANTAGES OF LEDGER ACCOUNTS
Ledger Accounts are the most important record of business accounting. Every business
transaction whether it is recorded in journal or cash book or subsidiary books must be posted into
Ledger Accounts. Its importance is summarized herewith:
i. Separate accounts. There are separate ledger accounts for different parties and heads, so the
information regarding every account is collected at one place. For example, if we prepare
Rams Ale, information regarding Rams purchases, sales, payments and bills drawn and
accepted etc. will be brought to Rams A/c from purchases book, sales book, cash book, bills
payable book and bills receivable book etc.
ii. Requisite information at a glance. The correct position and status of every account can be
ascertained at a glance by going through it. In case of personal accounts, we know what we
have to receive or pay the particular party. Information regarding purchases, sales and
returns are easily available from their ledger accounts.
iii. Preparation of trial balance. Ledger accounts facilitate the preparation of trial balance,
which is rest of examining arithmetical accuracy in the books of accounts. Trial balance is
prepared with the bales of ledger accounts.
iv. Facilitating the preparation of financial statements. Ledger Accounts supply information for
preparation of Trading, Profit & Loss A/c and Balance Sheet. They also help in identifying
adjustments, which are incorporated in Final Accounts.
Distinction between Journal and Ledger
Journal Ledger
1 The journal is the book of preliminary The ledger is the book of final record.
record.
2 Transaction first recorded in journal. After recording in journal transactions

transfer to ledger book.
3 Transactions are recording in journal Transactions are recorded in the ledger

book for the time being. on permanent basis.
4 Journal keep a chronological record of The ledger keeps a condensed and

transactions. classified record of transactions.
5 Journal is the subsidiary book of The ledger is the principal book of

account. account.
6 Journal fails to provide correct Ledger will provide correct information

information of asset, liability, income of asset, liability, income, expenditure
and expenditure etc. etc.
7 Trial balance & financial statements Trial balance & financial statements are
dont possible to prepare from journal. possible to prepare from ledger book.
Why ledger is called the king of all books of account?
Because ledger has records of all books. No other books keeps so much
details in itself. Ledger alone is sufficient to provide actual status of a
business. Therefore, Ledger is king of all books. Moreover, all other
books function for Ledger like Ministers of a King.
Format of Ledger
Dr. CR
Date Particulars J.F. Taka Date Particulars J.F. Taka
Format of Ledger
Date Particulars J.F. Debit Credit Balance
(Taka) (Taka) Debit Credit
Journalize the following transactions in the book of Mr. Jaman and show them by transferring to ledger:
2006 January-1, Mr. Jaman started a business with a capital of Tk.1, 50,000
January-2, An account was opened at the bank in the name of Mr.Jaman and Tk.50, 000 was deposited
January-3, Bought office furniture for cash Tk.20, 000
January-4, Bought goods for cash Tk.3, 800 and Tk.50 paid for carriage
January-4, Bought goods for cash Tk.3, 800 and Tk.50 paid for carriage
January-5, Cash sale Tk.16, 000 and paid for carriageTk.175
January- 6, Bought a typewriter worth Tk.4, 500 from M/s Motin & co.
January,7 Bought goods Tk.3, 000 from M/s Rahman & co. on credit.
January,8 Goods Tk.250 were returned back to M/s Rahman & co.
January, 9 Goods Tk.25, 000 were sold on credit to M/s Latif & sons.
January -12 M/s Latif & sons. returned back goods Tk.200
January- 14 M/s Rahman & co. were paid a cheque Tk.30, 000
January- 15 Received at a time a sum of Tk.15, 000 from M/s Latif & sons
January- 16 Paid telephone bill Tk.1, 240
January- 18 Paid for advertisement Tk.15, 000
January- 19 Deposit into bank Tk.25, 000
January- 20 Received Tk.2, 000 as commission.
January- 22 Sold goods to Mr. Karim to cash Tk.17, 000
January- 22 Sold goods to Mr. Karim to cash Tk.17, 000
January- 23 Bought goods on credit from Hanif Mazumder for Tk.20, 000
January- 23 Paid Tk. 12,000 to M/s Rahman & co.
January- 27 Sold goods to Tajuddin Ahamed Tk.3, 000
January- 29 Withdrew from bank Tk.13, 000 for personal use.
January- 30 Bought machinery for Tk. 25,000 and payment was made by cheque.
January- 31 Paid salary to office stuff Tk.20, 500
January- 31 Paid house rent Tk.20, 000
January- 31 Paid wages Tk. 3,750
January- 31 M/s Motin & co. was paid a cheque in full settlement of their debts.
Ledger book
Cash a/c
Dr. Cr.
Date Particulars J.F. Taka Date Particulars J.F. Taka
Ja-01 To Capital a/c 1,50,000 Ja -02 By Bank a/c 50,000
-05 Sales a/c 16,000 -03 Furniture a/c 20,000
-15 Accounts Receivable a/c 15,000 -04 Purchase a/c 3,800
-20 Commission Received a/c 2,000 -04 Carriage inward a/c 50
-22 Sales a/c 17,000 -05 Carriage outward a/c 175
-16 Telephone expenses a/c 1,240
-18 Advertisement a/c 15,000
-19 Bank a/c 25,000
-23 Accounts payable a/c 12,000
-31 Salaries a/c 20,500
-31 House rent a/c 20,000
-31 Wages a/c 3,750
2,00,000 -31 By Balance C/D 28,485
2,00,000
Feb-01 To Balance B/D 28,485
Mr. Jamans
Ledger Book
Cash a/c
Debit Credit
2006 Mr. Jaman's capital a/c 1,50,000 1,50,000
January 1
"-2 Bank a/c 50,000 1,00,000
"-3 Furniture a/c 20,000 80,000
"-4 Purchases a/c 3,800 76,200
"-4 Carriage in-ward a/c 50 76,150
"-5 Sales a/c 16,000 92,150
"-5 Carriage out-ward a/c 175 91,975
"-15 Accounts Receivable a/c 15,000 1,06,975
"-16 Telephone expenses a/c 1,240 1,05,735
"-18 Advertisement a/c 15,000 90,735
"-19 Bank a/c 25,000 65,735
"-20 Commission received a/c 2,000 67,735
"-22 Sales a/c 17,000 84,735
"-23 Accounts Payable a/c 12,000 72,735
"-31 Salaries a/c 20,500 52,235
"-31 House rent a/c 20,000 32,235
"-31 Wages a/c 3,750 28,485
Mr.Jaman's capital a/c
Balance
Debit Credit
2006
January-1 Cash a/c 1,50,000 1,50,000
Furniture a/c
Debit Credit
2006
January-3 Cash a/c 20,000 20,000(Dr)
Carriage in-ward a/c
Debit Credit
2006
January-4 Cash a/c 50 50
Mr.Jaman's Bank a/c

Debit Credit
1986 Cash a/c 50,000 50,000
January-2
"-19 Cash a/c 25,000 45,000
"-29 Mr.Jaman's Drawings a/c 13,000 32,000
"-30 Machinery a/c 25,000 7,000

Purchases a/c

Debit Credit
1986 Cash a/c 3,800 3,800
January-4
Carriage out-ward a/c

Debit Credit
1986
January-5 Cash a/c 175 175
Sales a/c
Date Particulars J.F Debit Credit Balance
Debit Credit
1986 Cash a/c 16,000 16, 000(Cr)
January-5
"-9 Accounts Receivable a/c 25,000 41,000(Cr)
"-22 Cash a/c 17,000 58,000(Cr)
"-27 Accounts Receivable a/c 3,000 61,000(Cr)

Mr.Jaman's Bank a/c
Debit Credit
2006 Cash a/c 50,000 50,000
January-2
"-19 Cash a/c 25,000 45,000
"-29 Mr.Jaman's Drawings a/c 13,000 32,000
"-30 Machinery a/c 25,000 7,000

Accounts Receivable a/c
Debit Credit
2006 Sales a/c 25,000 25,000
January-9
"-12 Return in ward 200 24,800

a/c
"-15 Cash a/c 15,000 9,800
"-27 Sales a/c 3,000 12,800

Accounts Payable a/c
Date Particulars J.F Debit Credit Balance
Debit Credit
2006 Office equipment a/c 4,500 4,500
January-6
"-7 Purchases a/c 30,000 34,500
"-12 Return out-ward a/c 250 34,250
"-14 Bank a/c 30,000 4,250
"-23 Purchases a/c 20,000 24,250
"-23 Cash a/c 12,000 12,250
"-31 Bank a/c 4,500 7,750

Office equipment a/c
Debit Credit
2006 Accounts payable a/c 4,500 4,500
January-6
Return out-ward a/c
Debit Credit
2006 Accounts payable a/c 250 250
January-8
Return in-ward a/c
Debit Credit
2006 Accounts Receivable a/c 200 200
January-12
Mr.Jaman's Drawings a/c
Debit Credit
2006
January-29 Bank a/c 13,000 13,000
Salaries a/c
Debit Credit
2006
January-10 Cash a/c 20,500 20,500
House Rent a/c
Debit Credit
2006
January-31
Wages a/c
Debit Credit
2006 Cash a/c 3,750 3,750
January-31
Machineries a/c
Debit Credit
2006 Bank a/c 25,000 25,000
January-30
Problem:
Batali Hill began a general real estate agency called Batali Hill Realty and during a short period, he
completed these transactions:
a. Began a business by investing Tk.1,20,000 in cash.
b. Purchased a small office building and the office equipment of Eastern Realty, consisting of office
equipment Tk.4,000, land Tk.16,000 and building Tk.48,000. He paid Tk.18,000 in cash and signed a
mortgage contract to pay the balance.
c. Took his personal automobile, which had a Tk.6,000 fair value, for payment and exclusive use in the
business.
d. Earned and collected a Tk.8,000 commission from the sale of a house.
e. Purchased office supplies Tk.750 and office equipment Tk.800 from Office Supply Company on credit.
f. Paid the salary of office secretary Tk.1,200.
g. Complete property management services for Neal Able on credit Tk.600
h. Paid office supply company for the items purchased in transaction (e).
i. Receive Tk.600 from Neal Able for the services of transaction (g).
j. Purchased additional office supplies on credit Tk.300.
k. Earned and collected a Tk. 6,500 from the sale of a building lot.
l. Paid the salary of the office secretary Tk.3,000.
m. Paid for newspaper advertising that had appeared Tk.1,000.
n. Paid the telephone bill Tk.200.
o. Batali Hill withdrew Tk.600 from the business for personal expenses.
Prepare journal entries for the transactions.

Mr. Batali Hills
Ledger Book
Cash a/c
Debit Credit
2006 Capital a/c 1, 20, 000 1, 20, 000
January 1
"-2 Office Equipment a/c 18,000 1, 02, 000
"-3 Building a/c 8,000 1,10,000
"-4 Salary a/c 1,200 1,08,800
"-4 Carriage in-ward a/c 750 76,150
"-5 Sales a/c 16,000 92,150
"-5 Carriage out-ward a/c 175 91,975
"-15 Accounts Receivable a/c 15,000 1,06,975
"-16 Telephone expenses a/c 1,240 1,05,735
"-18 Advertisement a/c 15,000 90,735
"-19 Bank a/c 25,000 65,735
"-20 Commission received a/c 2,000 67,735
"-22 Sales a/c 17,000 84,735
"-31 Salaries a/c 20,500 52,235
"-31 House rent a/c 20,000 32,235
"-31 Wages a/c 3,750 28,485
Trial balance
A trial balance is a list or schedule of either the debit or credit total or the debit
or credit balances of the ledger accounts, prepared with the object of proving the
arithmetical accuracy of the ledger.
A trial balance may be defined as a statement of debit and credit balance
extracted from the ledger with a view to test the arithmetical accuracy of the
books.
Limitation of trial balance
The errors which are not detectable by the trial balance:
i) Errors of omission: Omission to post the transaction both debit and credit side.
ii) Making ledger posting on correct side but of a wrong account.
iii) Making journal or a subsidiary book in wrong figures:
iv) Errors of principles: Purchased a/c was recorded instead of furniture a/c or
machinery a/c.
v) Compensating errors: One errors is corrected by another errors is compensating
errors. Example: One account is under or over debited by Tk.100 and another
account is under or over credited by Tk.100.
Mr.Jamans
Trial Balance
SN. Accounts Title L.F. Debit Credit
1 Cash a/c 28,485
2 Mr.Jaman's capital a/c 1,50,000
3 Bank a/c 2,500
4 Purchases a/c 53,800
5 Furniture a/c 20,000
6 Carriage in-ward a/c 50
7 Carriage out-ward a/c 175
8 Sales a/c 61,000
9 Office equipment a/c 4,500
10 Return out-ward a/c 250
11 Return in-ward a/c 200
12 Accounts Receivable a/c 12,800
13 Accounts Payable a/c 7,750
14 Telephone expenses a/c 1,240
15 Advertisement a/c 15,000
16 Commission Received a/c 2,000
17 Mr. Jaman's Drawings a/c 13,000
18 Salaries a/c 20,500
19 House Rent a/c 20,000
20 Wages a/c 3,750
21 Machineries a/c 25,000
Total 2,21,000 2,21,000
Adjusting Entry
Adjusting entries are journal entries made at the end of an accounting period to
change the balances of certain accounts to reflect economic activity that has
taken place but not yet been recorded. Hermanson
Types of adjusting entries

Adjusting entries can be classified as either prepayments or accruals. Each of
these classes has two subcategories:
1. Prepayments
2. Accruals
Prepayments:
i) Prepaid expenses: Expenses paid in cash and recorded as assets before these
are used.
ii) Unearned revenues: Cash received and recorded as liabilities before revenue
is earned.
Accruals:
i) Accrued revenue: Revenue earned but not yet received in cash or recorded
ii) Accrued expenses: Expenses incurred but not yet paid in cash or recorded
Adjustments
i. Inventory in hand at December 31,2006 Tk. 20,000. ii. Salary dues Tk.500 iii. Wages outstanding Tk.500 iv.
Depreciation on machinery 2%, Furniture 1% and office equipment 2%. v. Interest on capital 2% and interest on
drawings 2% v. Provision for doubtful debt Tk.500
Date Particulars L. Debit (Taka) Credit (Taka)
F
i Closing Inventory a/c Dr. 20,000
To Purchase a/c 20,000
ii Salary a/c 500
Dr. 500
To Salary Payable a/c
iii Wages a/c 500
Dr. 500
To Wages payable a/c
iv Depreciation on Machinery a/c Dr. 500
To Accumulated Depreciation on Machinery a/c 500
v Interest on Capital a/c 3,000
Dr. 3,000
To Capital A/c
v Drawings a/c Adjusted trial balance 260
Dr. entries have been journalized and posted another trial balance is prepared from the
After all adjusting 260ledger
accounts is To Interest
called on drawings
an adjusted a/c To prove the equality of total debit balance and total credit balance
trial balance.
in the ledger after adjustment adjusted trial balance have been made.
Adjusted Trial Balance
Accounts Title Trial Balance Adjustments Adjusted
Trial Balance
Debit Credit Debit Credit Debit Credit
Taka Taka Taka Taka Taka Taka
cash 28,485 28,485
Mr. Jamans Capital 1,50,000 3,000 1,53,000
Interest on Capital 3,000 3,000
Bank 2,500 2,500
Purchase 53,800 20,000 33,800
Closing Inventory 20,000 20,000
Furniture 20,000 200 19,800
Depreciation on Furniture 200 200
Carriage inward 50 50
Carriage outward 175 175
Sales 61,000 61,000
Office Equipment 4,500 90 4,410
Depreciation on Office Equipment 90 90
Return Outward 250 250
Return inward 200 200
Account Receivable 12,800 500 12,300
Accounts Title Trial Balance Adjustments Adjusted Trial Balance
Debit Credit Debit Credit Debit Credit
Bad Debt Expenses 500 500
Accounts Payable 7,750 7,750
Telephone Expenses 1,240 1,240
Advertisement 15,000 15,000
Commission Received 2,000 2,000
Mr. Jamans Drawings (2% Interest) 13,000 260 13,260
Interest on Drawings 260 260
Salary Expenses 20,500 500 21,000
Salary Dues 500 500
House Rent 20,000 20,000
Wages 3,750 500 4,250
Wages Dues 500 500
Machinery 25,000 500 24,500
Depreciation on Machinery 500 500
Total 2,25,260 2,25,260
Financial statements
Financial statements provide an over view of a business financial condition,

in both short and long term.
Closing entry
Closing entries are journal entries used to transfer the balances of these
temporary accounts to permanent accounts.
A new entry requiring opening entries with the respect to the owners interests,
assets and liabilities on the books.
Financial Statements
A financial statement (or financial report) is a formal record of the financial activities
of a business, person, or other entity. Relevant financial information is presented in a
structured manner and in a form which make the information is easy to understand.
Financial
The Four Financial Statements
Statements
Businesses report information in the form of financial statements issued on a periodic
basis. GAAP requires the following four financial statements:
Balance Sheet - statement of financial position at a given point in time. It Shows the
entity's assets, liabilities, and stockholders' equity as of the report date.
Income Statement It is a statement of income and expenditure for a specific period of

time. Revenues minus expenses for a given time period ending at a
specified date. It Shows the results of the entity's operations and

financial activities for the reporting period.
Statement of Owner's Equity - Also known as Statement of Retained Earnings or

Equity
Statement. It shows the change in owners equity for a
specific period of time.
Statement of Cash Flows - It summarizes sources and uses of cash; indicates whether
enough cash is available to carry on routine operations.
It Shows changes in the entity's cash flows during the
Non-Operating Expenses: Non-Operating Expenses consist of (i) revenues and
Financial Statements
expenses from auxiliary operations and (ii) gains and losses that unrelated to the
companys operations. The results of non-operating activities are shown in two
sections. other revenues and gains and other expenses and losses.
Other revenues and gains Other expenses and losses
i) Interest revenue from notes receivable i) Interest expenses on notes and loans
and marketable securities. payable.
ii) Dividend revenue from investments in ii) Casualty losses from recurring causes
capital stock. such as vandalism and accidents.
iii) Rent from subleasing a portion of the iii) Loss from sale of abandonment of
store. property, plant and equipment.
iv) Gain from the sale of property, plant and iv) Loss from strikes by employees and
equipment. suppliers.
Format of Income Statement
Particulars Taka Taka Taka
Net Sales (i) ****
Less Cost of Goods Sold(ii) ***
Gross Profit (i-ii) ****
Less Operating Expenses: (iii) = (iv) +(v) ***
Office & Administrative Expenses (iv) ***
Selling & Distribution Expenses (v) ***
Income from Operations (vi) ****
Add. Non Operating Income (vii) ****
Less Non Operating Expenditure (viii) ***
Income Before Tax {vi-(vii + vii)} ***
Less Income Tax Expenses (ix) **
Net Income (x) ***

Format of Income Statement
i) Net Sale = {Sales (Sales Returns Sales Discount Sale of fixed assets include
in sales. ) }
ii) Cost of Goods Sold = {(Opening Inventory + Net Purchased + Other production
related costs) Closing Inventory}
Net purchased = Purchased (Purchased returns + purchased discount+ Purchased of

fixed asset include in purchased +Goods distributed for advertisement )
iii) Operating Expenses = (Office and administrative expenses + Selling and Distribution
Expenses)
Office and Administrative Expenses = Expenditure related with Office.
Example: Office and Administrative expenses : Salaries expenses, Rent expenses, depreciation on office
equipment, Depreciation on office furniture, bad debt expenses.
Selling and Distribution Expenses = Expenditure related with sales and distribution.
Example: Show room rent, salary of sales man, store related expenses, advertising expenses, delivery
expenses etc.
iv) Income from Operations = Cost of Goods Sold Operating Expenses
Or
cost of goods sold ( office and administrative expenses + selling and distribution
expenses.)
v) Income before tax = (Income from operations + Non-operating income) Non-
operating expenses
vi) Net income = Income before tax Income tax expenses.
Non-operating income
Non-operating income is gains or losses from
sources not related to the typical activities of the
business or organization. Non-operating income can
include gains or losses from investments, property
or asset sales, currency exchange, and other typical
gains or losses.
Particulars
Format for Income Statement Taka Taka Taka
Sales ****
- Sales Returns ****
- Sales Commission ****
- Sales Discount ****
- Sale of fixed assets included in sales ****
Net Sales ****
- Cost of Goods Sold:
Opening Inventory ***
+ Purchased ***
- Purchased returns ***
- Purchased discounts ***
- Goods distributed for advertisement ***
- Purchased of fixed assets included in purchased ***
- Purchase commission ***
Net Purchased ***
Wages ***
Fright in ***
Carriage-in-ward ***
Gas and electricity *** ****
Gross Profit ****
- Operating expenses:
Format for Income Statement
Office and Administrative expenses:
Salaries expenses ***
House rent expenses ***
Insurance expenses ***
Depreciation on office furniture, office equipment etc. ***
Depreciation on machinery *** ****
Selling & distribution expenses:
Sales men salaries ***
Rent for show room ***
Depreciation on store equipment ***
Depreciation on delivery equipment ***
Advertisement expenses *** ****
Total operating expenses ****
Income from Operations ****
+ Non-operating income:
Interest received ***
Dividend received ***
Commission received *** ****
Total income ***
- Non-operating expenses:
Interest paid *** ***
Income before tax ***
Format for Balance Sheet
Assets:
Current Assets:
Cash ***
Bank Balance ***
Prepaid Expenses ***
Accounts Receivable ***
Less. Allowance for Bad Debt *** ***
Closing Inventory ***
Total Current Assets ****
Fixed Assets: ***
Land ***
Building ***
Less. Accumulated Depreciation on Building *** ***
Furniture ***
Less. Accumulated Depreciation on Furniture *** ***
Equipment ***
Less. Accumulated Depreciation on Equipment *** ***
Total Fixed Assets ****
Intangible Assets:
Goodwill ****
Less. Goodwill Written off *** ****
Royalty ***
Patent ***
Format for Balance Sheet
Liabilities and Owners Equity:
Liabilities:
Current Liabilities:
Accrued Expenses ***
Accounts Payable ***
Bonds Payable ***
Add. Interest on Bonds Payable **** ***
Notes Payable *** ****
Add. Interest on Notes Payable *** ***
Debentures ***
Add. Interest on Debentures *** ***
Long-Term Liabilities: *** ***
Long-Term Bank Loan ***
Owners Equity: *** ***
Capital ***
Add. Interest on Capital *** ***
Add. Net Income or Less. Net Loss *** ****
Less. (Drawings ****
Add. Interest on Drawings) *** ****
Total Owners Equity ****
Total Liabilities ****
***
Mr.Jamans
Trial Balance
SN. Accounts Title L.F. Debit Credit
1 Cash a/c 28,485
2 Mr.Jaman's capital a/c 1,50,000
3 Bank a/c 2,500
4 Purchases a/c 53,800
5 Furniture a/c 20,000
6 Carriage in-ward a/c 50
7 Carriage out-ward a/c 175
8 Sales a/c 61,000
9 Office equipment a/c 4,500
10 Return out-ward a/c 250
11 Return in-ward a/c 200
12 Accounts Receivable a/c 12,800
13 Accounts Payable a/c 7,750
14 Telephone expenses a/c 1,240
15 Advertisement a/c 15,000
16 Purchase Commission a/c 2,000
17 Mr. Jaman's Drawings a/c 13,000
18 Salaries a/c 20,500
19 House Rent a/c 20,000
20 Wages a/c 3,750
21 Machineries a/c 25,000
Total 2,21,000 2,21,000
Adjustments
i. Inventory in hand at December 31,2006 Tk. 20,000.
ii. Salary dues Tk.500
iii. Wages outstanding Tk.500
iv. Depreciation on machinery 2%, office equipment 2% & furniture Tk.200
v. Tk.500 assumed as for bad debt for current year.
vi. Interest on capital & drawings 2% & 2% respectively.
Prepare income statement for the year ended 31 December 2006 and balance sheet as
on that date.
Accounts Title Adjusted Trial Balance
Debit Credit
Taka Taka
cash 28,485
Mr. Jamans Capital 1,53,000
Interest on Capital 3,000
Bank 2,500
Purchase 33,800
Closing Inventory 20,000
Furniture 19,800
Depreciation on Furniture 200
Carriage inward 50
Carriage outward 175
Sales 61,000
Office Equipment 4,410
Depreciation on Office Equipment 90
Return Outward 250
Return inward 200
Account Receivable 12,300
Accounts Title Adjusted Trial Balance
Debit Credit
Taka Taka
Bad Debt Expenses 500
Accounts Payable 7,750
Telephone Expenses 1,240
Advertisement 15,000
Commission Received 2,000
Mr. Jamans Drawings (2% Interest) 13,260
Interest on Drawings 260
Salary Expenses 21,000
Salary Dues 500
House Rent 20,000
Wages 4,250
Wages Dues 500
Machinery 24,500
Depreciation on Machinery 500
Total 2,25,260 2,25,260
Mr.Jamans
Income Statement
For the ended 31st December,2006
Particulars or explanation Taka Taka Taka
Sales 61,000
Less Sales returns and allowances 200
Net sales 60,800
Less cost of goods sold:
Opening Inventory *****
Purchases 53,800
Less. Purchases returns and 250
allowances
Purchase commission 2,000 51,550
Carriage inward 50
wages 3,750
Add. Wages dues 500 4,250
Goods available for sales 55,850
Less. Closing Inventory 20,000 35,850
Gross profit 24,950
Less. Operating expenses:
Office & administrative expenses:
Salaries expenses 20,500
Add. Salaries dues 500 21,000
Mr.Jamans
Income Statement
House rent expenses 20,000
Telephone expenses 1,240
Bad debt expenses 500

Depreciation on machinery 500
Depreciation on equipment 90
Depreciation on furniture 200 790 43530
Advertisement expenses 15,000
Carriage out ward 175 15175 58705
Net operating loss 33,755
Add. Non-operating income:
Interest on drawings 260
Total Income 33,495
Non-operating expenses:
Interest on capital 3,000 3,000
Net Loss 36,495
Statement of cost of goods sold
Purchases 53,800
Less. Purchases returns and allowances 250
Purchase commission 2,000 51,550
Carriage inward 50
wages 3,750
Mr.Jamans
Balance Sheet
As on31st December,2006
Assets Taka Taka Taka Taka
Current Assets:
Cash 28,485
Bank Balance 2,500
Accounts Receivable 12,800

Less. Provision for Bad Debt 500 12,300
Fixed Assets:
Machineries 25,000
Less. Accumulated Depreciation 500 24,500
Furniture 20,000
Equipment 4,500
Less. Accumulated Depreciation 90 4,410 48,710
Total Assets 1,11,995

Mr.Jamans
Balance Sheet
Liabilities & Owners Equity As on31stTaka
December,2006
Taka Taka Taka
Liabilities:
Salary Dues 500
Wages Outstanding 500
Accounts payable 7,750 8,750
Long term liabilities: **** 000
Owners equity:
Capital 1,50,000
Less. Net loss 36,495
1,13,505
Add. Interest on capital 3,000
1,16,505
Less. Drawings 13,000
Add. Interest on drawings 260 13,260 1,03,245 111995

PROBLEM-2. Kissel Hardware Corporation's Beginning merchandise inventory was 1,72,800
and ending merchandise inventory is 1,45,000. The corporation had 20,000 shares of common
stock outstanding throughout the year. The December 31, 200X, year-end income statement
accounts are as follows:
Accounts name Debit Credit
Sales------------------------------------------------------------------------------- -------------------- 9,82,200
Sales returns and allowances--------------------------------------------------- 53,800
Purchases-------------------------------------------------------------------------- 4,49,000
Purchase return and allowances------------------------------------------------ -------------------- 23,840
Freight in-------------------------------------------------------------------------- 34,800
Sales salaries expense----------------------------------------------------------- 1,24,320
Sales supplies expense----------------------------------------------------------- 3,280
Rent expense, selling space----------------------------------------------------- 14,400
Utilities expense, selling space------------------------------------------------- 5,920
Advertising expense------------------------------------------------------------- 33,600
Depreciation expense, delivery equipment----------------------------------- 8,800
Office salaries expense---------------------------------------------------------- 58,480
Office supplies expense--------------------------------------------------------- 19,520
Rent expense, office space------------------------------------------------------ 4,800
Utilities expense, office space-------------------------------------------------- 2,000
Postage expense------------------------------------------------------------------ 4,640
Insurance expense---------------------------------------------------------------- 5,360
Miscellaneous expense---------------------------------------------------------- 2,880
General management salaries expense---------------------------------------- 84,000
Interest expense------------------------------------------------------------------ 11,200
Interest income------------------------------------------------------------------- -------------------- 840
Income taxes---------------------------------------------------------------------- 14,000
9,34,800 10,06,880
Problem-3. Accounts from the December 31, 200X, post-closing trial balance of Kissell Hardware
Corporation appear below:
From the information provided, prepare a classified balance sheet.
(Total asset 5,95,600)
Cash --------------------------------------------------------------------------------- 31,000
Short-term investments---------------------------------------------------------- 33,000
Notes receivable------------------------------------------------------------------- 10,000
Accounts receivable-------------------------------------------------------------- 2,76,000
Merchandise inventory----------------------------------------------------------- 1,45,000
Prepaid rent------------------------------------------------------------------------ 1,600
Prepaid insurance----------------------------------------------------------------- 4,800
Sales supplies---------------------------------------------------------------------- 1,280
Office supplies--------------------------------------------------------------------- 440
Deposit for future advertising--------------------------------------------------- 3,680
Building not in use---------------------------------------------------------------- 49,600
Land---------------------------------------------------------------------------------- 22,400
Delivery equipment--------------------------------------------------------------- 41,200
Accumulated depreciation, delivery equipment---------------------------- ------------------ 28,400
Franchise fee----------------------------------------------------------------------- 4,000
Accounts payable----------------------------------------------------------------- ------------------ 1,14,600
Salaries payable------------------------------------------------------------------- ------------------ 5,200
Interest payable------------------------------------------------------------------- ------------------ 840
Long-term notes payable-------------------------------------------------------- ------------------ 80,000
Common stock, TK1 par value------------------------------------------------- ------------------ 20,000
Paid-in capital in excess of par (premium)---------------------------------- ------------------ 1,60,000
Retained earnings (Closing Balance)---------------------------------------- ------------------ 2,14,960
6,24,000 6,24,000
KISSEL HARDWARE
Income statement
For the year ended December 31, 2007
Sales revenue 9,82,200
Less sales return and allowances 53,800
Net sales 9,28,400
Less. Cost of goods sold 4,87,760
Gross profit 4,40,640
Operating expenses:
Sales salaries expenses 1,24,320
Sales supplies expenses 3,280
Rent expenses, selling space 14,400
Utilities expenses, selling space 5,920
Advertising expenses 33,600
Depreciation expenses, delivery equipment 8,800
Office salaries expenses 58,480
Office supplies 19,520
Rent expenses, office 4,800
Utilities expenses, office 2,000
Postage expenses 4,640
Insurance expenses 5,360
Miscellaneous expenses 2,880
General management salary exp. 84,000
Total operating expenses 3,72,000
KISSEL HARDWARE
Income statement
Income from operations 68,640
Other revenue and gains:
Interest revenue 840
Income before interest and taxes 67,800
Interest expenses 11,200
Income before tax 58,280
Income tax 14,000
Net income 44,280
Statement of Cost of goods sold:

Opening inventory of finished goods 1,72,800
Add: Purchase during the year 4,49,000
6,21,800
Less: Purchase return and allowances 23,840
5,97,960
Add: Freight in 34,800
Cost of goods available for sale 6,32,760
Less: Ending inventory of finished goods 1,45,000
4,87,760
KISSEL HARDWARE
Balance Sheet
December 31, 200X
Assets
Current assets:
Cash 31,000
Short-term investment 33,000
Notes receivable 10,000
Accounts receivable 2,76,000
Merchandise inventory 1,45,000
Prepaid rent 1,600
Prepaid insurance 4,800
Sales supplies 1,280
Office supplies 440
Deposit for future advertisement 3,680
Total current assets 5,06,800
Long-term investment
Property, plant and equipment:
Building 49,600
Land 22,400
Delivery equipment 41,200
Less: Accumulated dep. 28,400
12,800
Total Property, plant and equipment 84,800
Intangibles:
Franchise fees 4,000
Total assets 5,95,600
KISSEL HARDWARE
Balance Sheet
December 31, 200X
Liabilities and owners' equity:
Liabilities:
Current liabilities
Accounts payable 1,14,600
Salary payable 5,200
Interest payable 840
Total current liabilities 1,20,640
Long-term liabilities:
Long-term notes payable 80,000
Total liabilities 2,00,640
Stockholders' equity
Common stock, TK1 per value 20,000 shares authorized,
issued and outstanding 20,000
Paid in capital in excess of par value 1,60,000
Total contributed capital 1,80,000
Retained earnings (2,14,960) 2,14,960
Total stockholders' equity 3,94960
Total liabilities and stockholders' equity 5,95,600
Green Vie Trading House
Trial Balance
As on December 31, 2015
Accounts Title
Sales 1,80,000
Sales Returns 5,000
Purchases 95,000
Carriage in 4,000
Stock- 01.01.2015 10,000
Wages 20,000
Administrative Expenses 25,000
Insurance 3,000
Selling and Distribution Expenses 10,000
Purchase Returns 2,500
Drawings 10,000
Capital 1,50,000
Premises 1,20,000
Equipment 20,000
Cash 7,000
Provision For Bad Debt 1,500
3,44,000 3,44,000
Trial Balance
Accounts Title
Accounts Receivable
Allowance for Doubtful Debts 31,000
Land 33,000
Cost of Goods Sold 10,000
Motor Car 2,76,000
Supplies Expenses 1,45,000
Accumulated Depreciation Motor Car 1,600
Salaries 1,280
Insurance Expenses 440
Share Capital (TK.10 paid up) 3,680
General Reserve 5,06,800
6% Mortgage Payable
Sales
Calls in Arrear 49,600
10% Investment 22,400
Share Premium
Underwriters Commission
Balance at Bank 12,800
Interim Dividend Paid 84,800
Retained Earnings (01.01.2016)
4,000
5,95,600
At the year end the following information is available:
i. Tk.1,000 of the wages relates to the next accounting
period.
ii. Tk.2,000 accrued for administration expenses relating to
2014
iii. Equipment is to be depreciation by Tk.4,000
iv. Ending stock is estimated to have cost Tk.8,000
v. Raise allowance for bad debt to 2% of net sale.
vi. The owner withdraw goods costing Tk.5,000 for personal
use but included in sales.
Prepare the multiple step income statement and the balance
sheet.
Income Statement
Sales 1,80,000
Less. Sales returns 5,000
Less. Goods Drawings included in sales 5,000
Net sales 1,70,000
Opening Inventory 10,000
Purchases 95,000
Less. Purchases returns and allowances 2,500
Less. Goods Drawings by owner 5,000 87,500
Carriage inward 4,000
wages 20,000
Less. Advance Wages 1,000 19,000
Goods available for sales 1,30,500
Less. Closing Inventory 8,000 1,22,500
Gross profit 57,500
Add. Administrative Expenses dues 2,000 27,000
Depreciation on Equipment 4,000
Income Statement
Selling Expenses:
Selling & Distribution Expenses 10,000
Bad Debt Expenses (1,70,000 2%) =3400-1500 1,900 11,900 45,900
Income from Operations 11,600
Add. Non Operating Income 0
11,600
Less. Non Operating Expenses 0
Income Before Tax 11,600
Less. Income Tax Expenses 0
Net Income 11,600
Balance Sheet
Liabilities & Owners Equity As on31stTaka
December,2006
Taka Taka Taka
Assets:
Current Assets:
Cash 7,000
Less. Provision for Bad Debt 3,400 11,600
Advance Wages 1,000
Closing Inventory 8,000
Less. Goods Drawings by the owner 5,000 3,000 22,600
Fixed Assets:
Premises 1,20,000
Equipment 20,000
Less. Accumulated Depreciation on Equipment 4,000 16,000 1,36,000
Intangible Assets 0 1,58,600

Liabilities and Owners Equity:
Liabilities:
Accrued Administrative Expenses 2,000 12,000
Long Term Liabilities: 0 0
Owners Equity:
Capital 1,50,000
Add. Net Income 11,600 1,61.600
Less. Drawings 10,000
Add. Goods Drawings 5,000 15,000 1,46,600 1,58,60

47. Balance of ledger accounts of M/s. Chowdhury Enterprise as at December 31, 2015nare given below
M/s Chowdhury Enterprise
Trial Balance
Accounts Title L.F. Debit Credit
Taka Taka

Cash 37,500
Capital 1,00,000
Machinery 60,000
Purchases 50,000
Sales 90,000
Rent Expenses 5,000
Royalty Income 6,000
Merchandise Inventory (Beginning) 25,000
Purchase Return 2,000
Sales Return 3,000
Insurance Expenses 7,000
Supplies 6,000
Allowance for Doubtful Accounts 400

Balance of ledger accounts of M/s. Chowdhury Enterprise as at December 31, 2015nare given below
Trial Balance
Taka Taka
Notes Payable 6% (Short Term) 20,000

Investments (Long Term) 10,000
Gain on Sale of Fixed Assets 1,600
Freight in 2,500
Advertising 4,000 ---
2,40,000 2,40,000
The following year-end adjustments are to be made.
a) Merchandise inventory at cost Tk.35,000
b) Rent outstanding Tk.1,500
c) Advertisement paid in advance Tk.1,000
d) Insurance has been covered for two years of which one year has expired
e) Supplies in hand Tk.500
f) Maintain in allowance of 5% on accounts receivable for doubtful accounts.
g) Repair expenses of Tk.2,000 has been debited to machinery at the start of the year.
h) Depreciated machinery @ 10% per annum
i) Interest is due for the whole year on note payable.
j) Interest accrued on investments Tk.500
Required: i) Adjusting entries ii) Multiple-step income statement iii) Balance sheet
Adjusting Entries

(a) Ending Inventory a/c 35,000
Dr.
To Inventory Expenses a/c 35,000
(To record ending inventory)
(b) Rent Expenses a/c Dr. 1,500
To Rent Payable a/c 1,500
( To record rent payable)
Prepaid Advertisement a/c 1,000
Dr. 1,000
To Cash a/c
(To record prepaid advertisement)
(d) Insurance Expenses a/c Dr. 6,000
To Prepaid Insurance Cash a/c 6,000
(To record prepaid insurance)
(e) Office Supplies Expenses a/c 5,500
Dr. 5,500
To Office Supplies a/c
(f) (To record supplies used)
Bad Debt Expenses a/c Dr. 1,500
To Allowance for Doubtful Debt a/c 1,500
(To record allowance for doubtful debts on accounts
Adjusting Entries
(g) Repair Expenses a/c 2,000

Dr. 2,000
To Machinery a/c
( To record repair expenses adjusting with machinery)
(h) Depreciation on Machinery a/c 3,800

Dr. 3,800
To Accumulated Depreciation on Machinery a/c
(To record Depreciation on Machinery)
(i) Interest Expenses a/c 1,200

Dr. 1,200
To Interest Payable a/c
( To record interest payable)
(j) Accrued Interest a/c Dr. 500

To Interest Income a/c 500
(To record accrued interest income)
Income Statement
Sales 90,000
Less. Sales Returns 3,000
Net Sales 87,000
Less. Cost of Goods Sold:
Purchases 50,000
Less. Purchases Returns 2,000
Net Purchases 48,000
Fright in 2,500
Goods Available for Sale 75,500
Gross Profit 46,500
Less. Operating Expenses:
Selling & Distribution Expenses:
Advertising Expenses 4,000
Less. Paid in Advance 1,000 3,000
Allowance for Doubtful Debt: 30,000 5% 1,500
Less. Existing Allowance for Doubtful Debt 400 1,100
Total Selling & Distribution Expenses 4,100

Income Statement
Administrative Expenses:
Repair and Maintenance 2,000
Rent Expenses 5,000
Add. Accrued 1,500 6,500
Insurance Expenses 7,000
Less. Prepaid Insurance 3,500 3,500
Supplies Expenses 6,000
Less. Unused Supplies 500 5,500
Interest Expenses (20,000 6%) 1,200
Depreciation on Machinery (60,000 2,000) 10% 5,800 24,500
Net Operating Income 17,900
Gain on Sale of Fixed Assets 1,600
Interest Income 500
Royalty Income 6,000
Net Income 26,000
Balance Sheet
Current Assets
Cash 37,500
Less. Allowance for Doubtful Debt 1,500 28,500
Accrued Interest 500
Prepaid Insurance 3,500
Supplies 500
Prepaid Advertisement 1,000
Merchandise Inventory 35,000 1,06,500
Fixed Assets:
Machinery 60,000
Less. Repair Expenses 2,000
Less. Accumulated Depreciation 5,800 52,200
Investment 10,000 62,200
Total Assets 1,68,700
Liabilities and Owners Equity
6% Notes Payable 20,000
Interest Payable 1,200
Rent Payable 1,500 42,700
Grand Sales Ltd. Began the current year with Tk.13,075 of retained earnings, declared and paid Tk.8,000 of
dividends and at the year end the trial balance that follows was taken from its ledger.
Grand Sales Ltd.
Trial Balance

Taka Taka
Cash 5,460
Merchandise Inventory (01.01.2014) 28,320
Store Supplies 1,195
Office Supplies 340
Prepaid Insurance 1,580
Store Equipment 31,395
Accumulated Depreciation-Store Equipment 4,220
Accumulated Depreciation-Office Equipment 1,350
Income Tax Payable 00
Common Stock (Tk.10 per value) 30,000
Retained Earnings 5,075
Sales 3,12,115
Grand Sales Ltd. Began the current year with Tk.13,075 of retained earnings, declared and paid Tk.8,000 of
dividends and at the year end the trial balance that follows was taken from its ledger.
Grand Sales Ltd.
Trial Balance

Taka Taka
Sales Returns and Allowance 845
Purchases 2,17,980
Purchases Discount 2,940
Transportation in 2,630
Sales Salaries 21,940
Rent Expenses-Selling Space 10,300
Office Salaries 20,650
Rent Expenses-Office Space 1,400
Income Tax Expenses 5,600
Total 3,57,860 3,57,860
Additional Information
i) Ending store supplies inventory Tk.215
ii) Ending office supplies inventory Tk.115
iii) Expired insurance Tk.1,170
iv) Estimated depreciation of store equipment Tk.3,150 and office equipment Tk.940
v) Additional income tax expenses Tk.595
vi) Ending merchandise inventory Tk.30,225
Requirement:
a) Prepare a multiple-step income statement
b) Retained Earnings Statement
c) Prepare a classified balance sheet.
Income Statement
Sales 3,12,115
Less. Sales Returns and Allowance 845
Net Sales 3,11,270
Less. Cost of Goods Sold:
Purchases 2,17,980
Less. Purchases Discounts 2,940
Net Purchases 2,15,040
Transportation in 2,630
Goods Available for Sale 2,45,990
Less. Closing Inventory 30,225 2,15,765
Gross Profit 95,505
Less. Operating Expenses:
Selling & Distribution Expenses:
Sales Salaries Expenses 21,940
Rent Expenses 10,300
Store Supplies Expenses (1195-215) 980
Depreciation on Store Equipment 3,150
Total Selling & Distribution Expenses 36,370

Income Statement
Office & Administrative Expenses:
Office Salaries Expenses 20,650
Rent Expenses-Office Space 1,400
Office Supplies Expenses (340-215) 225
Depreciation on Office Equipment 940
Insurance Expenses 1,170 24,385
Total Operating Expenses 60,755
Income From Operations 34,750
Add. Non-Operating Income: 0
Less. Non-Operating Expenses: 0
Income Before Tax 34,750
Less. Income Tax Expenses (5,600+595) 6,195
Net Income
Retained Earnings Statement
Particulars Taka
Opening Balance of Retained Earnings 5,075
Add. Net Income 28,555
Closing Balance of Retained Earnings 33,630
Balance Sheet
Assets: Taka Taka Taka
Current Assets:
Cash 5,460
Prepaid Insurance 410
Office Supplies 115
Store Supplies 215
Fixed Assets:
Less. Accumulated Depreciation on Store Equipment 7,370 24,025
Less. Accumulated Depreciation on Office Equipment 2,290 5,935 29,960
Total Assets 66,385

Balance Sheet
Liabilities & Owners Equity:
Income Tax Payable 595 2,755
Long Term Liabilities:
Owners Equity:
Common Stock 30,000
Add. Retained Earnings 33,630 63,630
Total Liabilities & Owners Equity: 66,385

The following trial balance of Mr.Zazakat, as on December 31, 2014
Mr. Nazakat
Trial Balance
On December 31,2014
Accounts Title Debit Credit
Taka Taka
Notes Receivable 15,000
Goodwill 20,000
Merchandise Inventory 12,000
Cash 20,000
Wages Expenses 6,000
Salaries 10,000
Postage Expenses 1,000
Supplies Expenses 3,000
Rent Expenses 5,000
General Expenses 1,500
Merchandise Purchase 55,000
Sales 1,25,000
Allowance for Doubtful Debts 2,000
6% Mortgage Loan 20,000
The following trial balance of Mr.Zazakat, as on December 31, 2014
Mr. Nazakat
Trial Balance
On December 31,2014
Accounts Title Debit (Tk.) Credit(Tk.)
Notes Payable 5,000
Delivery Expenses 2,000
Sales Discount 5,000
Purchase Discount 3,000
Capital-Nazakat 67,000
Drawing-Nazakat 7,000
Furniture 10,000
Accumulated Depreciation-Furniture 4,000
Accumulated Depreciation-Office Equipment 7,000
Total 2,51,500 2,51,500
Additional Information:
1. The value of inventory on December 31, 2014 was Tk.30,000
2. In order to find out exact result 5% interest to be charged on capital & drawings.
3. Supplies Tk.100 was not used during the year.
4. Charge 2% interest on notes receivable
5. Salary expenses payable Tk.400
6. 5% allowance for doubtful debts to be charged on accounts receivable.
7. Estimated depreciation: Tk.1,000 for furniture and Tk.3,500 for equipment
8. Rent expenses payable Tk.2,000
Requirements: Income Statement for the year in multiple form and balance sheet as on December 31,2014
Mr. Nazakat's
Income Statement
For the ended December 31,2006
Particulars Tk. Tk. Tk. Tk
Sales 1,25,000
Less Sales Discount 5,000
Net Sales 1,20,00
Less Cost of goods sold:
Opening marcendise inventory 12,000
Add:
purchases 55,000
Less: Purchases Discount 3,000
Net purchases 52,000
Wages 6,000
Goods avaliable for sale 70,000
Less: Closing mercendise inventory 30,000
Total cost of goods sold 40,000
Gross profit 80,000
Less:
Operating Expenses:
Selling Expenses:
Postage Expenses 1,000
Delivery Expenses 2,000 7,000
Administrative Expenses:
Salaries Expenses 10,000
Add. Salary payable 400
Total salaries expenses 10,400
Supplies 3,000
Less: Supplies on hand at the end 100
Net supplies expenses 2,900
Rent Expenses 5,000
Add Rent payable 2,000
Total rent expenses 7,000
General Expenses 1,500
Depreciation Expenses:
Depreciation- Furniture 1,000
Depreciation- Office equipment 3,500
Total depreciation expenses 4,500
Bad debt expenses (5% on Accounts receivable) 2,000
Total administrative expenses 28,300
Total operating expenses 35,300
Income From operations 44,700
Add: Non operating income:
Interest on drawings (5% on drawings) 350
Interest on notes receivable (2%on notes receivable) 300
Total Non operating income: 650
Total Income 45,350
Less: Non operating expenses:
Interest on capital (5% on capital) 3,375
Interest on mortgage loan (6% on mortgage loan) 1,200
Total non operating expenses 4,575
Net income 40,775
Mr. Nazakat's
Balance Sheet
As on December 31,2006
Particulars Tk. Tk. Tk.

Assets:
Current assets:
Cash 20,000
Accounts receivable 40,000
Less: Allowence for boubtful debt (2000+2000) 4,000
Net accounts receivable 36,000
Supplies on hand 100
Note receivable 15,000
Add. Interest on note receivable 300
Total note receivable 15,300
Closing merchandise inventory 30,000
Fixed assets:
Furniture 10,000
Less: Accumulated depreciation on furniture (4,000+1,000) 5,000
Furniture at the end 5,000
Office equipment 35,000
Less: Accumulated depreciation on office equipment (7,000+3,500) 10,500
Office equipment at the end 24,500
Total fixed assets 29,500
Intangible assets:
Goodwill 20,000
Liabilities and owners equities:
Current liabilities:
Accounts payable 18,000
Notes payable 5,000
Rents payable 2,000
Salaries payable 400
Total current liabilities 25,400
Long term liabilities:
6% mortgage loan 20,000
Interest on mortgage loan 1,200
Mortgage loan at the end 21,200
Total external liabilities 46,600
Owners equity:
Capital 67,500
Add: Interest on capital 3,375
Add: Net income 40,775
44,150
Less: Drawings 7,000 111,650
Add: Interest on drawings 350 7,350
Total internal liabilities 104,300
Total liabilities 150,900
The trial Balance given below was taken from the ledger of Pink City Real State Ltd. at the end of its annual accounting period.
Pink City Real State Ltd
Trial balance
December, 31,2006
Accounts Title Debit Credit

(Tk.) (Tk.)
Cash 1,125
Inventory 12,440
Store Supplies 845
Office Supplies 170
Pre- paid Insurance 345
Pre- paid Rent 550
Accumulated Depreciation- Store Equipment 3,115
Accumulated Depreciation- Office Equipment 380
Capital 21,530
Drawings 6,000
Sales 69,320
Sales return and allowances 1,435
Purchases 41,315
Purchases return and allowances 725
Freight in 955
Rent Expenses-Selling Space 5,445
Advertising Expenses 810
Office Salaries 3,550
Rent expenses-Office Space 605
Utilities Expenses 365
Totals 98,300 98,300
Adjustments:
Store supplies inventory Tk.135 and office supplies inventory Tk.65
Expired insurance Tk. 215
Rent prepaid for January, 2007
Estimated depreciation on store equipment Tk. 1,050 and office equipment Tk.165
Outstanding sales salaries Tk.175 and office salaries Tk.50
Closing inventory Tk.11, 650
Problem:
The following is the trial balance of Mr. Qureshi; prepare the financial statements for the year ended March
31, 2015 and the balance sheet as at that date.
Particulars Debit Credit
Taka Taka
Sales 2,05,000
Capital 1,15,000
Loan 15,000
Land and building 50,000
Purchases 1,10,000
Inventory 40,000
Returns 1,500 2,500
Wages 10,000
Salaries 9,000
Office expenses 2,400
Carriage inwards 1,200
Carriage out wards 2,000
Discounts 750 1,200
Bad debts 1,200
Insurance 1,500
Commission 1,500
Plant and machinery 50,000

Problem:
The following is the trial balance of Mr. Qureshi; prepare the financial statements for the year ended March
31, 2015 and the balance sheet as at that date.
Taka Taka
Furniture and fixtures 10,000
Bill receivable 20,000
Cash in hand 1,500
Cash in bank 4,500
Bill payable 2,350
Total 3,67,550 3,67,550
The following adjustments are required:

1. Closing inventory amounted to Tk.50,000
2. Provide outstanding liabilities for wages Tk.300
3. Depreciate land and buildings 6%, Plant and machinery 10%, office equipment 20% and furniture and fixtures 20%.
4. Raise a bad and doubtful debts reserve of 1.25% on accounts receivables.
5. Insurance premium includes Tk.250 paid in advance.
6. Provide interest on capital and loan 5% per annum and salary to Mr. Qureshi Tk.1,500 per annum.
7. 10% of the final profit is to be kept in a reserve account for investment in National plan loan.
Mr. Qurashis
Income Statement
For the ended March 31, 2014
Sales 2,05,000
Less.
Sales Returns 1,500
Sales discounts 750
Net Sales 2,250 2,02,750
Less. Cost of goods sold: 40,000
Opening inventory 1,10,000
Purchases 2,500
Less. Purchases returns 1,200
Purchase Commission 1,500
Net purchases 1,04,800
Carriage inwards 3,700 1,200
Wages 10,000
Add. Outstanding wages 300 10,300
Goods available for sale 1,56,300
Less. Closing inventory 50,000 1,06,300
Gross income 96,450
Less. Operating expenses
Carriage outwards 2,000
Mr. Qurashis
Income Statement
Bad debt expenses 1,200
Add. New provision for bad debt 500 1,700 3,700
Office and administrative expenses:
Salaries 9,000
Add. Salary dues (Salary of Mr. Qurashi) 1,500 10,500
Office expenses 2,400
Less. Prepaid insurance 250 1,250
Rent expenses 3,000
Depreciation expenses
Land & building 3,000

Plant and machinery 5,000
Furniture and fixtures 2,000 12,400 29,550 33,250

Add. Non operating income: ***
63,200
Less. Non-operating expenses:
Interest on capital 10,250
Mr. Qurashis
Income Statement
Net income 52,200
Less. Reserve 5,370
Net income (after reserve) 46,830
Mr. Qurashis
Balance sheet
As on March 31, 2014
Assets:
Current assets: (I)
Cash in hand 1,500
Cash at bank 4,500
Prepaid insurance 250
Less. Provision for bad debt 500 39,500
Bill receivable 20,000
Closing inventory 50,000 1,15,750
Fixed assets (II)
Land & building 50,000
Less. Accumulated depreciation on land & building 3,000 47,000
Plant & machinery 50,000
Less. Accumulated depreciation on plant & machinery 5,000 45,000
Furniture & fixtures 10,000
Less. Accumulated depreciation on furniture & fixtures 2,000 8,000
Less. Accumulated depreciation on office equipment 2,400 9,600 1,09,600
Intangible Assets (III) 000
Total Assets (I+II + III)) 2,25,350
Mr. Qurashis
Balance sheet
As on March 31, 2014
Liabilities & owners equity: (IV)
Liabilities: (V = VI +VII)
Current liabilities: (VI)
Wages payable 300
Rents payable 3,000
Bill Payable 25,000
Interest on loan 750 32,900
Long term liabilities: (VII)
Loan account 15,000
Total external liabilities 47,900
Owners equity: (VIII)
Capital 1,15,000
Add. Net income 46,830
Interest on capital 10,250
Reserve 5,370 62,450 1,77,450

Total liabilities (V + VIII) 2,25,350
Problem-14: The authorized capital of Performers Limited is Tk.12,00,000 consisting of 6,000, 6% preference
shares of Tk.100 each and 30,000 equity shares of Tk.10 each. The balance appearing in the books on March
31, 2014 were as shown:
Taka Taka
Investment at Cost 1,00,000
Interim Dividend 24,000
Carriage Outwards 70,800
Salaries and Wages 1,04,000
Freight and Carriage 16,400
Preference Dividend 12,000
Preliminary Expenses 2,000
Interest on Bank Overdraft 15,600
Accounts Receivable and Accounts Payable 1,00,200 1,75,700
Furniture at cost less Depreciation Tk.30,000 70,000
Equity Share Capital 4,00,000
Advance Tax (2013-14) 30,000
Income Account 2,97,000
Share Premium Account 1,60,000
Technical Know-how at cost 3,00,000
Provision for Taxation (2013-14) 24,000
Purchases 9,81,000
Problem-14: The authorized capital of Performers Limited is Tk.12,00,000 consisting of 6,000, 6% preference
shares of Tk.100 each and 30,000 equity shares of Tk.10 each. The balance appearing in the books on March
31, 2014 were as shown:
Taka Taka
Packing Charges 36,000
Inventory (01.01.2013) 2,90,400
Rent and Rates 35,000
Directors Remuneration 24,000
Discount on Issue of Debentures 4,000
Bill Receivable 83,000
Debenture Interest 7,500
Freehold Property (at cost) 7,00,000
6% Preference Share Capital 2,00,000
5% Mortgage Debenture Secured on Freehold Property 3,00,000
Dividends and Interest Receipts 8,500
Sales (net) 13,40,700
Bank Overdraft (Secured by hypothecation of Stock and 1,00,000
Receivables)
Total 30,05,900 30,05,900
Prepare income statement for the year ended March 31, 2014 and the balance sheet as on
that date after giving effect the following adjustments:
i. Closing inventory was valued at Tk.2,85,000
ii. Purchase include Tk.10,000 worth of goods and articles for distribution as gifts to customers.
iii. Salaries and wages include Tk.4,000 being wages incurred for installation of electrical
fittings. (Note: Electrical fittings are accounted for under future)
iv. Bill amounting to Tk.4,000 maturing after 31.03.2014 have been discounted.
v. Charge depreciation on furniture at 20%
vi. Written-of discount on issue of debentures Tk.2,000
vii. Directors propose a dividend of 5% on equity shares.
viii. Technical know-how is to be written-off over a period of 15 years.
ix. Provide for taxation at 50%.
x. The preference shares were redeemed at a premium of 5% on 31.03.2014 and the payment was
to be made after 01.04.2014. On 31.03.2014 a bonus issue of 1 share for every 4 shares held was
also made. No entries were made for both redemption and the bonus .
xi. Debtors include Tk.54,000 which has been outstanding since 01.04.2012.
xii. The income tax assessment for 2012-13 was over and the tax liability was settled at
Tk.20,000.
Performers Ltd.
Income Statement
For The Year Ended March 31, 2014
PROBLEM-2. Kissel Hardware Corporation's Beginning merchandise inventory was 1,72,800 and ending merchandise inventory is 1,45,000. The corporation
had 20,000 shares of common stock outstanding throughout the year. The December 31, 200X, year-end income statement accounts are as follows:

Sales - 9,82,200
Sales returns and allowances 53,800
Purchases 4,49,000
Purchase return and allowances - 23,840
Freight in 34,800
Sales salaries expense 1,24,320
Sales supplies expense 3,280
Rent expense, selling space 14,400
Utilities expense, selling space 5,920
Advertising expense 33,600
Depreciation expense, delivery equipment- 8,800
Office salaries expense 58,480
Office supplies expense 19,520
Rent expense, office space 4,800
Utilities expense, office space 2,000
Postage expense 4,640
Insurance expense 5,360
Miscellaneous expense 2,880
General management salaries expense 84,000
Interest expense 11,200
Interest income - 840
Income taxes 14,000

From the information above, prepare the followings:
i) An income statement.
Statement of Cost of Goods Sold:
Opening Inventory 1,72,800
Add. Purchase 4,49,000
Less. Purchase Returns and Allowances 23,840
Net Purchase 4,25,160
Fright in 34,800
Goods Available for Sale 6,32,760
Less Closing Inventory 1,45,000
Cost of Goods Sold 4,87,760,
KISSEL HARDWARE
Income statement
Sales revenue 9,82,200

Less sales return and allowances 53,800
Net sales 9,28,400
Cost of goods sold 4,87,760
Gross profit 4,40,640
Operating expenses:
Sales salaries expenses 1,24,320
Sales supplies expenses 3,280
Rent expenses, selling space 14,400
Utilities expenses, selling space 5,920
Advertising expenses 33,600
Depreciation expenses, delivery equipment 8,800 1,90,320
Office salaries expenses 58,480
Office supplies 19,520
Rent expenses, office 4,800
Utilities expenses, office 2,000
Postage expenses 4,640
Miscellaneous expenses 2,880
General management salary exp. 84,000 1,81,680
Total operating expenses 3,72,000
KISSEL HARDWARE
Income statement

Other revenue and gains:
Interest revenue 840
Income before interest and taxes 69,480
Income before tax 58,280
Income tax 14,000
Net income 44,280
Accounts from the December 31, 200X, post-closing trial balance of Kissell Hardware Corporation
appear below:
From the information provided, prepare a classified balance sheet.
Cash 31,000
----------------------------------------------------------------------------------Short- 33,000
term investments------------------------------------------------------------- 10,000
Notes receivable--------------------------------------------------------------------- 2,76,000
Accounts receivable---------------------------------------------------------------- 1,45,000
Merchandise inventory------------------------------------------------------------- 1,600
Prepaid rent-------------------------------------------------------------------------- 4,800
Prepaid insurance------------------------------------------------------------------- 1,280
Sales supplies----------------------------------------------------------------------- 440
Office supplies---------------------------------------------------------------------- 3,680
Pre-paid advertising----------------------------------------------------- 49,600
Building not in use------------------------------------------------------------------ 22,400
Land---------------------------------------------------------------------------------- 41,200
Delivery equipment----------------------------------------------------------------- ------------------ 28,400
Accumulated depreciation, delivery equipment--------------------------------- 4,000
Furniture------------------------------------------------------------------------- ------------------ 1,14,600
Accounts payable------------------------------------------------------------------- ------------------ 5,200
Salaries payable--------------------------------------------------------------------- ------------------ 840
Interest payable---------------------------------------------------------------------- ------------------ 80,000
Long-term notes payable---------------------------------------------------------- ------------------ 20,000
Common stock, TK1 par value---------------------------------------------------- ------------------ 1,60,000
Paid-in capital in excess of par (premium)-------------------------------------- ------------------ 2,14,960
Retained earnings-------------------------------------------------------------------
KISSEL HARDWARE
Balance Sheet
December 31, 200X
Assets
Current assets:
Cash 31,000
Short-term investment 33,000
Notes receivable 10,000
Accounts receivable 2,76,000
Prepaid rent 1,600
Prepaid insurance 4,800
Sales supplies 1,280
Office supplies 440
Pre-paid advertisement 3,680
Merchandise inventory 1,45,000
Long-term investment
Property, plant and equipment:
Land 22,400
Building 49,600
Furniture 4,000
Delivery equipment 41,200
Less: Accumulated dep. 28,400 12,800 88,800
Total Property, plant and equipment
Intangibles: ***
KISSEL HARDWARE
Balance Sheet
December 31, 200X
Liabilities and owners' equity:
Liabilities:
Current liabilities
Accounts payable 1,14,600
Interest payable 840
Total current liabilities 1,20,640
Long-term liabilities:
Long-term notes payable 80,000
Total liabilities 2,00,640
Stockholders' equity
Common stock, TK1 per value 20,000 shares authorized,
issued and outstanding 20,000
Paid in capital in excess of par value 1,60,000

Total contributed capital 1,80,000
Retained earnings 2,14,960
Total stockholders' equity 3,94,960
Total liabilities and stockholders' equity 5,95,600
Components of Cash flow statement
i. Cash Flow from operating activities: Cash flow from
operating activities means cash provided or used for
operation of business including net income or net loss.
ii. Cash flow from investing activities: Cash flow from
investing activities means cash uses or provided for
purchases or sales of fixed assets or long-term
investment.
iii. Cash flow from financing activities: Cash flow from
financing activities means cash received or paid for
purchased or sale of stock and paid of dividend.
iv. Non-cash investing and financing activities:
Methods of cash flow statement
i. Direct method: Directly cash receive or payment is calculated in here.
ii. Indirect method: Net income or loss is treated as cash received or paid. Then
adjustment is required to reconcile net income to net cash flow.
Cash flow from operating activities:

Cash Flow from Operating Activities = Net income + Noncash Expenses + Changes in
Working Capital. The noncash expenses are usually the depreciation and/or repayment
of expenses listed on the firm's income statement. Cash flows from operations
primarily measures the cash-generating abilities of the company's core operations
rather than from its ability to raise capital or purchase assets. Companies can influence
cash flow from operating activities by lengthening the time they take to pay the bills
(thus preserving their cash), shortening the time it takes to collect.
Working capital is a common measure of a company's liquidity, efficiency, and overall
health. Because it includes cash, inventory, accounts receivable, accounts payable, the
portion of debt due within one year, and other short-term accounts,
Methods of cash flow statement
Cash flow from investing activities:
Cash flow from investing activities is an item on the cash flow statement that reports
the change in a company's cash position resulting from any gains (or losses) from
investments in the financial markets and operating and changes resulting from amounts
spent on investments in capital assets.
Cash flow from financing activities:

Financing activities that generate positive cash flow include receiving cash from
issuing stock and receiving cash from issuing bonds. Financing activities that generate
negative cash flow include spending cash to re-purchase previously issued stock, to pay
down debt, to pay interest on debt and to pay dividends to shareholders.
Items that may be included in the financing activities line item are:
i. Sale of stock (positive cash flow) ii. Re-purchase of company stock (negative cash
flow) iii. Issuance of debt, such as bonds (positive cash flow) iv. Re-payment of debt
(negative cash flow) iv. Payment of dividends (negative cash flow)
Presented below is information related to Technoedge Company Ltd. Use it to prepare a
statement of cash flows using the indirect method:
Technoedge Company Limited
Comparative Balance Sheet
December,31
Assets 2015 2014 Changes
Cash 54,000 37,000 17,000 increase
Accounts Receivable 68,000 26,000 42,000 increase
Inventory 54,000 0 54,000 increase
Prepaid Expenses 4,000 6,000 2,000 decrease
Land 45,000 70,000 25,000 decrease
Building 2,00,000 2,00,000
Accumulated depreciation on building (21,000) (11,000) 10,000 Increase
Equipment 1,93,000 68,000 1,25,000 Increase
Accumulated depreciation on equipment (28,000) (10,000) 18,000 Increase
Total 5,69,000 3,86,000
Liabilities and shareholders equity:
Accounts payable 23,000 40,000 17,000 decrease
Accrued expenses payable 10,000 0 10,000 decrease
Bonds payable 1,10,000 1,50,000 40,000 Decrease
Common stock (Tk.1 par) 2,20,000 60,000 1,60,000 Increase
Retained earnings 2,06,000 1,36,000 70,000 Increase
Total 5,69,000 3,86,000
Income statement
For the year ended December,31,2015
Revenues 8,90,000
Operating expenses 2,21,000
Loss on sale of equipment 2,000 7,00,000
Income from operations 1,90,000
Income tax expenses 65,000
Net income 1,25,000

1. Operating expenses include depreciation expenses of Tk.33,000 and charge from

prepared expenses of Tk.2,000
2. Land was sold at its book value for cash.
3. Cash dividends of Tk.55, 000 were declared and paid in 2003.
4. Interest expenses of Tk.12, 000 was paid in cash.
5. Equipment with a cost of Tk.1, 66,000 was purchased for cash. Equipment with a
cost Tk.41, 000 and book value of Tk.36,000 was sold for Tk.34,000 cash.
6. Bond of Tk.10, 000 was redeemed at their book value for cash. Bonds of Tk.30,000
were converted into common stock.
7. Common stock (Tk.1 par) of Tk.1, 30,000 was issued for cash.
8. Accounts payable pertain to merchandise suppliers.
Determine the net increase or decrease in cash.

Statement of cash flows
Cash flows from operating activities:
Net income 1,25,000
Adjusted to reconcile net income to net cash provided by operating activities:
Depreciation expenses 33,000
Increase in accounts receivable (42,000)
Increase in inventories (54,000)
Decrease in prepaid expenses 2,000
Decrease in accounts payable (17,000)
Increase accrued expenses payable 10,000
Loss of sale of equipment 2,000 (66,000)
Net cash provided by operating activities 59,000
Cash flows from investing activities:
Sale of land 25,000
Sale of equipment 34,000
Purchase of equipment (1,66,000)
Net cash used by investing activities (1,07,000)
Cash flows from financing activities:
Redemption of bond (10,000)
Sale of common stock 1,30,000
Payment of dividends (55,000)
Net cash provided by financing activities 65,000
Net increase in cash 17,000
Cash at the beginning of the period 37,000
Cash at the end of the period 54,000
Non cash investing and financing activities: 30,000
Conversion of bond into common stock 30,000
Comparative Balance Sheet of Maruti Company
Particulars 2012 2011
Cash 63,000 22,000
Accounts Receivable 85,000 76,000
Inventories 1,80,000 1,89,000
Land 75,000 1,00,000
Accumulated Depreciation 2,60,000 2,00,000
Accounts Payable 34,000 47,000
Bonds Payable 1,50,000 2,00,000
Common Stock (Tk.1 per) 2,14,000 1,64,000
Retained Earnings 1,99,000 1,34,000
i) Net income for 2012 was Tk.1,25,000
ii) Cash dividends of Tk.60,000 was declared and paid.
iii) Bonds payable amounting to Tk.50,000 were redeemed for cash Tk.50,000
iv) Common stock was issued for cash Tk.50,000
v) Depreciation expenses was Tk.24,000
vi) Sales for the year Tk.9,78,000
Prepare a statement of cash flow for 2002 using the indirect method.
Solution
Particulars Taka Taka
Net income 1,25,00
Adjustment to reconcile net income to net cash flow:
Inventories (9,000)
Account receivable increase 9,000
Accounts payable decrease (13,000)
Depreciation expenses 2,400 11,000
Cash increased by operation activities
Land decrease 25,000
Equipment increase (6,000) (35,000)
Net cash used by investing activities cash from financing
activities:
Bonds payable decrease (50,000)
Common stock 50,000
Cash dividend decrease (60,000) (60,000)
Net cash increased during the year 41,000
Cash balance at the beginning of the year 22,00
Comparative Balance Sheet of Ahuza Company
Particulars 2012 2011
Cash 4,000 21,000
Accounts Receivable 2,50,000 1,70,000
Inventories 3,10,000 2,60,000
Prepaid Expenses 7,000 14,000
Loan to ABC Company 40,000
Plant and Equipment 5,10,000 4,00,000
Total 11,21,000 8,65,000
Accumulated Depreciation 1,32,000 1,20,000
Accounts Payable 3,10,000 2,50,000
Accrued Liabilities 20,000 30,000
Bonds Payable 1,90,000 70,000
Deferred Income Taxes 45,000 42,000
Common Stock 3,00,000 2,70,000
Retained Earnings 1,24,000 83,000
Total 11,21,000 8,65,000
The companys income statement for year 2 is as follows
Sales 9,00,000
Less. Cost of goods sold 5,00,000
Gross margin 4,00,000
Less. Operating expenses 3,28,000
Net operating income 72,000
Gain on sale of equipment 8,000
Income before taxes 80,000
Les. Income Tax 24,000
Net income 56,000
Equipment that had cost Tk.40,000 and on which there was accumulated depreciation of
Tk.30,000 was sold during the year for Tk.18,000. Dividend totaling Tk.15,000 were declared
and paid during the year. Prepare a statement of cash flow for year 2.
Particulars
Net income
Solution Taka Taka
56,000
Adjustment to reconcile net income to net cash flow:
Inventories increase (50,000)
Account receivable increase (80,000)
Accounts payable increase 60,000
Prepaid expenses decrease 7,000
Accrued liabilities decrease (10,000)
Depreciation 42,000
Gain on sale of equipment (8,000)
Increase deferred tax 3,000 (36,000)
Net cash used by operating activities 20,000
Cash flow from investing activities:
Loan to ABC Co. (40,000)
Plant and equipment purchase (5,10,000 4,00,000) + 40,000 (1,50,000)
Sale of plant and equipment 18,000 (1,72,000)
Cash flow from financing activities:
Bonds payable increase 1,20,000
Common stock increase 30,000
Dividend paid (15,000) 1,35,000
Net cash increase during the year (17,000)
Cash flow at the beginning of the year 21,000
Cash flow at the end of the year 4,000
Statement of cash flows
Cash flows from operating activities:
Net income 1,25,000
Adjusted to reconcile net income to net cash provided by operating activities:
Depreciation expenses 33,000
Increase in accounts receivable (42,000)
Increase in inventories (54,000)
Decrease in prepaid expenses 2,000
Decrease in accounts payable (17,000)
Increase accrued expenses payable 10,000
Loss of sale of equipment 2,000 (66,000)
Net cash provided by operating activities 59,000
Sale of land 25,000
Sale of equipment 34,000
Purchase of equipment (1,66,000)
Net cash used by investing activities (1,07,000)
Redemption of bond (10,000)
Sale of common stock 1,30,000
Payment of dividends (55,000)
Net cash provided by financing activities 65,000
Net increase in cash 17,000
Cash at the beginning of the period 37,000
Cash at the end of the period 54,000
Non cash investing and financing activities: 30,000
Conversion of bond into common stock 30,000
Financial Statements Analysis
Financial statements analysis is the process of identifying the financial strength and
weakness of the firm by properly establishing relationships between the items of the
balance sheet and profit and loss account.
A ratio analysis is defined as the indicated quotient of two mathematical expression

and as the relationship between two or more thing.
Users of Financial Statements Analysis:

i) Trade Creditors: Trade creditors are interested in firms ability to meet their claims
over a very short period of time.
ii) Suppliers of long term debt: They are concerned with the firms long-term solvency
and survival. They analyze the firms profitability over time.
iii) Investors: Investors are most concerned about the firms earnings.
iv) Management: Management of the firm would be interested in every aspect of the
financial analysis. It is their overall responsibility to see that the resources of the
firm are used most effectively and efficiently.
Horizontal analysis/Trend analysis:
Horizontal analysis is a technique for evaluating as a series of financial statement data over a period of time.
Example: 2006 20007 Increase or decrease base on 2006
50,000 70,000 40%
Vertical analysis:
Vertical analysis also a technique of evaluating financial statement data that express each item of a financial statement as a
percent of base amount.
Example: Current assets 20% of total assets.
Ratio analysis
Ratio analysis expresses the relationship among selected item of financial statement data. A ratio expresses the mathematical
relationship between one quantity and another.
A relationship express in term of percentage, rate and simple Proportion.
Example:
Percentage: Current asset 226% of current liabilities
Rate: Current assets 2.26 time current liabilities.
Proportion: Relation between current assets and current liabilities is 2.26:1
Standard of comparison :
i) Past ratio: Performance of a firm is to compare its present ratios with past ratios. Ratio calculated from
past financial statements of the same firm.
ii)Competitors Ratio: Compare ratios of one firm with the ratios of the some selected firm s, especially
most positive and successful competitor, at the same point of time.
iii)Industry ratio: Ratios may be compared with average ratios of the industry which the firm is a member.
iv)Projected Ratio: Comparison of current or past ratios with future ratios. It shows the firms relative
strengths and weakness in the past and future. Ratio developed using the projected or proforma
financial statement of same firm.
Types of ratio
Liquidity ratio: Liquidity ratio measure the firms ability to meet current obligations;
Leverage ratio: Leverage ratio show the proportions of debt and equity in financing the firms
assets. To judge the long-term financial position of the firm, financial leverage ratios are
calculated.
Activity ratio or Turnover ratio: Activity ratios reflect the firms efficiency in utilizing its
assets.
Profitability ratio: Profitability ratio measures overall performance and effectiveness of the
firm.
Liquidity Ratio
i) Current Ratio = Current assets Current Liabilities
ii) Quick Ratio = (Current assets Closing inventory) Current Liabilities
iii) Cash Ratio = Cash and marketable security Current liabilities
Leverage Ratio
Leverage ratio are calculated to measure the financial risk and firms ability of using
debt to stockholders advantage.
i) Total Debt Ratio = Total Debt Capital Employed or {Total Debt (Total Debt + Net worth)}
ii) Debt-Equity ratio= Net worth Total Debt
Activity Ratio
i) Inventory Turnover Ratio = Cost of Goods Sold Inventory
ii) Debtors Turnover Ratio = Sales or Credit Sales Debtors
iii) Assets Turnover Ratio = Sales Net Assets
Profitability Ratio
i) Gross Profit Margin = Gross Profit Sales
ii) Net Profit Margin = Net profit Sales
iii) Return on Investment (ROI) = EBIT Capital Employed
iv) Return on Equity = Profit after tax Net worth
v) Earning par Share = Profit After Tax No. of Shares
vi) Price Earning Ratio = Market value of Share Earning per Share
Mr.Jamans
Income Statement
Sales 61,000
Less Sales returns and allowances 200
Net sales 60,800
Purchases 53,800
Less. Purchases returns and 250
allowances
Commission received 2,000 51,550
Carriage inward 50
wages 3,750
Gross profit 24,950
Salaries expenses 20,500
Add. Salaries dues 500 21,000
Mr.Jamans
Income Statement
Telephone expenses 1,240
Bad debt expenses 500
Depreciation on machinery 500
Depreciation on equipment 90
Depreciation on furniture 200 790 43530
Advertisement expenses 15,000
Carriage out ward 175 15175 58705
Net operating loss (33,755)
Add. Non-operating income:
Interest on drawings 260
Total Income 33,490
Non-operating expenses:
Interest on capital 3,000 3,000
Net Loss (36,490)
Mr.Jamans
Balance Sheet
Assets Taka Taka Taka Taka
Current Assets:
Cash 28,485
Bank Balance 2,500
Less. Provision for Bad Debt 500 12,300
Fixed Assets:
Machineries 25,000
Furniture 20,000
Equipment 4,500
Less. Accumulated Depreciation 90 4,410 48,710

Mr.Jamans
Balance Sheet
Liabilities & Owners Equity Taka Taka Taka Taka
Liabilities:
Salary Dues 500
Wages Outstanding 500
Accounts payable 7,750 8,750
Long term liabilities: **** 000
Owners equity:
Capital 1,50,000
Less. Net loss 36,495
1,13,505
Add. Interest on capital 3,000
1,16,505
Lee. Drawings 13,000

Ratios
Liquidity Ratios: Liquidity ratio measure the ability of the firms to meet its current liabilities.
Current Ratio: Current Assets Current Liabilities
= 63,285 8,750
= 7.23:1
Quick Ratio: (Current Assets Closing Inventory) Current Liabilities
= (63,285 20,000) 8,750
= 43,285 8,750
= 4.95:1
Cash Ratio: Cash and Marketable Security Current Liabilities
= 28,485 : 8,750
= 3.25 : 1
Leverage Ratios: Leverage ratios are calculate to measure the financial risk and the firms ability of using debt to
stockholders advantage.
Debt Ratio = Total Debt : Capital Employed = 8,750 1,11,995 = 0.078
Debt-Equity Ratio = Total debt Net worth = 8,750 1,03,245 = 0.085
Coverage Ratio = EBIT Interest = -33,755 (3,000 60) or -33,755 2,740 = - 12.32
Activity or Turnover Ratios: Activity ratios are employed to evaluate the efficiency with which the firm manages and
utilize its assets.
Debtors Turnover Ratio = Credit Sales Average Debtors
or Sales Debtors.
= 61,000 12,300 = 4.96 :1
( The higher the value of debtors turnover, the more efficient is the management of credit.)
Total Assets Turnover Ratio = Net Sales Total Assets
= 60,800 1,11,995
= 0.543:1
Inventory Turnover Ratio= Cost of Goods Sold Inventory
=37,850 20,000 = 1.89: 1
Profitability Ratio: Profitability ratio are calculated to measure the operating efficiency of the company.
Two major type of profitability ratio:
i. Profitability ratio in relation to sales.
ii. Profitability ratio in relation to investment.
Gross Profit Margin = Gross Profit Sales
=22950 61,000 = 0.376 : 1
A high gross profit margin is the sign of good management. A low gross profit margin
may reflect higher cost of goods sold.
Net Profit Margin = Profit After Tax Sales

= -36,490 61,000
= -.598 : 1
If the net profit margin is inadequate, the firm will fail to achieve satisfactory return on
shareholders funds.
Return on Investment (ROI) = {EBIT (1-T) } Total Assets

= -33,755(1- 0) } 1,11,995
= -33,755 1,11,995
= -0.301:1
Return on Equity = Profit after Tax Net Worth or Equity
= -36,490 1,03,245
= -.353:1
Earning per Share = Profit after tax Number of Share outstanding
Price-earning ratio = Market value per Share Earning per Share
Cash Flow Statement
In financial accounting, a cash flow statement, also known
as statement of cash flows, is a financial statement that shows
how changes in balance sheet accounts and income
affect cash and cash equivalents, and breaks the analysis down
to operating, investing and financing activities.
The purpose of a cash flow statement is to get a quick view of
how money is currently moving in and out of a business.
Aldine Manufacturing Company Balance Sheet (in thousands)
Shareholders equity:
Common stock (Tk.5 per value) 4,20,828 4,20,824
Additional paid in capital 3,61,158 3,61,059
Retained earnings 10,14,635 9,56,361
Total shareholders equity 17,96,621 17,38,244
Total liabilities and shareholders equity 32,51,480 31,49,748
Aldine Manufacturing Company Statement of Earnings (in thousands)

Year ended Year ended March
March 31, 2015 31, 2014
Net sales 39,92,758 37,21,241
Cost of goods sold 26,80,298 24,99,965
Selling, general and administrative expenses 8,01,395 7,26,959
Depreciation 1,11,509 1,13,989
Interest expenses 85,274 69,764
Earning before taxes 3,14,282 3,10,564
Provision for taxes 1,13,040 1,12,356
Earning after taxes 2,01,242 1,98,208
Cash dividends 1,42,968 1,30,455
Retained earnings 58,274 67,753
Aldine Manufacturing Company Balance Sheet (in thousands)
Assets: March 31,2015 March 31,2014
Cash and short term investments 1,77,689 1,75,042
Accounts receivable 6,78,279 7,40,705
Inventories 13,28,963 12,34,725
Prepaid expenses 20,756 17,197
Deferred income taxes 35,203 29,165
Current assets 22,40,890 21,96,834
Property, plant and equipment 15,96,886 15,38,495
Less: Accumulated Depreciation 8,56,829 7,91,205
7,40,057 7,47,290
Investment, long term 65,376 -
Other assets 2,05,157 2,05,624
Total assets 32,51,480 31,49,748
Liabilities and shareholders equity:
Bank loan and notes payable 4,48,508 3,56,511
Accounts payable 1,48,427 1,36,793
Income tax payable 36,203 1,27,455
Accruals 1,90,938 1,64,285
Current liabilities 8,24,076 7,85,044
Long-term debt 6,30,783 6,26,460
Aldine Manufacturing Company Statement of cash flows March 31,2014 to March 31, 2015 (Taka in thousand)
Year ended March 31, 2015
Cash flows from operating activities
Net earnings (Earnings after tax) 2,01,242
Adjustment to reconcile net earnings to cash provided by operating
activities:
Depreciation 1,11,509
Chang in assets and liabilities:

Inventories (94,238)
Prepaid expenses (3,559)
Deferred income tax (Pre-paid income tax) (6,038)
Income tax payable (91,252)
Accruals 26,653 17,135
Net cash provided by operating activities 2,18,377
Investment in property, plant and equipment (58,391)
Disposition of property, plant and equipment ( )
Purchase of long-term investments (65,376)
Other 467 (1,23,300)
Aldine Manufacturing Company Statement of cash flows March 31,2014 to March 31, 2015 (Taka in thousand)
Year ended
March 31, 2015
Increase (decrease) short-term borrowings 91,997
Increase (decrease) long-term debt 4,323
Increase of common stock = Common stock: (4,20,828-4,20,824) + Additional paid in 103
capital (3,61,158-3,61,059)
Dividends (1,42,968) (46,545)
Net cash increased during the year 48,532
Cash and short-term investments at the beginning of the year 1,75,042
Cash and short-term investments at the end of the year 1,77,689
Aldine Manufacturing Companys statements of earnings (in thousands)
Year
ended March 19X1
Taka in Thousand
Net sales 3,992

Cost of goods sold 2,680
Gross profit 1,312
Operating expenses 912
Earnings before interest and tax 400
Interest expenses 85
Earning before tax 315
Provision for income tax 114
Earning after tax 201
Cash dividend 143
Increased retained earnings 58
Aldine Manufacturing Companys Balance Sheet
Taka in thousand
Assets
Cash and cash equivalents 178
Accounts receivable 678
Inventories 1,329
Prepaid expenses 21
Accumulated tax payments 31
Current assets 2,241
Fixed assets at cost 1,596
Less Accumulated depreciation -857
Net fixed assets 739
Investments (long term) 65
Other assets (Long term) 205
Total assets 3,250
Aldine Manufacturing Companys Balance Sheet
Taka in thousand
Liabilities and owners equity:
Bank loan and notes payable 448
Accounts payable 148
Accrued tax 36
Other accrued liabilities 191
Current liabilities 823
Long term debt 631
Common stock (Tk.1 per) 421
Additional paid in capital 361
Retained earnings 1,014
Total stock holders equity 1,796
Total liabilities and owners equity 3,250
Requirements
i. Current ratio ix. Net profit margin

ii. Acid test ratio x. Return on equity
iii. Debt equity ratio x. Return on
investment
iv. Coverage ratio
v. Receivable turnover ratio
vi. Inventory turnover ratio
vii. Total assets turnover ratio
viii.Gross profit margin
Ratios
i) Current ratio = Current assets : Current liabilities
= 22,41,000 : 8,23,000 = 2.72 : 1
ii) Acid-Test ratio = (Current assets Closing inventories) :
Current liabilities
= (22,41,000 13,29,000) : 8,23,000
= 1.11: 1
iii) Debt equity ratio = Total debt : Stock holders equity
= 14,54,000 : 17,96,000
= 0.81 : 1
Ratios
iv) Coverage ratio = EBIT : Interest expenses
= 4,00,000 : 85,000 = 4.71 : 1
The ratio serves as one measure of the firms ability to meet its interest
payments. Andles ability to cover annual interest 4.71 times with
operating income. Appears to provide a good margin of safety.
v) Receivable turnover ratio = Annual net credit sales : Receivables.

= 39,92,000 : 6,78,000
= 5.89 : 1
This ratio tells us the number of times account receivables have been
turned over (turned over into cash) during the year. The higher the
turnover, the shorter the time between sales and cash collection.
Ratios
vi) Inventory turnover ratio = Cost of goods sold Inventory
= 26,80,000 13,29,000
= 2.02 : 1
Inventory turnover ratio tells us how many times inventory is
turned over into receivable through sale during the period. Higher
inventory turnover the more efficient inventory management of the
firm.
vii) Total assets turnover ratio = Net sales Total assets.
= 39,92,000 32,50,000
= 1.23 : 1
This ratio tells us the relative efficiency with which a firm utilize
its total assets to generate sales.
Ratios
viii) Gross profit margin = Gross profit : Net sales
= 13,12,000 : 39,92,000
= 32.9%
It measures the efficiency of the firms operations.
ix) Net profit margin = profit after tax Net sales

= 2,01,000 : 39,92,000
= 5.04%
Net profit margin tells us a firms net income par taka of
sales.
Ratios
x) Return on investment (ROI) = Net profit after tax : total assets.
= 2,01,000 : 32,50,000
= 6.19%
Lower return on investment confirm that the Company employs
more assets to generate a dollar of sales.
xi) Return on equity (ROE) = Net profit after tax : Stock holders
equity
= 2,01,000 : 17,96,000
= 11.19%
A higher return of equity often reflects the firms acceptance of
strong investment opportunities and effective expense management.
Ratios
The Hindustan Manufacturing Company is a leading producer and exporter of engineering items such as steel pipes, ingots,
billets etc. It has also recently added a chemical plant and a paper plant as a part of its diversification strategy. The company
started with a share capital of Tk. 25 lakhs in the early sixties, which has now increased to Tk.225 lakhs. The number of
share outstanding 22.50 lakh. The average market price of the companys share during 2013-15 has been: Tk.26.38 in 2013,
Tk. 34.50 in 2014 and Tk.29.25 in 2015. The financial data for the company are given below:
Particulars Taka in Lakhs
2015
Sales 3,717.23
Cost of goods sold 3,053.66
Gross profit 663.57
-Administrative and selling expenses 357.87
Operating income 305.70
+ Other income 36.91
Earning before interest and tax 342.61
- Interest expenses 143.46
Profit before tax 199.15
Provision for tax 64.29
Profit after tax 134.86
Effective tax rate 32%
Dividend distributed 45.00
Retained earnings 89.86
Statement of Cost of Goods Sold
Taka in thousand Taka in Lakhs
Raw Material 2751.52

Direct Labor 228.94
Depreciation 41.59
Other Manufacturing Expenses 329.44
3,351.49
Add. Opening Stock in Process 150.55
3,502.04
Less. Closing stock in Process 230.83
Cost of Production 3,271.21
Add. Opening Finished Stock 244.26
3,515.47
Less Closing Finished Stock 461.81
Cost of Goods Sold 3,053.66
Balance Sheet
Net Worth
Share Capital 225.00
Reserve 447.81
Net Worth (A) 672.81
Borrowings (B)
Long Term: Debentures 76.46
Others 312.73
Long Term Debt (Bi) 389.19
Short Term Bank Borrowings (Bii) 839.87
Borrowings (Total Debt) ( B = Bi + Bii) 1,229.06
Capital Employed ( C= A+B) 1,901.87
Fixed Assets (D)
Gross Block 921.55
Less. Depreciation 235.44
Net Block 686.11
Other Non-Current Assets 60.67
Net Fixed Assets 746.83
Balance Sheet
E. Current Assets
Inventories:
Raw Material 457.74
Stock in Process 230.84
Finished Goods 461.81
Inventories 1150.39
Debtors 483.18
Cash and Bank Balance 26.08
Others 211.27
Total Current Assets (E) 1,870.92
F. Less. Current Liabilities
Trade Creditors 339.35
Provisions and others 376.53
Current Liabilities (F) 715.88
G. Net Current Assets (E-F) 1,155.04
H. Net Assets [(D = Fixed assets ) + (G = Net current assets)] 1,901.87

Current Ratio
1. Current ratio is calculated by dividing current assets by current liabilities.
Current Ratio =Current Assets Current Liabilities)
=(1,870.92 1,555.75) = 1.20:1
2. Quick ratio establishes a relationship between quick or liquid assets and current
liabilities.
Quick ratio = ( Current Assets Inventories) Current Liabilities.
= (1,870.92-1,150.39) (715.88 + 839.87)
= 0.46:1
3. Cash Ratio is the ratio between cash and marketable security with current liabilities
Cash ratio :
Cash and Marketable Securities Current Liabilities
= 26.08 1,555.75 = 0.017 or 2%
4. Interval measure is firms ability to meet its regular cash expenses.
Interval measure = (Current Assets Inventory) Average Daily Operating Expenses
= 1,870.92- 1,150.39) (3,369.94 360) (Average expenses = Cost
= 77 day of Goods Sold-3,053.66 +
Company has sufficient liquid assets to finance its Selling &
Net Working Capital Ratio
Net working capital is the difference between current assets and current liabilities
excluding short-term bank borrowing. = (1870.92-715.88) = 1155.04
Net working capital Ratio = Net Working Capital Net Assets
= 1,155.04 1,901.87
= 0.61
Leverage Ratios
Leverage ratios is calculated to judge the long-term financial position of the firm. The
ratio indicate mix of funds provided by owners and lenders.
Leverage ratios are calculated to measure the financial risk and the firms ability of
using debt to shareholders advantage.
Debt ratio is calculated to measure the proportion of interest bearing debt in capital
structure.
Debt ratio = Total debt Capital employed Capital employed = Total debt + Stock
= (389.19 + 839.87) 1,901.87 holders equity
= 0.646
Leverage Ratios
Debt-Equity ratio is the relationship describing the lenders contribution and owners
contribution for each taka.
Debt-equity ratio = Total Debt Net Worth
= 1,229.06 672.81 Short-term debt 389.19+ Long-term debt
= 1.83 839.87= Total debt 1,229.06
A high ratio means that claims of creditors are greater than those of owners.
Interest Coverage Ratio is used to test the firms debt servicing capacity. It is computed
calculated by dividing earning before interest and tax by interest charges.
Interest coverage ratio = (EBIT + Depreciation) Interest
= (342.61 + 41.59) 143.16
= 2.67
Activity or Turnover Ratio
Creditors and owners are invested in various assets to generate sales and profit.
Activity ratio are employed to evaluate the efficiency with which the firm manages and
utilize its assets.
Inage inventory turnover ratio indicate the efficiency of the firms in producing and
selling product.
It is calculated by dividing cost of goods sold by average inventory.
Average inventory = (Opening inventory + closing inventory) 2
= (244.26 + 461.81) 2 = 353.03
Inventory turnover ratio = Cost of Goods Sold Average Inventory
If cost of goods sold figure may not be available:
Inventory Turnover ratio = Sales Average inventory or Closing Inventory
Inventory turnover ratio = 3,053.66 353.03
= 8.6 times
The company is turning its inventory of finished goods into sales 8.6 times in a year.
Debtors turnover ratio indicate the number of times debtors turnover each year.
Generally the higher value of debtors turnover shows the more efficient credit
management.
Debtors turnover ratio = Credit sales Average debtors
or
If credit sales and average debtors information is not available then,
Debtors turnover ratio = Sales Debtors

= 3,717.23 483.18
= 7.7 times.
Assets turnover ratio indicate the efficient use of assets to generate sales.
The relationship between sales and assets is called assets turnover.
Net assets turnover ratio = Sales Net assets
= 3,717.23 1,901.87
= 1.95 times.
Total assets turnover ratio = Sales Total assets
= 3,717.23 2,617.75 = 1.42 times.
Fixed assets turnover ratio = 3717.23 746.83 = 4.98 times.
Current assets turnover ratio = 3717.23 1,870.92 = 1.99 times.
Profitability Ratio
Profitability ratio are calculated to measure the operating efficiency of
the company.
Generally two measure profitability ratios are calculated:
i) Profitability in relation to sales
ii) Profitability in relation to investment.
Profitability in relation to sales:
a) Gross profit margin: The gross profit margin reflects the efficiency
with which management produces each unit of product.
A high gross profit margin ratio is a sign of good management.
Gross profit margin = Gross profit Sales = 663.57 3,717.23 = 0.179
Profitability Ratio
Net profit margin ratio
Net profit margin ratio is measured by dividing profit after tax by sales.
If the net profit margin is inadequate, the firm will fail to achieve
satisfactory return on stockholders funds.
Net profit margin = Profit after tax Sales = 134.86 3,717.23 = 3.6%
Operating expenses ratio

Operating expenses ratio explains the changes in the profit margin (EBIT
to Sales) ratio.
A higher operating expenses ratio is unfavorable since it will leave a
small amount of operating income to meet interest , dividend etc.
Operating expenses ratio = Operating expenses Sales
= 3411.53 3,717.23
= 91.8%
Profitability Ratio
Return on investment (ROI)
Return on investment (ROI)ratio is calculated by dividing profit after tax by
investment.
ROI = EBIT ( 1-T) Total Assets
=342.61(1-0.32) 2,617.75
= 8.9%
Return on equity (ROE)
Return on equity (ROE) is net profit after tax divided by shareholders equity which is
given by net worth.
ROE = Profit after tax Net worth or equity
= 134.86 672.81
= 20%
Earning per share
Earning per share is calculated by dividing profit after tax by total number of ordinary
share outstanding.
EPS = Profit after tax Number of share outstanding
= 134.86 22.50 = Tk.6
Problem: From the following details, prepare the balance sheet of ABC Ltd.
Stock turnover 6
Capital turnover ratio 2
Fixed assets turnover ratio 4
Gross profit 20%
Debt collection period 2 months
Creditors payment period 73 days
The gross profit was Tk.60,000. Closing inventory was Tk.5,000 in excess of the
opening inventory
Solution:
Liabilities Taka Assets Taka
Capital 1,20,000 Closing inventory 42,500
Creditors 49,000 Debtors 50,000
Fixed assets 60,000
Cash (balancing figure) 16,500
1,69,000 1,69,000
Working notes:
1. Gross profit ratio = (Gross profit Sales) 100
20 = (60,000 Sales) 100
Sales = 3,00,000
Cost of goods sold = Sales Gross profit = Tk.3,00,000 Tk.60,000 = Tk.2,40,000
2. Stock turnover = Cost of goods sold Average inventory
6 = Tk.2,40,000 Average inventory
Average inventory = Tk.2,40,000 6 = Tk.40,000
(Opening inventory + Closing inventory) 2 = Tk.40,000
Closing inventory Opening inventory = Tk.5,000
Solving two equations simultaneously:
Closing inventory + Opening inventory = Tk.80,000
Closing inventory Opening inventory = Tk.5,000
Subtracting equation 2 from equation 3, We have
2 Opening inventory = 75,000
Opening inventory = Tk.37,500
Therefore, Closing inventory = Tk. 42,500
3. Capital turnover ratio = Cost of sales Capital
2 = Tk.2,40,000 Capital
Capital = Tk.1,20,000
4. Fixed assets turnover ratio = Cost of sales Fixed assets

4 = Tk.2,40,000 Fixed assets
Fixed assets = Tk.2,40,000 4 = Tk.60,000
5. Debt collection period = 2 months
Debtors turnover ratio = 12 months Debt collection period = (12 2) = 6
Or
Debtors turnover ratio = Credit sales Average debtors
Assuming sales to be credit sales and debtors turnover ratio is based on year-end figures, we have Debtors = Tk.3,00,000 6
= Tk.50,000
6. Creditors payment period = 73 days.

Creditors turnover ratio = 365 days Creditors payment period = 365days 73days=5
Assuming all purchases to be credit purchases, the amount of purchases is determined as follows:
Cost of goods sold = Opening inventory + Purchases Closing inventory
Tk.2,40,000 = Tk.37,500 + Purchases Tk.37,500
Purchases = Tk.2,45,000
Assuming creditors turnover ratio is based on the year-end figure, the amount of creditors is as follows:
Creditors turnover ratio = Credit purchases Closing creditors
5 = Tk.2,45,000 Closing creditors
Creditors = Tk.49,000
Depreciation may be defined as the permanent and continuing diminution ( ) in the quality of an assets from wear
and tear obsolescence effusion ( ) of time.
Depreciation
Depreciation may be defined as a systematic procedures for allocating the cost of a fixed assets over its useful
life.
Factors in computing Depreciation:

Costs: Assets are recorded by their historical cost.
Useful life: In term of time, units, and products unit of activities.
Salvage value: The value of the assets at the end of its useful life.
Method of computing depreciation:

i) Straight line method: Under this method depreciation cost will equal for each year of assets useful
life.
ii) Unit of activity: Under this method useful life is expressed in term of total units of production or
used expected from the assets rather than as a period.
iii) Declining balance method: This method produces a decreasing annual depreciation expenses over
the assets useful life. The periodic depreciation is based on declining book value of the assets.
iv) Sum of years digit method: The sum of years digits method is accelerated depreciation.
Depreciation is taken as a fractional part of a sum of all the years. For example, if an asset has a life
of 5 years the sum of years is 5+4+3+2+1 = 15.
Depletion Method
Depletion is a periodic charge to expense for the use of natural resources. Thus, it is used in situations where a
company has recorded an asset for such items as oil reserves, coal deposits, or gravel pits. The calculation of
depletion involves these steps:
i. Compute a depletion base
ii. Compute a unit depletion rate
iii. Charge depletion based on units of usage
The resulting net carrying amount of natural resources still on the books of a business do not necessarily
reflect the market value of the underlying natural resources. Rather, the amount simplify reflects an ongoing
reduction in the amount of the original recorded cost of the natural resources.
The depletion base is the asset that is to be depleted. It is comprised of the following four types of costs:
i. Acquisition costs. The cost to either buy or lease property.
ii. Exploration costs. The cost to locate assets that may then be depleted. In most cases, these costs are
charged to expense as incurred.
iii. Development costs. The cost to prepare the property for asset extraction, which includes the cost of such
items as tunnels and wells.
iv. Restoration costs. The cost to restore property to its original condition after depletion activities have
been concluded.
To compute a unit depletion rate, subtract the salvage value of the asset from the depletion base and divide it
by the total number of measurement units that you expect to recover. The formula for the unit depletion rate
is:
= (Depletion base - Salvage value) Total units to be recovered
You then create the depletion charge based on actual units of usage. Thus, if you extract 500 barrels of oil and
the unit depletion rate is Tk.5.00 per barrel, then you charge Tk.2,500 to depletion expense.
The estimated amount of a natural resource that can be recovered will change constantly as
gradually extract assets from a property.
Depletion Method Example
Pensive Corporations subsidiary Pensive Oil drills a well with the intention of extracting oil
from a known reservoir. It incurs the following costs related to the acquisition of property and
development of the site:
Land purchase
$280,000
Road construction
23,000
Drill pad construction
48,000
Drilling fees
192,000
Total
Tk.543,000
In addition, Pensive Oil estimates that it will incur a site restoration cost of Tk.57,000 once
extraction is complete, so the total depletion base of the property is Tk.600,000.
Pensives geologists estimate that the proven oil reserves that are accessed by the well are
400,000 barrels, so the unit depletion charge will be Tk.1.50 per barrel of oil extracted
(Tk.600,000 depletion base / 400,000 barrels).
In the first year, Pensive Oil extracts 100,000 barrels of oil from the well, which results in a
depletion charge of Tk.150,000 (100,000 barrels x Tk.1.50 unit depletion charge).
Problem:
Depreciable costs: Cost of assets-Salvage value.
Furniture cost-13, 000
Salvage value-1, 000
Useful life-5 years
Calculate depreciation cost of the machine under
i) Straight-line method
ii) Sum of years digit method
iii) Declining balance method
iv) Units of activities method
Straight-line method.
Annual depreciation expenses: Value of assets-Salvage value=13,000-1,000
Useful life =5
Depreciation rate = 100% 5 = 20% per year
Year Book value at Depreciable Dep. rate Annual Accumulated Book value
the beginning cost Dep. Depreciation at the end
1 13,000 12,000 20% 2,400 2,400 10,600
2 10,600 12,000 20% 2,400 4,800 8,200
3 8,200 12,000 20% 2,400 7,200 5,800
4 5,800 12,000 20% 2,400 9,600 3,400
5 3,400 12,000 20% 2,400 12,00 1,000

Declining Balance Method:
Depreciation rate will be double than straight-line method. If depreciation rate 20% in
straight-line method 40%will declining balance method and it will ignore salvage value
Year Book value at Depreciation Annual Accumulated Book value

The beginning Rate Depreciation Depreciation At the end
1 13,000 40% 5,200 5,200 7,800

2 7,800 40% 3,120 8,320 4,680
3 4,680 40% 1,872 10,192 2,808
4 2,808 40% 1,123 11,315 1,685
5 1,685 40% 674 11,989 1,011
Unit of activities method
Problem:
Machine cost: 12,000, Estimated working hours: 1,00,000,
Unit of activity:
1st Year: 15,000 Units
2nd Year: 30,000 Units
3rd Year: 20,000 Units
4th Year: 25,000 Units
5th Year: 10,000 Units
Calculate depreciation expenses for the years by using unit of activities method
It is appropriate for machinery:
Depreciable cost pre hour = Total Machine Cost Total Number of Units Production
= 12,000 1,00,000 = Tk.0. 12
It is not suitable for building & equipment
Year Cost per unit Units of Annual Accumulated Book value
activities Depreciation Depreciation At the end
1 0.12 15,000 1,800 1,800 11,200
2 0.12 30,000 3,600 5,400 7,600
3 0.12 20,000 2,400 7,800 5,200
4 0.12 25,000 3,000 10,800 2,200
5 0.12 10,000 1,200 12,000 1,000
Sum of year's digit method
Sum of year's digit =5+4+3+2+1=15,
Depreciable cost =13,000-1,000=1,2000
Year Depreciable Year's Annual depreciation Accumulated Book value At

cost digit Depreciation the end
1 12,000 5 (12,000 15) 5 = 4,000 4,000 9000
2 12,000 4 (12,00015) 4 = 3,200 7,200 5,800
3 12,000 3 (12,000 15) 3 = 2,400 9,600 3,400
4 12,000 2 (12,000 15) 2 =1,600 11,200 1,800
5 12,000 1 (12,000 1) 5 1 = 800 12,000 1,000

Asset Cost: $1,50,000
Depreciation Schedule
Salvage
$10,000
Value: Year Book Value Total Cost Depreciation Depreciation Accumulated Book Value
Year Start Depreciable Percent Expense Depreciation Year End
Useful Life
5
(Years):
Placed in
Service: 33%
2011 $150,000 $140,000.00 $46,667 $46,667 $103,333
(5/15)
27%
2012 $103,333 $140,000.00 $37,333 $84,000 $66,000
(4/15)
Month: January, 20%

2013 $66,000 $140,000.00 $28,000 $112,000 $38,000
2011 (3/15)
Sum of
Years 13%
2014 $38,000 $140,000.00 $18,667 $130,667 $19,333
Digit (2/15)
Method
7%
2015 $19,333 $140,000.00 $9,333 $140,000 $10,000
(1/15)
Bank
A bank is an establishment which trades in money, an establishment for deposit,
custody and issue of money and also for granting loans and discounting bills and
facilitating transmission of remittances from one place to another.- Imperial Dictionary
A corporation empowered to deal with cash, domestic and foreign, and to

receive the deposits of money and to loan those moneys to third-parties.
In 1899, the United States Supreme Court (Austen) used these words to
define a bank:
"A bank is an institution, usually incorporated with power to issue its
promissory notes intended to circulate as money (known as bank notes);
or to receive the money of others on general deposit, to form a joint fund
that shall be used by the institution, for its own benefit, for one or more
of the purposes of making temporary loans and discounts; of dealing in
notes, foreign and domestic bills of exchange, coin, bullion, credits, and
the remission of money; or with both these powers, and with the
privileges, in addition to these basic powers, of receiving special
deposits and making collections for the holders of negotiable paper, if
the institution sees fit to engage in such business.
Functions of bank:
i. Receiving money on deposit from its customers;
ii. Paying a customer's cheques or drafts on it to the amount on deposit
by such customers, and holding Dominion Government and bank
notes and coin for such purpose;
iii. Paying interest by agreement on deposits;
iv. Discounting commercial paper (Bill or Note Receivable) for its
customers;
v. Dealing in exchange and in gold and silver coin and bullion;
vi. Collecting notes and drafts deposited;
vii.Arranging credits for itself with banks in other towns, cities and
countries;
viii.Selling its drafts or cheques on other banks and banking
correspondents;
ix. Issuing letters of credit;
x. Lending money to its customers on the customers' notes, by way of
overdraft (or) on bonds, shares and other securities.
Cheque
A Cheque may be defined as an unconditional order drawn upon a specified banker,
singed by the maker, directing the banker to pay on demand a certain sum of money
only to the order of a person or to be the bearer of the instrument. When a trader
wants to discharge his debts he sings a written order on his bank authorizing the
bank to pay a certain sum of money to his creditor. The order is known as cheque.
What is a cheque? Definition kinds and types of cheques.
What is a Cheque ? Meaning

Cheque is an important negotiable instrument which can be transferred by mere hand delivery.
Cheque is used to make safe and convenient payment. It is less risky and the danger of loss is
minimised.
Definition of a Cheque
"Cheque is an instrument in writing containing an unconditional order, addressed to a banker,
sign by the person who has deposited money with the banker, requiring him to pay on demand a
certain sum of money only to or to the order of certain person or to the bearer of instrument."
Different Kinds / Types of Cheques

1. Bearer Cheque
When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is
called a bearer cheque. The bearer cheque is payable to the person specified therein or to any
other else who presents it to the bank for payment. However, such cheques are risky, this is
because if such cheques are lost, the finder of the cheque can collect payment from the bank.
2. Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the
word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a
cheque is payable to the person specified therein as the payee, or to any one else to whom it is
endorsed (transferred).
3. Uncrossed / Open Cheque

When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The
payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a
bearer cheque or an order one.
4. Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or without
additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot
be encashed at the cash counter of a bank but it can only be credited to the payee's account.
5. Anti-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as
"anti-dated cheque". Such a cheque is valid upto three months from the date of the cheque.
Cheque
6. Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is

known as post-dated cheque. A post dated cheque cannot be
honoured earlier than the date on the cheque.
7. Stale Cheque
If a cheque is presented for payment after three months from the date
of the cheque it is called stale cheque. A stale cheque is not honoured
by the bank.
There are three parties involved in a cheque. They are as follows
1. Drawer:
Drawer is the party who draws the cheque upon a soecified banker. He is the maker of the cheque.
He is the account holder who draws the cheque for drawing money from his bank account. He is the
person who issues cheque directing the bank to pay a certain sum of money to a certain person or to
the bearer. Thus, the person who signs the cheque is known as drawer.
2. Drawee
Drawee is the party upon whom the cheque is drawn. Drawee is the bank. It is the party to whom
the drawer gives order to pay the amount to the person named on the cheque or his order to the
bearer. When the bank follows the order and pays the amount of the cheque then the cheque is said
to be honored. In case of refusal of the order, the cheque is said to be dishonored.
3. Payee
Payee is the party who presents the cheque for payment. He is the person who receives money from
bank. He is the party in favor of whom cheque is issued. The payee is the person whose name is
mentioned on the cheque. If the cheque is made payable to self, the drawer himself becomes the
payee.
Parties of a cahque
Holder: Who keep a cheque to himself by his own right.
Endorser: Is a legal authority of a cheque Who handover a cheque to any
body by putting his signature behind or back side of a cheque.
Endorsee: Who received a cheque from a holder after endorsement.
Dishonor of a cheque
A Dishonored Check is a check that is not credited by the bank under numerous of reasons such as: the
signature does not match the one on file with the bank, the account that the check is written on has
insufficient funds, etc.
i. Taka differs from figure and amount.
ii. When the customer has died and the bank has notice of his death.
iii. Where the customer has become insolvent or an order of adjudication has been passed against him.
iv. When the bank has received an order from the court prohibiting payment out of the funds belonging to
the customer.
v. When a customer becomes a lunatic and the banker has got notice of his insanity.
vi. Where the drawer countermands ( ) payment.
vii. When the customer has not got sufficient funds with the bank and there is no overdraft arrangement.
viii. Where there are material alterations or signatures of the drawer or endorses are irregular.
ix. When the drawer has closed his account prior to the presentation of cheque.
x. When a cheque is mutilated.()
Bank statement. A bank statement shows the depositors bank transactions and
balances. It shows checks paid and other debits that reduce the balance in the
depositors account, deposits and other credits that increase the balance in the
depositor's account and the account balance after each days transactions.
It is a copy of the banks records sent to the customer for periodic review.
Definition of a Cheque
"Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has
deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain
person or to the bearer of instrument."
Different Kinds / Types of Cheques
1. Bearer Cheque
When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The
bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment.
However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from
the bank.
2. Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written
on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as
the payee, or to any one else to whom it is endorsed (transferred).
3. Uncrossed / Open Cheque
When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque
can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.
4. Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "&
CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can
only be credited to the payee's account.
5. Anti-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a
cheque is valid upto six months from the date of the cheque.
6. Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot
be honoured earlier than the date on the cheque.
7. Stale Cheque
If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque. A stale cheque is
not honoured by the bank.
Bank Statement
A bank statement shows the depositors bank transactions and balances.
It shows:
i) Checks paid and other debits that reduced the balance in the depositors account.
ii) Deposits and other credits that increase the balance in the depositors account.
iii) The accounts balance after each days transactions.
Step in reconciliation procedure:

iv) Deposits in transit: Deposit recorded by the depositor that had not been recorded
by the bank represents deposit in transit.
v) Outstanding cheque: issued cheque recorded by the company that had not been
paid by the bank represent outstanding cheque.
vi) Errors: Note any errors discovered in the forgoing steps. List them in the
appropriate section of the reconciliation schedule. Tk.195 is recorded as Tk.159.
vii) Bank memoranda: Any unrecorded memoranda should be listed in the appropriate
section of the reconciliation schedule. Bank charge, bank interest etc.
Formula for preparing bank reconciliation statement:
Bank balance as per cash book/Bank overdraft as per pass book/Bank statement Amount
Add. I) Cheque issued for payment; But not yet paid or not yet presented for payment. ****
II) Bill payable lifted to bank for payment; But not yet paid by the bank or not yet presented to ****
bank for payment.
III) Amounted collected by the bank direct from debtors; But not yet entered in the cashbook. ****
IV) Amount paid by debtors direct into bank; But not yet entered in the cashbook. ****
V) Bill receivable collected by the bank direct; But not yet entered in the cashbook ****
VI) Interest on investment /dividend on shares / amount of similar nature collected direct by the ****
bank; But not yet entered in the cashbook.
VII) Cheque deposited into bank for collection; but not entered in the cashbook wrongly. ****
VIII) Bill receivable deposited into bank for collection; But not recorded in the cashbook by ****
mistake.
IX) Cheque and Bill receivable deposited into bank for collection; But by mistake amount entered ****
in the cashbook.
X) Items credited to bank account / bank column in the cashbook; But later for any reason ****
whatsoever the bank passbook had not been debited.
XI) Collected cheque /bill receivable by the bank; But the same had been omitted to be entered in ****
the cashbook.
Formula for preparing bank reconciliation statement:
XII) Interested allowed by bank; But not entered in the cashbook. ****
Less: I) Cheque deposited into bank for collection; But not yet collected by the bank. ****
II) Bill receivable deposited into bank for collection: But not yet collected by the bank. ****
III) Cheque deposited into bank for collection; But later on dishonored. ****
IV) Tax, license fees ect. paid by the bank direct or amount paid to creditors direct; But not yet ****
entered in the cashbook.
V) Bill deposited into bank for collection; But later on. Dishonored. ****
VI) Cheque paid by the bank direct; But not yet entered in the cashbook. ****
VII) Bill receivable paid by the bank direct; But not yet entered in the cashbook ****
VIII) Drawing of cash by owner from bank direct: but by mistake; omitted to enter in the cashbook. ****
IX) Cheque issued for payment by the bank; but by mistake; omitted to enter in the cashbook. ****
X) Bill payable lifted to bank for payment by the bank' But by mistake omitted to enter in the ****
cashbook.
XI) Entry made in cash book at the full value of bill receivable wrongly, instead of its discounted ****
value (only the excess value)
XII) Items debited to bank account / bank column in the cashbook; But later on for any reason ****
whatsoever, the passbook had not been credited.
XIII) Interest on over draft charged by the bank; But not yet entered in the cashbook. ****
XIV) Bank charged; But not entered in the cashbook. ****
Formula for preparing bank reconciliation statement
Bank overdraft as per cashbook/ Bank balance as per passbook or bank statement *****
Add. I) Chaques deposited into bank for collection; But no yet collected by the bank ****
II) Bill payable deposited into bank for collection; But not yet collected by the bank ****
III) Cheques deposited into bank for collection; But later on dishonored ****
IV) Bill receivable deposited into bank for collection; But later on dishonored. ****
V) Taxes, licenses etc. paid by the bank direct; But not entered in the cashbook. ****
VI) Cheques paid by bank direct; But not yet entered in the cashbook ****
VII) Bill payable paid by the bank direct; But not yet entered in the cashbook. ****
VIII) Drawings of cash by owner from bank direct; But not entered by the cashbook. ****
IX) Bill payable lifted to bank for payment; But by mistake omitted to enter in the ****
cashbook.
X) Cheque issued for payment by bank; But by mistake omitted to enter in the ****
cashbook.
XI) Entry made in cashbook at the full value of the bill receivable wrongly instead of its ****
discounted value (Only the excess amount)
XII) Items debited to bank account / Bank column of the cashbook; But later on for any ****
reason whatsoever; the bank passbook had been not credited.
XIII) Interest on overdraft recorded by bank statement; But not yet entered in the ****
cashbook.
XIV) Bank charges recorded by bank statement; But not yet entered in the cashbook. ****
Formula for preparing bank reconciliation statement
Less: I) Cheque issued for payment; But not yet paid by bank or not yet presented to ****
bank for payment.
II) Bill payable lifted to bank for payment; But not yet paid by the bank or not yet ****
presented to bank for payment.
III) Amount collected by bank directly from debtors; But not yet entered in the ****
cashbook.
IV) Amount paid by debtors direct into bank; But not yet entered in the cashbook. ****
V) Bill receivable collected by bank direct; But not yet entered in the cashbook. ****
VI) Interest on investment /Dividend on shares /amount on similar nature collected ****
direct by bank; But not entered in the cashbook.
VII) Cheque deposited into bank for collection; But not entered in the cashbook ****
wrongly.
VIII) Bill receivable deposited into bank for collection; But not recorded in the ****
cashbook by mistake.
IX) Cheque, Bill receivable deposited into bank for collection; but by mistake; Amount ****
entered less in the cashbook
X) Items credited to bank account /Bank column of the cashbook; But later on for any ****
reason whatsoever the bank statement had not been debited.
XI) Collected cheques / Bill receivable by the bank; But the same had been omitted to ****
be entered in the cashbook
XII) Interest allowed by bank; But not yet entered in the cashbook. ****
Problem:
The cash account of Khaleque Transport Service disclosed a balance of Tk.17, 056 on October 31, 2014.The bank statement
as of October 31, 2014 showed a separate balance. Upon comparing the statement with the cash records, the following facets
were developed:
i. Khaleque account had been charged for a customers uncollectible cheque amounting Tk.1, 143 on October 26.
ii. A two-month, 9%Tk.3, 000 customers note dated August 25, discounted on October 12, had been protested October
26, and the bank had charged Khaleques account for which Tk.3051 included a protest fee of Tk.6.
iii. A customers cheque for Tk.725 had been entered as Tk.625 both by the depositor and the bank but was later corrected
by the bank.
iv. Cheque No.661 for Tk.1, 242 had been entered as Tk.1, 224 and cheque No.652 for Tk.33 had been entered as Tk.329.
The company uses the voucher system.
v. There were bank service charges for October, 2014 of Tk.39 not yet recorded on the books.
vi. A bank memo stated that M.Karims note for Tk.2, 500 and interest of Tk.62 had been collected on October 29, and the
bank had made a charge of Tk.12 (No entry had been made on the books when the note was sent to the bank for
collection.).
vii. Received of October 29, 2014 for Tk.6, 850 was deposited on November 1, 2014.
viii. The following cheques were outstanding on October 31, 2014:
Cheque No. Taka
620 1,253
621 3,448
632 2,405
670 1,775
671 732
673 187
Required:
675 275
676 2,233
1.Prepare a bank reconciliation statement as on 31 October, 2014.

2.Two-Part bank reconciliation statement.
Khaleque Transport Service
Bank Reconciliation Statement (Single Part)
Balance as per cash book 17,056
Add.
Error in recording Customers cheque (c) (725-625) 100
Error in cheque record (d) (329-33) 296
Collection of M.A. Karims note by bank not yet recorded (f) (Tk.2,500+Interest 62) - Service 2,550
Charge 12
Outstanding Cheque (h) 12,308 15,254
32,310
Less.
Customers cheque found to be uncollectible (a) 1,143
Dishonored note, Interest and protest fee (b) 3,051
Error in cheque record (d) (1,242 1,224) 18
Bank charge (e) 39
Deposit in transit (g) 6,850 11,101
Balance as per bank statement 21,209

Bank Reconciliation Statement (Two Part)
Particulars Taka Taka Particulars Taka Taka
Balance as per bank statement 21,209 Balance as per cash book 17,056
Add:
Error in recording customers cheque 100
(725-625)
Error in record- cheque No.652 for Tk.33 296
entered as Tk.329) (d)
Note and interest on it collected by the 2,550

bank and service charge for it(2500+62-
Add: Deposit in transit (g) 6,850 12) (f) 2,946
28,059 20,002
Less: Customers cheque found to be 1,143
uncollectible (a)
Dishonored note, interest and protest fee 3,051
(b)
Error in record- cheque No. 661 for 18
Tk.1,242entered as Tk.1,224) (d)
Less: Outstanding cheque (h) 12,308 4,251
Bank charge (e) 39
Adjusted bank balance 15,751 Adjusted bank balance 15,751
Illustration- 1: Agricultural Genetics Company is a large company that produces hybrid seeds and
fertilizer. ON May 31, 2008, the company's cash account per its general ledger showed a balance of TK
6,781.50.
The bank statement from EXIM Bank on that date showed the balance of TK 6,804.60.
A comparison of the details on the bank statement with the details in the cash account revealed the
following facts:
The statement included a debit memo of TK 40 for the printing of additional company checks.
Cash sales of TK 836.15 on May 12 were deposited in the bank. The cash receipts journal entry and the
deposit slip were incorrectly made for TK 846.15. The bank credited Agricultural Genetics Company
for the correct amount.
Outstanding checks at May 31 totaled TK315.25 and deposits in transit were TK936.15.
On May 18, the company issued check no. 1181 for TK 685 to M. Datz, on account. The check which
cleared the bank in May was incorrectly journalized and posted by Agricultural Genetics Company for
TK 658.
A TK 2,000 note receivable was collected by the bank for Agricultural Genetics Company on May 31
plus TK 80 interest. The bank charged a collection fee of TK25. No interest has been accrued on the
note.
Included with the cancelled checks was a check issued by Bohr Company to Fred Mertz for TK 600
that was incorrectly charged to Agricultural Genetics Company by the bank.
On may 31, the bank statement showed an NSF charge of TK 734 for a check issued by Tyler
Gracious, a customer, to Agricultural Genetics Company on account.
Instruction:
Prepare the bank reconciliation statement at May 31, 2008.

AGRICULTURAL GENETICS COMPANY
Bank Reconciliation Statement
As on may 31, 2008
Balance per book--------------------------------- - 6,781.50
Add: Note collected by bank with interest
Less charge (2,000+80-25) 2,055.00 2,055.00
8,836.50
Deduct: Debit memo 40.00
Error in recording sales 10.00
Error in issued check 27.00
NSF charge 734.00 811.00
Adjusted cash balance per book - 8,025.50
Balance per bank statement------------------- - 6,804.60

Add: Deposit in transit 936.15
Erroneously charged by bank 600.00 1,536.15
8,340.75
Deduct: Outstanding check 315.25 315.25
Adjusted cash balance per bank - 8,025.50
Problem:
On December 31, 2015, the cash book of a firm showed a bank balance of Tk.3,000. From the following
information, prepare a bank reconciliation statement, showing the balance as per bank statement:
a) Cheque had been issued for Tk.2,500 out of which cheque worth Tk.2,000 only were presented for
payment.
b) Cheque worth Tk.700 were deposited on 28th December but had not been credited by the bank. One
cheque for Tk.250 was entered in the cash book on 30th December but was credited on 3rd January 2015.
c) A cheque from Rahim for Tk.200 was paid in on 26th December but was dishonored and the advice was
received on 2nd January 2015.
d) Bank statement shows bank charges Tk.10 debited by the bank . It also showed Tk.400 collected by the
bank as interest.
e) One of the debtors deposited a sum of Tk.250 in the account of the firm on 20th December.
Information in this respect was received from the bank on 2nd January, 2015.
Firm ***
Balance per book 3,000
Outstanding cheque (a) [2,500 2,000] 500
Bank interest (d) 400
Deposit by the debtors (e) 250 1,150
4,150
Less. Cheque deposited but not credited by the bank (b) (700+250) 950
Dishonored cheque (C) 200
Bank commission charge (d) 10 1,160
Balance as per bank statement 2,990
Firm ***
Two-part Bank Reconciliation Statement
Receipts Taka Payments Taka Taka
Bank balance as per bank 2,990 Bank balance as per cash book 3,000
statement
Add. Deposit in transit (b) 950 950 Add. Deposited by the debtor (e) 250
3,940 Bank interest received (d) 400 650
3,650
Less. Dishonored cheque (b) 200
Less. Outstanding cheque (a) 500 500 Bank Commission charged 10 210
Problem:
Prepare a bank reconciliation statement balance of Ahamed & Sons on June 30, 2015, from the following
particulars.
a) Cash book showed a debit balance of Tk.12,242 on June 30, 2015
b) Bank honored a bills payable of Tk.3,700 of the firm, but no record was made in the cash book.
c) A cheque deposited in the bank amounting to Tk.115 and duly credited in the bank statement, but
entered in the cash book as n Tk.151.
d) Dividend amounting to Tk.320 paid direct into the bank had not been entered in the cash book.
e) Cheque deposited on June 28, but credited by the bank on July 1, 2015 Tk.1,700.
f) Cheque issued but not presented for payment Tk.1,500
g) Bank interest and commission of Tk.15 and Tk.45 respectively was not entered in the cash book.
Ahmed & Sons
As on June 30, 2015
Add. Dividend received (d) 320
Outstanding cheque (f) 1,500
Bank interest (g) 15
1,835
14,077
Less. Bill payable honored by the bank (b) 3,700
Wrongly debited in cashbook (c) (151 115) 36
Cheque deposit in transit (e) 1,700
Bank commission charge (g) 45 5,481
8,596
Ahmed & Sons

As on June 30, 2015
Receipts Taka Payments Taka Taka
Bank balance as per bank statement 8,596 Bank balance as per cash book 12,242
Add. Deposit in transit (e) 1,700 Add. Dividend received by the bank (d) 320
10,296 Bank interest received (g) 15 12,577
Less. Bill payable paid by the bank (b) 3,700
Wrongly recorded in cash book (151- 36
115) ( c)
Less. Outstanding cheque (f) 1,500 Bank Commission charged 45 3,781
Problem:
Kasem & Sons maintain the current account with Sonali Bank. As per bank account of the company the
balance stands at Tk.5,680 as on March 31, 2016. On receipt of bank statement the accountant of the
company ascertained that:
a) Out of total deposits into the bank two cheques amounted to Tk.5,400 was cleared on April 8.
b) Out of total cheques issued during the month for Tk.8,500 only cheque of Tk.6,000 was cleared up to
march 31. From the balance a cheque of Tk.500 was presented on April 10. The cheque for the balance
amount is yet to be presented.
c) The bank collected an amount of Tk.2,600 directly from a customer against companys circular.
d) The collected dividend against warrant Tk.600.
e) Bank charged an amount of Tk.250 as service charges.
f) A deposit of Tk.1,500 credited by the bank as Tk.1,050.
g) A cheque of Tk.1,400 issued to a supplier was recorded in the cash book as Tk.140
Prepare the bank reconciliation statement.

Ahmed & Sons
As on June 30, 2015
Add. Outstanding cheque (b) (8,500-6,000) 2,500
Cash collected directly by the bank (c) 2,600
Dividend collected by the bank (d) 600 5,700
11,380
Less. Cheque deposit in transit (a) 5,400
Wrongly recorded the issued cheque by the accountant (f) (1,400 140) 1,260
Bank service charge (e) 250
Wrongly recorded by the bank (g) (1,500-1,050) 450 7,360
Bank balance as per bank statement 4,020
Ahmed & Sons

As on June 30, 2015
Receipts Taka Taka Payments Taka Taka

Bank balance as per bank statement 4,020 Bank balance as per cash book 5,680
Add. Deposit in transit (a) 5,400 Add. Directly collected by the bank (c) 2,600
Wrongly recorded by the bank 450 5,850 Dividend collected by the bank (d) 600 3,200
(g) (1,500-1,050)
9,870 8,880
Less. Outstanding cheque (b) 2,500 2,500 Less. Wrongly recorded the issued 1,260
(8,500-6000) cheque in cash book (1,400-140) ( f)
Bank service charged (e) 250 1,510
Cost Accounting
Cost accounting measures and reports financial and non-financial
information relating to the cost of acquiring and utilizing resources
in an organization.
Cost accounting provides key data to managers for planning and

controlling, as well as costing products, services and customers.
A worksheet is a multiple column from that may be used in the
adjustment process and in preparing financial statement.
Cost Accounting
Cost accounting involves the measuring recording and
reporting of product costs.
Cost accounting is an approach to evaluating the overall

costs that are associated with conducting business.
Cost accounting is one of the tools that managers utilize

to determine what types and how much expenses is
involved with maintaining the current business model.
From the data accumulated, both the total costs and the
unit costs each product is determined.
Advantages of Cost Accounting
i) Elimination of wastes, losses and inefficiencies.
ii) Cost reduction
iii) Advice on various matter: Cost accountant, on the
basis of cost information, can advice the
management in such a way that the management
can rightly choose the best out of many alternatives.
iv) Detection of reason for profit and loss: A costing
system finds out the actual reasons for reduction in
profit or increase in losses.
v) Fixation of price: Cost accounting helps the
management to fix up product price and to prepare
estimates for submission of tenders.
Advantages of Cost Accounting
vi) Managerial analysis of cost: It is done for facilitating
short-term decisions.
vii) Helping preparation of financial statement under
financial accounting system: Cost accounting readily
supplies the figures for closing materials, work-in-
progress and finished goods. So financial statements
can be prepared without any delay for ascertaining
stock value.
viii) Prevention of fraud: By introducing cost audit fraud
can be prevented.
ix) Fixation of responsibility: For appropriate cost accounting,
responsibility are determined. When responsibility are
properly defined and fixed or individuals it become difficult
to avoid responsibility.
Elements of cost
The elements that constitute the cost of goods manufacture are known as
the elements of cost.
Elements of costs are:
i) Material
ii) Labor
iii) Expenses
Each are again sub-divided into direct costs and indirect costs.
Direct Material: It refers to material out of which the product is
manufactured.
Example: Lather shoes are produced out of lather.
Direct Wages: It refers to the wages paid to the workers who actually
produced the goods.
Direct expenses: Direct expenses are those which are neither direct
material nor direct wages but are directly identifiable with a job, process or
operation.
Example: Cost of special pattern, gifts & presentations, travelling charges.
Elements of cost
i) Indirect material: Indirect material are those material needed to the
completion of a product but the consumption of which is so
minimal or so complex that treating them as direct materials is
futile. Factory supplies a form of indirect materials, consist of such
items as lubricant oils, grease, cleaning gas etc. which can not be
traced as a part of the product. Example: Fuel, Oil, etc.
ii) Indirect wages: Indirect may be defined as expended labor which
does not directly affect the construction or the completion of the
finished product. Indirect labor includes the wages of supervisors,
shop clerks, general helpers and employees engaged in maintenance
work that is not directly related to production.
iii) Indirect expenses: Expenses which can not be charged to product
directly and which are neither indirect material nor indirect wages,
are regarded as indirect expenses. Example: Salary of office stuff.
Classification of cost
i) Element wise classification: a) Direct cost b)
Indirect cost.
ii) Function wise classification: a) Production
cost b) Office & administrative cost c) selling &
distribution cost
iii) Behavior wise classification: a) fixed cost b)
Variable cost c) Semi-variable cost.
Statement of cost
Direct Material
Direct Labor Prime Cost
Direct Expenses
Indirect Material
Indirect Labor
Of the factory together constitute factory
Indirect Expenses overhead
Prime Cost + Factory Overhead = Work Cost
Factory overhead: May be defined as the cost of indirect materials, indirect labor and all other manufacturing
costs that can not be charged directly to specific products simply stated factory overhead includes all
manufacturing costs except direct material and direct labor.
Work Cost + Administrative Overhead = Cost of Production

Cost of Production + Selling & Distribution Cost = Total Cost or Cost of Sales
Cost of Sales + Profit = Sales
Statement of Cost
Taka Taka
Opening stock of raw materials ***
Add. Purchased of raw materials ***
***
Less. Return to suppliers ***
***
Less. Abnormal loss of materials ***
***
Less. Closing stock of raw materials **
Raw material consumed ***
Direct wages ***
Direct expenses ***
Prime Cost ****
Factory overhead expenses ***
Add. Opening W-I-P ***
***
Less. Closing W-I-P *** ***
Factory cost or work cost ****
Office and administrative overhead ***
Cost of production ***
Add. Opening finished stock ***
Statement of Cost
Taka Taka
***
Less. Closing finished stock ***
Cost of gods sold ***

Add. Selling overhead ***
Distribution overhead ***
Cost of sales ****
Add. Profit ***
Sales or Selling price ****
Problem
The records of the sunshine corporation show the following information for the six months ended June
30, 2014:
Taka
Raw material used in production 18,000
Productive labor 11,000
Unproductive factory labor 5,000
Factory supplies 900
Administrative salaries 6,000
Other factory expenses 2,600
Miscellaneous selling expenses 2,000
Sundry administrative expenses 1,500
Depreciation ( 75% Manufacturing, 15% Administrative and 10% Selling Expenses) 10,000
Goods completed and sold during the period 5,000 units
Selling price per unit Tk. 16
Requirement: i) A statement showing the total cost of goods manufactured and profit earned.
ii) The sales price per unit for earning the same percentage of profit on sales for the same volume of production in the next
six months if the production cost increased by 10% and selling cost decreased by 15%
Solution
Requirement 1: Statement of cost

Direct materials 18,000
Prime cost 29,000
Factory overhead:
Unproductive labor 5,000
Depreciation (75%) 7,500 16,000
Work cost 45,000
Administrative expenses:
Administrative salaries 6,000

Depreciation (15%) 1,500 9,000
Cost of production 54,000
Selling expenses:
Sales salaries 3,000
Misc. selling expenses 2,000
Sales (5,000 units @ Tk.16) 80,000
Profit 20,000
Requirement 2
Calculation of sales price:
Cost of production = 54,000
Add. 10% increase = 5,400
59,400
Selling price = 6,000
Less: Decrease 15% = 900
5,100
Cost of goods sold = 64,500
{20 taka of 80 Taka}
Profit (25% on sale or
33.33% on cost) 21,500
Sales 86,000
Sales price per unit = 86,000 5,000 = Tk.17.20
Solution
Requirement 1: Statement of cost

Prime cost 29,000
Factory overhead:
Unproductive labor 5,000
Depreciation (75%) 7,500 16,000
Cost of Production 45,000
Administrative expenses:
Add. Administrative salaries 6,000

54,000
Add. Selling expenses:
Sales salaries 3,000
Misc. selling expenses 2,000
Sales (5,000 units @ Tk.16) 80,000
Profit 20,000
Requirement 2
Calculation of sales price:
Production Cost = 45,000
Add. 10% increase = 4,500 49,500

Selling price = 6,000
Less: Decrease 15% = 900
5,100
Cost of goods sold = 63,600
{20 taka of 80 Taka}
Profit (25% on sale or
33.33% on cost) 21,198
Sales 84,798
Sales price per unit = 84,798 5,000 = Tk.16.95
Problem-2
The Dimond Manufactures Ltd. Produces electric fans. On January 1,
2015, The company had 500 units of finished goods on hand costing Tk.
5,50,000.
During the year, the company sold 19,700 electric fans at a profit of 20%
on sale. 30 Ibs. of raw materials were needed for each unit at a cost of
Tk. 22 per Ib. Direct labor cost for each units was 50 labor hours at Tk.5
per hour. Factory overhead was charged at 60% of direct labor cost.
Administrative and selling expenses were Tk.1,60,000 and 92,500
respectively. The finished goods inventory at close were 800 units.
Prepare statements showing (a) Cost of production (b) Cost per unit
Cost of goods sold and (d) Net Profit
Solution
Statement of production
Unit
Sales 19,700
Add. Closing inventory 800
20,500
Less. Opening inventory 500
Production units during the year 20,000
Statement of cost
Total Per Unit
Cost Cost
Direct Materials (30 20,000 22) 1,32,00,000 660
Direct Wages (50 5 20,000) 50,00,000 250
Prime Cost 1,82,00,000 910
Factory Overhead (60% of Direct Labor) 30,00,000 150
Work Cost 2,12,00,000 1,060
Administrative Overhead 1,60,000 08
Cost of Production 2,13,60,000 1,068
Add. Opening Finished Goods (500 units) 5,50,000
2,19,10,000
Less. Closing Finished Goods (800 1,068) 8,54,400
Cost of Goods Sold 2,10,55,600
Add. Selling Cost 92,500
Cost of Goods Sold 2,11,48,100
Net Profit 52,87,025
Sales 2,64,35,125
Problem
Janata Ltd. Sold 3,000 units in 20 A at Tk.65 per. Cost of direct materials
and direct labor were Tk.54,000 and Tk.48,000 respectively. Factory
overhead was applied at 75% of direct labor cost. Administrative and
selling expenses which were fixed amounted to Tk.25,000. The
Company has a plan to increase its sales to 3,600 units in 20 B. The price
of raw materials and wage rates are expected to increase by 10% and
factory overhead by 5% in addition to the proportionate increase caused
by the volume. If the company plans to increase profit by Tk.15,000 in
20B, What should be the selling price per unit?
Calculation of profit for 20A
Sales (3,000 65) 1,95,000
Less. Cost of goods sold:
Direct material 54,000
Direct labor 48,000
Factory overhead (75% of 48,000) 36,000 1,38,000
Gross Profit 57,000
Less. Administrative and selling cost 25,000
Net profit 32,000
Calculation of profit for 20B

Production cost:
Direct materials (54,000+10%) = (59,400 3,000) 3,600 71,280
Direct labor (48,000+ 4,800)= (52,8003,000) 3,600 63,360
Factory overhead (36,000+1,800) = (37,8003,000) 3,600) 45,360
Production cost 1,80,000
Add. Administrative & selling cost 25,000
Add. Profit (32,000+15,000) 47,000
Sales 2,52,000
Selling price per unit = 2,52,000 3,600 = Tk.70
Problem
The Fancy Ltd. Produces refrigerators. On 1 st January,
16 units costing Tk.4,800 were on stock. During the
year 300 refrigerators were manufactured and 270
units (including the opening stock) were sold at
Tk.6,950 per unit. Cost analysis showed that costs of
raw materials and direct labor per unit amounted to
Tk.2,150 and 1,800 respectively. Factory overhead
was charged at 75% of direct wages. Administrative
and selling expenses were Tk.37,500 and Tk.51,000
respectively.
Prepare statements showing cost of finished stock on
hand and net profit.
Solution
Raw material (300 2,150) 6,45,000
Direct labor (300 1,800) 5,40,000
Prime cost 11,85,000
Factory overhead (75% of 5,40,000) 4,05,000
Work cost 15,90,000
Add. Administrative expenses 37,500
Cost of production 16,27,500
Add. Opening finished goods (16 units@ Tk.4,800) 76,800
17,04,300
Less. Closing finished goods (46 units @5,425) 2,49,550
Cost of sales 14,54,750
Add. Selling & distribution expenses 51,000
Sales (270 units @ Tk.6,950) 18,76,500
Profit 3,70,750
Problem
The fresco Ltd. Has been selling REVLON for Tk.115. Last year the company made
a profit of 30% on the sales volume of 1,800 units of total costs of sales, 35%
constituted direct materials and 30% overheads which included administrative and
selling expenses. 40% of the overheads were fixed. The sales department of the
company believes that if the price of the product is reduced by 10%, the unit sell will
increase by 40%.
Show whether the company should reduce the price of its product.
Solution
Sales 115 1,800 2,07,000
Profit 2,07,000 30% 62,100
Direct Material 50,715
Direct labor 50,715 1,01,430
Overhead: Fixed=43,470 40% 17,388
Variable = 43,470-17388 26,082 43,470
Direct Material (50,715 1,800) 2,520 71,001

Direct labor 71,001
Prime cost 1,42,002
Overhead:
Fixed 17,388
Variable (26,082 1,800) 2,500 36,514.8 53,902
Cost of goods sold 1,95,904.8
Profit 64,915.2
Sales (103.50 2,520) 2,60,820
Profit increase (64,915.2 62,100) 2,815.2
Problem
From the following particulars prepare a statement showing i. prime cost ii. Work cost
iii. Total cost iv. Percentage of works overhead to wages v. percentage of office
overhead to work cost.
On January 1, 2015
Stock of finish goods Tk.1,12,000
Stock of raw materials Tk.51,200
On December 31, 2015
Stock of finished goods Tk.1,56,000
Stock of raw materials Tk.70,720
For the year 2015
Purchase of materials Tk.15,18,400
Sales of finished goods Tk.30,78,400
Wages Tk.10,32,000. Factory overhead Tk.2,58,000
Office overhead Tk.1,00,000. On the basis of the above information assuming that a
unit will cost Tk.2,500 towards direct material and Tk.1,500 towards wages. Prepare
quotation for the year 2015 by maintaining same percentage of overhead as in the
previous year. The firm also expects to recover the 20% profit on cost price.
Store ledger & Bin Card
Store ledger: Store ledger is a document kept by the cost department for
each item of material. In store ledger every movement of material, either
inward and outward is recorded in quantity, rate and value and the
balance of the material after each movement.
Bin card is a record maintained in respect of each item of material to

show the quantity in, the quantity out and the stock after each
transaction. The stock, at any time, shown in the bin card can be verified
with the physical stock in the bin. In the bin card the stock levels and
the normal quantity of purchase are mentioned so that the level can be
properly maintained.
To establish cross reference the stores ledger folio no. is mentioned in the
bin card and the bin no. is mentioned in the store ledger.
Store Ledger
Difference between store ledger and bin card:
Store Ledger Bin Card
a) The record is kept by the cost department. a) The record is kept by the store-keeper.
b) It records both quantity and value. b) It records the inward and outward
movement of materials and the balance after
each movement.
C) Entries are made in respect of purchase, c) Entries are made in the bin card when
return and issue, but after recording of bin card. purchases and returns come in and when
issues go out.
d) Store ledger balance is in cost department d) Bin card is maintained where the materials
where materials are physically not present. are physically present.
e) Store ledger can supply information for e) Bin card cannot supply inventory value for
preparing financial income statement. preparation of financial income statement.
f) Posting may be made on the basis of summary f) Posting in bin card is made for each
of several transactions in the same material for individual transaction.
a particular period.
Different methods of pricing the issues of materials
1) Cost methods:
a) Specific cost method: Material issued is priced at the exact cost of the said material.
Example: 10 units purchases @ Tk. 15 Per unit and issued @ Tk. 15 per unit.
b) Cost methods on the basis of principles of:

i) First in-First out (FIFO): Under this method it is assumed that materials receipts first
are issued first.
Example: Purchased 500 units @ Tk.10 and then purchased 200 units @ Tk.15. If 600
units from those. In store ledger record will be {500 units @ Tk.10 and 100 units @
Tk.15}.
ii) Last in-First out (LIFO): Under this method it is assumed that latest receipts are
issued first.
Example: Purchased 500 units @ Tk.10 and then purchased 200 units @ Tk.15. If 600
units issued from those. In store ledger record will be {200 @ Tk.15 and 400 @ Tk.10}.
iii) Height in-First out (HIFO): Issues shall be charged at the height cost of
purchase in stock so that closing inventory may represent purchases at lower
rate.
Example: Purchase 500 units @ Tk.10 and then purchased 200 units @ Tk. 15
and then purchased 100 units @ Tk.12. If 600 units issued from those material
record in store ledger will be{200 @ Tk.15 and 100 @ Tk.12 and 300@
Tk.10}.
iv) Next in- First out (NIFO): Issues is charged at the rate of next purchase
which is yet to arrive. The rate of next purchases can easily be known from the
purchase order place.
v) Base stock: The fixed quantity of materials is
always maintained at original cost and remaining
quantity issues using either FIFO or LIFO principle.
Example:150 units purchases @ Tk. 10 per. And 100

purchases @ Tk. 11 per unit. Base stock is fixed 50
units & if 200 units issues at any time then 50 units
will issues @ Tk. 10 and remaining 150 units issues
under FIFO (100 @ Tk. 10 & 50 @ Tk.11) or LIFO
( 100 units @ Tk.11 & 50 units @ Tk.10) principle.
Different methods of pricing the issues of
c) Average cost methods:materials
i) Simple average method: The rates of stock purchase at the
time of issue are added and then divided by number of
such rates to obtain the simple average rate.
Example: 10units @ Tk.10 per. 20 units @ Tk.15 per. Issue

20units @ Tk. (10+15) 2 =Tk.12.50
ii)Weighted average: Total value of materials is divided by

total quantity of materials to obtain the weighted average rate.
Example: Purchase 100 units @ Tk. 50 per unit and Purchase

150 units @ Tk.55 per unit. Weighted average rate will be
[{(100 50) + (150 55) } (100 units + 150 units)]= Tk.53
Different methods of pricing the issues of
materials
iii) Periodic average (simple and weighted average):
(a)Periodic simple average: The rates of purchases during a given period

are added and then divided by the number of such purchases during that
period to obtain periodic simple average rate.
Example: In 2014 records of purchased and issued is given: Purchased

500units @ Tk.10 and then purchased 200 units @ Tk.11 and then
purchased 100 units @ Tk.12. If issued 400 units, periodic simple
average rate for those units will be {(10+11+12)3}= Tk.11
(b) Periodic weighted average rate: In this case one weighted average
rate is calculated for application in respect of all issues during the same
period.
Periodic weighted average rate for 2014 will be [{(50010) + (200 11)
+ (10012)} (500+200+100)]= Tk.10.5
iv) Moving average: The total of periodic average rate of a selected

number of periods is divided by the number of such periods to obtain the
moving average rate. Let average period is five month. Moving average
rate for August is the average of April to August and average rate for
September is the average of May to September.
2) Replace price method: Material issued by market price of issued date.
3) Standard price method: Standard material price is generally fixed before
the actual purchase. Materials issued are valued at standard price.
4) Inflated price method: Cost of material is considered to be the invoice
price + (freight, insurance, carriage etc.)
5) Re-use price method: The price charged in respect of rejected materials
issued to alternative use. This price is less than the cost of original
material.
Problem
The following are the particulars of receipts and issues of a material in a
factory during January,2014
Date Transaction Quantity

January Opening balance 1,000 kg. @ Tk.20 per kg.
1
10 Issued 500 kg.
12 Received from supplier 400kg.@ Tk.30 per kg.
14 Return of surplus to the store 30 @ Tk.25
15 Issued 305kg.
20 Received from supplier 600kg. @ Tk.34 per kg.
25 Issued 550kg.
29 Received from supplier 600kg. @ Tk.35
31 Issued 350kg.
You are required to prepare statements to show how the values of the issues and
balances of materials should be arrived at under FIFO, LIFO and weighted average
systems.
FIFO
Date Receipts Issues Balance
2014 Qty. Rate Amount Qty. Rate Amount Quantity Rate Amount
January 1000kg 20 20,000

1
10 500kg. 20 10,000 500kg. 20 10,000
12 400 30 12,000 500kg 20 10,000
Kg. 900kg 400kg 30 12,000 22,000
14 30kg. 25 750 500kg 20 10,000
930kg 400kg 30 12,000 22,750
30kg 25 750
15 305kg 20 6,100 195kg 20 3,900

625kg 400kg 30 12,000 16,650
30kg 25 750
20 600 34 20,400 195kg 20 3,900

Kg. 400kg 30 12,000
1,225kg 30kg 25 750
37,050
600kg 34 20,400
25 195kg 20 3,900 45kg 30 1,350

550kg355kg 30 10,650 675kg 30kg 25 750 22,500
600kg 34 20,400
FIFO
January 600kg 35 21,000 45kg 30 1,350
29 30kg 25 750
1,275kg 600kg 34 20,400 43,500
600kg 35 21,000
31 45kg 30 1,350 325kg 34 11,050
30kg 25 750 600kg 35 21,000
350kg 275kg 34 9,350 11,450 925kg 32,050
LIFO
2014 Qty. Rate Amount Qty. Rate Amou Quantity Rate Amount
nt
January 1000kg 20 20,000
1
10 500kg. 20 10,000 500kg. 20 10,000
12 400kg. 30 12,000 500kg 20 10,000
900kg 400kg 30 12,000 22,000
14 30kg. 25 750 500kg 20 10,000
930kg 400kg 30 12,000 22,750
30kg 25 750
15 30kg 25 750 500kg 20 10,000

305kg 275kg 30 8,250 625kg 125kg 30 3,750 13,750
20 600kg 34 20,400 500kg 20 10,000

125kg 30 3,750
1,225kg 600kg 34,150
34 20,400
25 550kg 34 18,700 500kg 20 10,000

675kg 125kg 30 3,750 15,450
50kg 34 1,700
FIFO
January 600kg 35 21,000 500 kg 20 10,000
29 125kg 30 3,750
1,275kg 50kg 34 1,700 36,450
600kg 35 21,000
31 350kg 35 12,250 500kg 20 10,000
30 3,750
925kg 125kg 34 1,700 24,200
50kg 35 8,750
250kg
Weighted Average Method
January 1000kg 20 20,000

1
10 500kg. 20 10,000 500kg. 20 10,000
12 400kg. 30 12,000 900 kg 24.44 22,000

(22,000 900)
14 30kg. 25 750 930 kg 24.46 22,750
15 305kg 24.46 8,651 625kg 24.46 15,288
20 600kg 34 20,400 1225kg 29.13 35,688
25 550kg 29.13 16,022 675kg 29.13 19,666
29 600kg 35 21,000 1275kg 31.89 40,666
31 350kg 31.89 11,163 925kg 31.89 29,498

Overhead
Any cost doing business other than direct cost of
an output of product or service is called
overhead.

Overhead represents the cost of indirect material,

indirect labor and such other expenses including
services as cannot conveniently be charged to a
specific unit.
( )
Allocation of overhead
Allocation means charging to a department or
cost center that expenses which has been
incurred exclusively for that department or cost
center.
Overhead expenses identified in a department is

charge to that department only. This is called
allocation.
(
)
Apportionment of overhead
Apportionment means the allotment to two or
more departments or cost centers of
proportions of common items of cost on
estimated basis of benefit received.
Apportionment is therefore, charging to a cost

center or a department a fare share of an
overhead expenses.
(
)
Distinction between allocation and apportionment
1. Allocation deals with items which are identifiable with any one
department. While apportionment deals with only a particular
portion of an item of cost.
(
)
2. Allocation indicates direct process of charging. On the other
hand apportionment needs the ascertainment of reasonable share
of an expenses to be borne by the various departments benefit.
(
)
3. Allocation is much wider term than apportionment.
( )
Classification of Overhead
Overhead may be classified in various ways:
i) Function wise classification
ii) Element wise classification
iii) Behavior wise Classification
iv) Control wise Classification
i) Function wise classification:

(a) Production function: All expenditure incurred in connection with
production function are production overhead.
(b) Administrative Function: All expenses incurred in connection with the

general administration of the organization are administrative or office overhead.
Selling & Distribution function: All expenses incurred in connection with

the sales function are selling overhead and those connect with distribution
function are distribution overhead.
Classification of Overhead
ii) Elements wise Classification:
(a) Indirect Material
(b) Indirect labor
Indirect expenses
iii) Behavior wise Classification:
(a) Variable Overheads: They represent the overhead expenses which tend to follow
the level of activity.
(b) Fixed Overhead: They represent the overhead expenses which tend to remain
unaffected by fluctuations in volume within a relevant range and during a
defined period of time.
(c) Semi-variable or semi-fixed: They represent partly fixed overheads. They may
remain fixed at certain levels of output while the vary at other levels, but nit in
direct proportions to the change in output.
iv) Control wise Classification:
(d) Controllable Overhead: Overhead cost which can be controlled by the exercise
of proper managerial influence are controllable overhead.
(e) Uncontrollable Overhead: Overhead costs that cannot be controlled in spite of
the best exercise of managerial influence are uncontrollable overhead
Basis of primary distribution commonly used
Rent, rates and taxes. Lighting Area occupied (i.e. flour space occupied)
Salary of the floor supervisor Area occupied (i.e. flour space occupied)
Salary of floor manager
Repair and insurance of building
Repair and insurance of plant and machinery Capital value of respective assets
Insurance of stock Stock value
Power cost Kilowatt hours
Horse power hour
Horse power * Machine hours
Lighting expenses Light point and wattage
Electricity
Canteen expenses
Time keeping Number of employee
Personal department expenses
First aid expenses
Factory overhead expenses

Workmen's compensation insurance Departmental direct wages
Supervision expenses
Works management expenses
General overtime expenses Production hours of direct wages
Most of the general expenses
Steam charge Technical estimates
Redistribution of service department costs
Cost of the service department Basis of allocation
{Maintenance and repair shops Direct labour hours
Planning and progress Tool room} Machine hours
Direct Labour wages
Assets value * hours worked
{Canteen and welfare
Hospital and dispensary Number of direct workers,
Personal department Time - keeping} Number of employee
Number of card purchased
Computer section Computer hours
Specific allocation to departments
Floor area
Power house (electric lighting cost) Cubic content
Number of electric point
Wattage
Horse power
Power house (electric power cost) kwh Horse power*Machine hours
Kwh*Machine hours
Number of requisitions,
Store department Weight or value of material issued
Crane hours
Track hours
Track mileage
Transport department Track tonnage
Track ton - hours
Tonnage handled
Number of packages of standard size
Fire protection Capital values
Inspection Inspection hours
ABC limited is a manufacturing company having three production departments A, B and C and
two service departments X and Y. The following is the budget for December, 2014
Total A B C X Y
Direct material 3,000 6,000 12,000 6,000 3,000
Direct wages 15,000 6,000 24,000 3,000 6,000
Factory rent 12,000
Power 7,500
Depreciation 3,000
Other overheads 27,000
Additional Information A B C X Y
Area (sq.m.) 500 250 500 250 500
Capital value of assets (Taka in lakhs. 20 40 20 10 10
Machine hours 1,000 2,000 4,000 1,000 1,000
A technical assessment for the apportionment of expenses of service departments is as under
A B C X Y
% % % % %
Service department X 45 15 30 - 10
Service department Y 60 35 - 5 -
Required: A statement showing distribution of overheads to various departments , redistribution of service

departments expenses to production departments and machine hour rate of production department A,B and C.
Solution: Overhead distribution sheet
Item of expenses Basis of Apportionment Total Production X Y

Departments
A B C
Direct materials Direct 9,000 - - - 6,000 3,000
Ddirect wages Direct 9,000 - - - 3,000 6,000
Factory rent Area (sq.m.) 12,000 3,000 1,500 3,000 1,500 3,000
Power H.P. Machine hour 7,500 1,500 2,400 2,400 450 750
Depreciation Capital value of assets 3,000 300 1,200 1,200 150 150
Other overheads Machine hours 27,000 3,000 6,000 12,000 3,000 3,000
Total 67,500 7,800 11,100 18,600 14,100 15,900
Overhead distribution sheet

A B C X Y
Total per distribution summary 7,800 11,100 18,600 14,000 15,900
Department X 6,345 2,115 4,230 (-) 14,100 1,410
Department Y 10,386 6,059 - 865 (-) 17,310
Department X 389 130 260 (-)865 86
Department Y 52 30 - 4 (-) 86
Department X 2 1 1 (-) 4 -
Total 24,974 19,435 23,091 - -
Machine hour rate
Department A = (Tk.24,974 1,000) = Tk.24.94
Department B = (Tk.19,495 2,000) = Tk. 9.7175
Department C = (Tk.23,091 4,000) = Tk.5.7728
Problem:
A company has three production departments A,B and C and two service departments D and E. The following
figures are extracted from the record of the company
Taka
Rent and rates 5,000
General lighting 600
Indirect wages 1,500
Power 1,500
Depreciation of machinery 10,000
Sundries 10,000
The following further details are available:

A B C D E
Floor space (sq.m.) 2,000 2,500 3,000 2,000 500
Light points (nos.) 10 15 20 10 5
Direct wages (Taka) 3,000 2,000 3,000 1,500 500
H.P. of machinery 60 30 50 10 -
Value of machinery (Taka) 60,000 80,000 1,00,000 5,000 5,000
Working hours 6,226 4,028 4,066 - -
The expenses of D and E are allocated as follows:

A B C D E
D 20% 30% 40% - 10%
E 40% 20% 30% 10% -
What is the total cost of an article, if its raw material cost is Tk.50,
labor cost is Tk.30 and it passes through Departments A,B, and C for
4, 5 and 6 hours respectively?
Overhead Distribution Sheet
Items of expenses Basis of apportionment Total Production Departments Service
Departments
A B C D E
Rent and rates Floor space 5,000 1,000 1,250 1,500 1,000 250
General lighting Light points 600 100 150 200 100 50
Indirect wages Direct wages 1,500 450 300 450 225 75
Power H.P. of Machines 1,500 600 300 500 100 -
Depreciation of Value of machinery 10,000 2,400 3,200 4,000 200 200
Machinery
Sundries Direct wages 10,000 3,000 2,000 3,000 1,500 500
28,600 7,550 7,200 9,650 3,125 1,075
Service department D 625 937.5 1,250 -3,125 312.5
Service department E 555 277.5 416.25 138.75 -1,387.5
Service department D 27.75 41.63 55.5 -138.75 13.87
Service department E 5.548 2.774 4.161 1.387 -13.87
Total 28,600 8,763.30 8,459.40 11,412.9 Nil Nil
Working hours 6,226 4,028 4,066
Overhead per hour 1.407 2.10 2.806
Statement showing cost of the article
Taka
Raw materials 50
Labor 30
Overheads:
Department A 4 1.407 5.628
Department B 5 2.10 10.5
Department C 3 2.806 8.418 24.546
Cost per unit 104.55
Overhead
A manufacturing company has two production departments and three service departments.
Overheads allocated for a period to these departments are as follows:
Taka
Production Departments
1 5,000
2 8,000
Service Departments
A 1,000
B 4,000
C 2,000
A technical assessment for the apportionment of the cost of the service departments
shows:
Department 1 2 A B C
A 30% 50% - 10% 10%
B 40% 30% 20% - 10%
C 30% 30% 30% 10% -
You are required to show the total overhead chargeable to the two production
departments by using:
a) Repeated Distribution method
b) B) Simultaneous Equation method.
Solution
1) Statement ascertaining the expenses of the service departments on reciprocal
( ) services basis:
A B C
Taka Taka Taka
As per allocation 1,000 4,000 2,000
Service dept. A (10% to B & C each) -1,000 100 100
Service dept. B (20% to A, 10% to C) 820 -4,100 410
Service dept. C (30% to,10% to B) 753 251 -2,510
A -1,573 157 158
B 82 -408 158
C 59 20 -199
A -141 14 14
B 7 -34 3
C 5 2 -17
A -12 1 1
B 1 -3 -
2727 4545 2727
Statement showing redistribution of service department expenses to
production departments:
Production Service Departments
Departments
1 2 A B C
As per original allocation 5,000 8,000 1,000 4,000 2,000
Service Departments A 818 1,363 -2,727 273 272
1,818 1,364 909 -4,545 454
B
818 819 818 272 -2,727
C
Total 8,454 11,546 Nil Nil Nil
b) Let. X= Total overheads of dept. A

Y= Total overheads of dept. B
Z=Total overheads of dept. C
Then: x=1,000+.2y+.3z=2727
y=4,000+.1x+.1z=4545
z = 2,000+.1x+.1y=2727
Problem
The overhead expenses recorded in the book of a manufacturing company for the year
ended 30th June, 2013 are as given below:
Production Departments Service Departments
Total Machine Packing General Plant Maintenance and

Shop Store
Indirect Labor 29,300 8,000 6,000 4,000 11,300
Maintenance Material 10,040 3,600 14,00 2,040 3,000
Miscellaneous supplies 3,500 800 2,000 300 400
Supervisors salary 8,000 - - 8,000 -
Cost and payroll salaries 20,000
Power 16,000
Rent 24,000
Heat & fuel 12,000
Insurance 2,000
Taxes 4,000
Depreciation 2,00,000 12,400 9,400 34,340 14,700

Overhead
Problem: A manufacturing company has two production
departments and three service departments. Overheads allocated
for a period to these departments are as follows:
Production Department Taka
1 5, 000
2 8, 000
Service Departments
A 1, 000
B 4, 000
C 2, 000
A technical assessment of the cost of the service
departments shows:
Departme 1 2 A B C
nts
A 30% 50% - 10% 10%
B 40% 30% 20% - 10%
C 30% 30% 30% 10%
You are required to show the total overheads chargeable to the

two production departments by using Simultaneous Equation
Method.
Solution
Let x = Total overhead of dept. A
y = Total overheads of dept. B
z = Total overheads of dept. C
Then
x = 1000 + 0.2y + 0.3z
y = 4000 + 0.1x + 0.1z
z = 2000 + 0.1x +0.1y
Chargeable overhead:
x = 2727
Y = 4545
Z = 2727
Marginal Costing
Marginal costing may be defined as the ascertainment
of marginal or variable costs and of the effect of
changes in volume or type of output on profit, by
differentiating between fixed costs and variable costs.
( ,
)
Feature of Marginal Costing
1. Costs are classified into fixed costs and variable
costs.
2. Only variable elements of costs are attached to
products.
3. Price is fixed after taking into consideration the
marginal cost and marginal contribution.
4. Marginal contribution decides the profitability of a
department or product.
5. Fixed costs of any period are deducted from total
in contribution for the period.
6. Work-in-progress and finished stock are valued at
variable production costs.
Advantages of Marginal Costing
1. Marginal costing is easy to understand and operate.
( )
2. It avoids any arbitrary apportionment of fixed costs among different products or departments.
( )
3. The arbitrary appointment of fixed costs complicates any attempts to measure relative profitability of
different products or different session in business.
(
)
4. A marginal costing system leads to contribution analysis, break-even- chart and cost volume profit
analysis, all of which are useful for short term decision making.
( , )
5. The execution of fixed overhead costs from stock and work-in-progress valuations gives more uniform
and realistic figure.
( )
7. All level of management are more readily able to see the effects of their decisions.
( )
6. Reliability for control is more easily apportioned.

Cost-Volume-Profit (C-V-P) Analysis
Costvolumeprofit (CVP), in managerial economics, is a form of cost accounting. It is a simplified model,
useful for elementary instruction and for short-run decisions.
( )
The study of the relationship among cost, volume and profit is known as cost volume-profit analysis. Which
is used as an important management accounting tool for profit planning.
Assumptions
CVP assumes the following:
i. Constant sales price;
ii. Constant variable cost per unit;
iii. Constant total fixed cost;
iv. Units sold equal units produced.
These are simplifying, largely linearizing assumptions, which are often implicitly assumed in elementary
discussions of costs and profits. In more advanced treatments and practice, costs and revenue are nonlinear and
the analysis is more complicated, but the intuition afforded by linear CVP remains basic and useful.
One of the main methods of calculating CVP is profitvolume ratio which is (contribution /sales)*100 = this
gives us profitvolume ratio.
contribution stands for sales minus variable costs.
Therefore it gives us the profit added per unit of variable costs.
Break-Even Point
The point at which a firm makes neither profit nor loss, that
is where the contribution exactly equals the total of the
period fixed cost. At that point the firm is said to have
reached the break-even-point.
Break-Even Chart
U
n
it Break-even point Angle of incidence Sales Line
s
(
C Profit area
o Cost Line
s 60
t
& 50
S
40
a
l 30
e Loss area
s 20
) Fixed Cost Margin of Safety
10
10 20 30 40 50 60 90
Amount (Cost and Sales)
Fixed cost & Variable cost
Fixed cost are defined as expenses that do not
change as a function of the activity of a
business, within the relevant period.
Variable costs are costs that change in

proportion to the good or services that a
business produces. ( )
Margin of safety
The difference between the actual sales and
break-even sales is known as the margin of
safety.
It Shows the relationship between the break-

even point and the actual activity. It usually
expresses as a percentage of the actual sales.
Angle of Incidence
The angle formed at the break even point by
intersection ( ) of the sales line and the
actual cost line is called the angle of incidence.
Profit Volume (PV) Ratio
The Profit Volume (PV) Ratio is the ratio of Contribution over Sales. It measures
the Profitability of the firm and is one of the important ratios for computing
profitability. The Contribution is the extra amount of sales over variable cost.
Use of break-even point
1. It can be determine profit or loss of a business at different level of activities.
(
- )
2. It helps management to formulate its policy in deciding what products to

manufacture and the prices at which they should be sold.
( )
3. It helps taking decisions as to weather to make or to buy.

( )
4. It helps in problems connected with conditions of slump and seasonal trading and
when close in under consideration.
(
)
5. It can reflect the effect of introduction of a new line or dis-continuation of an

existing line of business on profit.
( )
6. It can measure the effect of installation of a new machine on cost, revenue

and profit.
( )
Formula
1.Contribution Margin:
i. Contribution cost = Sales Variable costs
ii. Fixed cost + Profit
iii. Sales variable cost = Fixed cost + Profit
2. P/V Ratio (or Contribution / Sales Ratio)
iv. Contribution Sales
v. Contribution per unit Selling price per unit
vi. Change in contribution Change in sales
vii. Change in profit Change in sales
viii. Profit Margin of safety
ix. Contribution = Sales P/V ratio
x. Sales = Contribution P/V ratio
3. Variable cost = Sales (1- P/V Ratio)
= Sales (100- p/v ratio %)
4. Profit = (Sales P/v ratio) Fixed cost
= P/v ratio Margin of safety
5. Break even-point
i. B/E (in units) = Fixed cost / contribution per unit
ii. B/E (in sales volume) = Fixed cost (Sales contribution)
Or
Fixed cost P/v Ratio
Or
Fixed cost (1-P/v Ratio)
6. Margin of safety:
iii. Margin of safety = Total sales Break-even sales
iv. Margin of safety ratio = (Total sales Break-even sales) 100
Problem
The following details are obtained from XY Co. Ltd for a calendar year:
Present production and sales 8,000 units

Selling price per unit Tk. 20
Variable cost per unit:
Direct material Tk. 5
Direct labor Tk.2.5
Variable overhead 100% of direct
labor cost
Fixed cost (Total) Tk. 40,000
a) Calculate P/V ratio, break-even point and margin of safety from the above data.
b) Find the effect on p/v ratio, break-even point and margin of safety of changes in each of
the following:
i. 10% increase in selling price.
ii. 10% increase in variable cost.
iii. 10% decrease in fixed cost.
iv. 10% decrease in sales volume.
Solution
Particulars a b
(i) (ii) (iii) (iv)
P/V Ratio = (Contribution 10 20 12 22 9 20 No No effect
Sales) = 50% = = 45% effect 50%
54.55%
Break-even sales = (Fixed cost 40, 000 40, 000 40,000 36,000 No effect
P/V Ratio) 0.5 0.54 0 .45 0.5 80,000
= 80,000 = 73,333 =
88,888 =72,000
Margin of safety = ( Total sales 1,60,000 176000- 160000 160000 (7200
Break-even sales) 80,000 73,333 20)
= 80,000 =1,02,66 88,888 72,000 80,000 =
or 50% 7 or =71,117 = 64,000
58.33% or 55% 88,000 or
44.44%
Problem
The following data are obtained from the records
of a company:
1st year 2nd year
Taka Taka
Sales 80,000 90,000

Profit 10,000 14,000
Calculate:
a. P/v ratio
b. Break-even point
c. Profit or loss when sale amount to Tk.50,000
d. Sales required to earn a profit of Tk.19,000
Solution
Sales Profit
Second year 90,000 14, 000
First year 80,000 10, 000
Change 10,000 4, 000
a. Assuming that the change in fixed cost is nil, the marginal cost equation can be used as
follows:
S-V = F + P
10000 V= 0 + 4,000
V = 6,000
P/V ratio = Change in profit Change in sales
= 4,000 10,000
= 0.4 or 40%
b. Break-even point = Fixed cost P/V ratio
Appling marginal cost equation, C = F + P

F = C- P
Contribution = Sales P/v ratio =Tk. 80,000 .40 = 32,000 or 90,000.40=36,000
C = F + P ; F= 32,000 or 36,000
Thus. Fixed cost = 32,000 10,000= 22,000 or 36,000 14,000 = 22,000
Break-even point = 22,000 .40 = 55,000
Solution
c. Sales Tk. 50,000
P/V ratio 0.40 or 40%
Contribution = Sales p/v ratio
= 50,000 0.40 = 20,000
We know, C= F + P
20,000 = 22,000 + P
P = -2000
d. To earn profit of Tk. 19,000, required
contribution:
= 22,000 + 19,000
= 41,000
Problem
AB Ltd. Has been manufactured track suits for athletes. Currently it output is
around 70% of its related capacity of 19000 units per annum. One exporter has
approved the sample and has offered to buy 5000 units at a special price of TK. 150
per suit. At present, the company has been selling the track suit @ Tk. 210. The
standard cost per unit is as under:
Cost items Taka

Clothe and other materials 82
Labor 25
Fixed costs 42
Administrative variable cost 11
Total cost 160
Should the company accept the offer?

What would be your advice if the exporter offer to buy 10000 units instead of 5000
units?
Solution
Existing production at 70% capacity:
70/100 19000 = 13,300 suits
Idle capacity: 19000 13300 units.
Therefore, the company can produce 5700 extra suits without
incurring any additional fixed cost.
Variable cost per suit Taka
Cloth and other materials 82
Labor 25
Administrative variable cost 11
118
a. When the exporters offer is 5000 units

Sale of 5000 units @ Tk. 150 7,50,000
Less. Variable cost: 5000 118 5,90,000
Increase in contribution 1,60,000
It is profitable to accept this offer because it will increase the total
contribution and consequently the total profit by Tk. 1,60,000 p.a.
Solution
b. When the export offer is of 10000 units.
Sales of 10000 units @ Tk. 150 Tk. 15,00,000
Less. Variable cost 10000 118 Tk. 11,80,000
Increase in contribution Tk. 3,20,000

Less. Contribution lost on 4300 units,
(10000 5700 = 4300 units)
The sale of which has to be abandoned in the domestic market:
4,300 Tk.(210-118) Tk. 3,95,000
Net decrease in contribution Tk. 75,600
It is not profitable to accept the offer because it will reduce the total contribution and
consequently the total profit by Tk. 75,600 p.a. It is possible to accept the offer when it
is within the related capacity i.e. up to 5,700 unit extra.
Problem
By making and selling 7000 units of its product a
company would lose Tk. 10,000. Whereas in the
case of 9000 units it would make a profit of
Tk.10,000 instead.
Calculate:
i. The amount of fixed cost
ii. The number of units to break-even.
iii. The profit and loss for 10000 units sold.
iv. The number of units to be sold to earn a profit of
Tk.40,000.
Solution
Units sold Profit/loss
9000 10,000 (Profit)
7,000 10,000 (loss)
Difference 2,000 20,000
Thus, for an additional sale of 2000 units there is an additional contribution of Tk. 20,000
Contribution per unit = 20,000 2000 = Tk.10
Req.1. Amount of fixed expenses: Contribution Profit (or + loss)
Contribution on 9000 units @ Tk. 10 Tk. 90,000

Less Profit earned Tk. 10,000
Fixed expenses Tk. 80,000
Or
Contribution on 7000 units @ Tk. 10 Tk. 70,000
Add. Loss incurred Tk. 10,000
Fixed expenses Tk.80,000
Problem
Nandi Chemicals Ltd. Has two factories with similar plant and machinery for
manufacturing of soda ash. The board of directors of the company has expressed the
desire to merge them and to run them as one integrated unit. The additional fixed cost
involved in the merger is estimated at Tk.5lakhs. Following data are available in
respect of these two factories:
Factory X Y
Capacity in operation 60% 100%
Turnover 120lakhs 300lakhs
Variable cost 90 150
Fixed cost 25 35
Find out:
i) What should be the capacity of the merged factory to be operated for break-even?
ii) What is the profitability of working 80% of the integrated capacity?
iii) What turnover will give an overall profit of Tk.60lakhs?
Solution
Factory X:
Capacity in operation 60% 100%

Turnover 120 lakhs 200 lakhs
Variable cost 90 150
Fixed Cost 25 25
Factory Factory
X Y Merged Factory
Capacity 100% 100% (X+Y) 100%
Turnover 200 lakhs 300 lakhs Additional 500 lakhs
Variable cost 150 220 370
Fixed cost 25 35 5 65
a) P/V Ratio: (500-370) 500 =13/50 or 26%

BEP= Fixed cost P/V ratio = 65,00,000 .26=250 lakhs or 50% capacity level.
b) At 80% capacity, sales over break even would be: (80% - 50%) = 30 % of 500 lakhs= 150 lakhs
Increase of contribution = Increase in profit (Fixed cost remaining constant)
.26 1,50,00,000 = 39,00,000
c) To earn a profit of Tk. 60 lakhs, required contribution
= Tk.65 lakhs + Tk.60 lakhs = Tk.125 lakhs
Required sales: Required contribution P/V ratio = (1,25,00,000 .26 = Tk.4,80,76,923
Problem
The accountant of a company has prepared a draft budget for the coming year based on the
three items. Details are as follows:
Product A B C
Budget sales (Units) 20,000 15,000 8,000
Sales per unit Tk.30 Tk.40 Tk.50
Variable cost per unit:
Material 10 20 5
Labor 12 6 30
Sales 3 6 5
Fixed labor costs Tk.1,10,000
Three members of the board have each put forward their own recommendations to improve profitability. These are:
a) Sales Director: A special advertising campaign costing an additional Tk.65,000, which would increase sales of all
products by 25% for the year.
b) Personnel Director: A labor incentive scheme which would increase variable labor cost by one-sixth, but would
eliminate the fixed labor costs for the year.
c) Chief Accountant: Introduce a sales commission scheme which would increase the sales volume by 50% for a year, but
would also increase variable selling cost by Tk.2 per unit.
You are required to evaluate these three unrelated possibilities, showing the effect of each on the budgeted profit, and also to
state with reasons, which you would recommend.
Solution
A B C
Tk. Tk. Tk.
Sales price 30 40 50
Variable cost:
Material 10 20 5
Labor 12 6 30
Sales 3 6 5
Contribution per unit 25 32 40
Budgeted sales (Units) 20,000 15,000 8,000
Product contribution Tk.1,00,000 Tk.1,20,000 Tk.80,000
Tk.
Total contribution 3,00,000
Fixed cost 1,10,000
Budgeted profit 1,90,000
Problem:
A company has a profit of Tk.2,500, fixed costs Tk.5,000 and break-even-point of Tk.10,000. What is the
amount of its sales.
Solution:
Using logical argument
Total contribution is: fixed cost + profit.
A total contribution of (Tk.5,000 + Tk.2,500) = Tk.7,500 is obtained here from the level of sales attained.
The contribution at break even equals the fixed cost. Thus, at break even a contribution of Tk.5,000 is
obtained from the given break even sales of Tk.10,000 and so the P/v ratio is (Tk.5,000 Tk.10,000) = 0.50
With a P/v ratio of 0.50 , a contribution of Tk.7,500 is earned. So, amount of sales is (Tk.7,500 0.50) =
Tk.15,000.
Using formula, C = F + P
C = Tk.5,000 + Tk.2,500
C = Tk.7,500
At break even point, C = F = Tk.5,000
P/v ratio = F/ Sales = 0.5
Sales = Contribution P/v ratio
= Tk.7,500 0.5 = Tk.15,000
Suggestions
Taka
a) Revised contribution: Tk.3,00,000 +25% 3,75,000
Fixed cost 1,10,000 + 65,000 1,75,000

b) Existing contribution 3,00,000
Less. Increase in variable labor costs:
Product
A 20,000 1/6 12 = 40,000
B 15,000 1/6 6 = 15,000
C 8,000 1/6 30 = 40,000 = 95,000
Revised contribution 2,05,000
Fixed cost Nill
c) Revised contribution = Budgeted sales contribution per unit
Product
A 30,000 3 ;(5-2) = =90,000
B 22,500 6 ; (8-2) = =1,35,000
C 12,000 8 ; (10-2) = = 96,000
Revised contribution 3,21,000
Fixed cost 1,10,000
Recommendation
All suggestions would improve the budgeted profit. However, suggestion is the best with the highest budgeted profit
resulting from the increase in variable cost more than made up for by the increase in sales.
Problem:
From the following data calculate
i) P/V ratio
ii) Profit when sales are Tk.30,000
iii) New break-even point, if selling price is reduced by 20%
Fixed expenses Tk. 6,000

Break-even point Tk.15,000
Solution:
iv) P/v ratio
At break- even point, C= F + P, C= 6,000 + 0 = 6,000
Thus p/v ratio = (Contribution Sales) 100 = (6,000 15,000) 100 = 40%
Alternatively, B-E-P = Fixed cost + (1 p/v ratio) or 15,000 = 6,000 +( 1 p/v ratio) or P/v ratio = 40%
ii) Profit from sales of Tk.30,000
Contribution = Sales p/v ratio = 30,000 40% = 12,000
Profit = Contribution Fixed cost = Tk.12,000 Tk.6,000 = 6,000
iii) New break-even point when selling price is reduced by 20%.
At break even point, Contribution = Fixed cost = 6,000
New p/v ratio = (Contribution Sales) 100 = (6,000 24,000) 100 = 25%
New break-even point = Fixed cost + (1 p/v ratio) = 6,000 + (1 25%) = 24,000
Standard Costing
Standard costing has been defined as a technique which uses standards
for cost and revenues for the purpose of control through variance analysis.
Standard cost is a predetermined cost calculated by taking into

consideration the relevant necessary expenditure on the basis of
managements standards of efficient operation.
Standard costing involves:

1. Ascertainment and uses of standard costs.
( )
2. Measurement of actual cost.
( )
3. Comparison of standard costs and actual costs to develop variances.
( )
4. Analysis of variances and taking appropriate actions where necessary.
( )
Standard cost and budgeted cost
Budgets are based on past costs properly
adjusted for anticipated future changes.
Budgeted cost represents what the cost will

be , but standard cost represent what the cost
should be.
Variance
The deviations of actuals from standards are called
variances.
Variance may be worked out and analyzed in respect

of each element of cost and also in respect of sales.
Variance may be favorable or adverse.
Thus we come across
i. Direct material cost variance
ii. Direct labor cost variance
iii. Variable overhead variance
iv. Fixed overhead variance
v. Sales variance
Major Advantages of standard costing
1. Standard cost can be used to measure the degree of efficiency
of actual performance.
( )
2. It helps infusion of cost consciousness amongst the managers
and it also helps co-operation and co-ordination amongst the
various functions in the organization.
)
Advantages of standard costing
1. Standard costing provides a valuable guidance to management in several management functions.
2. Standard cost are compared with actual costs. It facilitates effective cost control and provides
information necessary for cost reduction. (
3. Measurement and analysis of variances will help detect mistakes and inefficiencies enabling the
management to investigate into the causes. (
4. It helps to apply the principle of management expectation that is management need not trouble itself
with respect to those activities which proceed according to plan.
)
Advantages of standard costing
1. It stimulates cost consciousness of all executives because in the variance analysis the responsibility for
favorable or unfavorable performance is indicated.
2. Labor efficiency is promoted and they are destined to be cost conscious.
( )
3. Stock can be valued at standard cost and this will in tern reduce fluctuation of profits due to adoption of
different methods for stock valuation.
( )
4. It will help prompt preparation of profit and loss account at short periods.
( )
5. It will lead to saving in costs as much of the costing work can be avoided by simplifying the costing
procedures.
6. Responsibilities are defined and executives are destined to be responsible.
( )
Direct material cost variance
Direct material price variance Direct material usage variance
D. M. Mix Variance D.M. Yield Variance
Direct Material Price Variance = Actual Quantity ( Actual Price Standard Price)
Direct Material Usage Variance = Standard Price (Actual Quantity Standard Quantity)
Direct Material Mix Variance= Standard Price (Standard Mix Actual Mix)
Material Yield Variance = Standard Cost ( Actual Yield - Standard Yield)

Problem
It is estimated that for producing one unit of product X 10 Ibs. of materials are consumed. The
standard price per Ib. of material is Tk.0.50. During the month of July, 30,000 Ibs. of materials
were used for producing 2,900 units of X. The actual price of materials was Tk.0.48 per Ib.
Calculate the variances.
Solution:
Standard quantity of materials = (Actual output Standard quantity per unit)
= 2,900 10 = 29,000 Ibs.
Standard rate per Ib. = Tk.0.50
Standard material cost 29,000 0.50 = Tk.14,500
Actual material cost 30,000 0.48 = Tk.14,400
Total material cost variance = Tk.100 (F)
Material price variance = (Actual price Standard price) Actual quantity
= (0.48 0.50) 30,000 = Tk.600 (F)
Usages variance = (Standard quantity Actual quantity) Standard rate
= (29,000 30,000) 0.50
= Tk.500 (A)
Total material variance = Material price variance + Usage variance
Tk.100 (F) = Tk.600 (F) + Tk.500 (A)
Problem
The following data for January of a factory is given.
Calculate:
i. Material cost variance
ii. Material price variance
iii. Material usage variance
iv. Material mix variance
Material Standard Cost Actual Cost
P 7,000kg. @ Tk. 1.05 7,500kg. @ Tk. 1.20
Q 3,000kg. @ Tk. 2.15 3,300kg. @ Tk. 2.30
R 2,000kg. @ Tk. 3.50 2,400kg. @ Tk. 3.50

Calculation
Standard Cost Amount
P 7,000kg. @ Tk. 1.05 7,350
Q 3,000kg. @ Tk. 2.15 6,450
R 2,000kg. @ Tk.3.30 6,600
Total Standard Cost 12,000kg. 20,400
Actual Cost Amount
P 7,500kg. @ Tk. 1.20 9,000
Q 3,300kg. @ Tk. 2.15 7,590
R 2,400kg. @ Tk. 3.50 8,400
Total Actual Cost 13,200kg. 24,900
Revised Standard Quantity = (Standard Quantity Standard Mix ) Actual Mix

P = (7000 12, 000) 13,200= 7,700kg.
Q = (3,000 12,000) 13,200= 3,300kg.
R = (2,000 12,000) 13,200= 2,200kg.
Solution
Material Cost Variance =(Standard Material Cost Actual Material Cost)
= (20,400 24,900)
= 4,500 (A)
Material Price Variance =(Standard PriceActual Price)Actual Quantity

P = (1.05 1.20) 7,500 =1,125 (A)
Q = (2.15 2.30) 3,300 = 495 (A)
R = (3.30 3.50) 2,400 = 480(A)
2,100 (A)
Material Usage Variance = ( Standard Quantity Actual Quantity) Standard Price

P = (7,000 - 7,500) 1.05 = 525 (A)
Q = (3,000 3,300) 2.15 = 645 (A)
R = (2,000- 2,400) 3.30 = 1,320 (A)
2,490 (A)
Solution
Material Mix Variance = Revised Standard Quantity Actual Quantity) Standard Price
P = (7,700kg. 7,500kg.) 1.05 = 210 (F)
Q = (3,300kg. 3,300kg.) 2.15 = Nil
R = (2,200kg. 2,400kg.) 3.30 = 660 (A)
450 (A)
Material Sub-Usage Variance = ( Standard Quantity Revised Standard Quantity) Standard Price
P = ( 7,000 7,700) 1.05 = 735 (A)
Q = ( 3,000 3,300) 2.15 = 645(A)
R = ( 2,000 2,200) 3.30 = 600 (A)
2,040 (A)

Problem
FG Ltd. Manufactures of product Q, uses a standard cost system. Standard product and cost specifications for
1000kg. of product Q, are as follows:
Ingredients Quantity Price Cost
kg. Per kg. Taka
X 800 2.50 2,000
Y 200 4.00 800
Z 200 1.00 200
Input 1200 3,000 =Tk.2.50 per kg.
Output 1000 3,000 =Tk.3.00 per kg.
Material records indicate:

Consumption in April
X 1,57,000kg. @ Tk.2.40
Y 38,000kg. @ Tk.4.20
Z 36,000kg. @ Tk.1.10
Actual finished production for the month of April is 2,00,0000kg.

Calculate:
i) Material price variance
ii) Material mix variance
iii) Material yield variance
Problem
Standard input of material for actual output of 2,00,000kg.= (1200 1,000) 2,00,000 = 2,40,000kg.
Standard material for X = (2,40,000 1,200) 800 = 1,60,000
Standard material for Y= (2,00,000 1,200) 200 = 40,000
Standard material for Z = (2,00,000 1,200) 200 = 40,000
Standard material cost for actual output Taka

X 1,60,000kg. @ 2.50 4,00,000
Y 40,000kg. @ 4.00 1,60,000
Z 40,000kg. @ 1.00 40,000
2,40,000kg (input) Tk.6,00,000
-40,000kg. (loss) ----
2,00,000kg. (output) Tk.6,00,000
Actual cost
X 1,57,000kg.@ Tk.2.40 3,76,000
Y 38,000kg. @ Tk.4.20 1,59,000
Z 36,000kg. @ Tk.1.10 39,600
2,31,000kg input 5,76,000
-31,000kg. loss
2,00,000kg. output 5,76,000
Problem
Revised standard quantity = (Standard quantity Standard mix) Actual mix
X = (1,60,000 2,40,000) 2,31,000 = 1,54,000
Y = (40,000 2,40,000) 2,31,000 = 38,500
Z = ( 40,000 2,40,000) 2,31,000 = 38,500
2,31,000
Material cost variance = Standard material cost Actual material cost
= 6,00,000 - 5,76,000 = 24,000 (F)
Material price variance = (Standard price Actual price) Actual quantity

X = ( 2.50 - 2.40 ) 1,57,000 = 15,700 (F)
Y = ( 4.00 - 4.20 ) 38,000 = 7,600 (A)
Z = ( 1.00 - 1.10 ) 36,000 = 3,600 (A)
4,500 (F)
Material mix variance = Revised standard quantity - Actual quantity) Standard Price
X = ( 1,54,000 - 1,57,000 ) 2.50 = 7,500 (A)
Y = ( 38,500 - 38,000 ) 4.00 = 2,000 (F)
Z = ( 38,500 - 36,000 ) 1.00 = 2,500 (A)
3,000 (A)
Material yield variance = (Standard yield - Actual yield ) Standard yield price per kg.
= ( 1,92,500 2,00,000 ) 3 = 22,500 (F)
Standard output for actual mix = (1,000 1,200) 2,31,000 =1,92,500

Material sub-usage variance = (Standard quantity Revised standard quantity) Standard price
Problem
The standard material cost for a normal mix of one ton chemical X is based on:
Chemical Usage Price per kg.
Kg. Taka
A 240 6
B 400 12
C 640 10
During a month, 6.25 tons of X were produced from:
Chemical Consumptions Cost

Tons Taka
A 1.6 11,200
B 2.4 30,000
C 4.5 47,250
Analyze the variances

Solution
Standard material cost for actual output (6.25 tons)
Chemical Taka
A (240 1,000) 6.25 1.5 tons @ Tk.6,000 9,000
B (400 1,000) 6.25 2.50 tons @ Tk.12,000 30,000
C (640 1,000) 6.25 4.00 tons @ Tk.10,000 40,000
8 tons 79,000
1.75 tons (loss) -----
6.25 tons yield 79,000
Standard cost per ton of output = Tk.79,000 6.25 = Tk.12,640

Actual cost for actual output (6.25 tons)
Taka
A 1.60 tons @ Tk.7,000 11,200
B 2.40 tons @ Tk.12,500 30,000
C 4.50 tons @ Tk.10,500 47,250
8.50 tons input 88,450
-2.25 tons loss -------
6.25 tons yield 88,450
Revised Standard Quantity = (Standard quantity Standard mix) Actual Mix
A (1.5 8) 8.5 1.59
B (2.5 8) 8.5 2.66
C (4 8) 8.5 4.25
Material Cost Variance Taka

(Standard cost Actual cost ) Tk.79,000- Tk.88,450 9,450 (A)
Material Price Variance Taka Total
(Standard Price Actual Price) Actual Quantity

A (6,000-7,000) 1.6 1,600 (A)
B (12,000-12,500) 2.4 1,200 (A)
C (10,000-10,500) 4.5 2,250(A) 5,050 (A)
Material Usage variance Taka Total

(Standard Quantity Actual Quantity) Standard Price
A (1.5-1.6) 6,000 600 (A)
B (2.5-2.4) 12,000 1,200 (F)
C (4.0-4.5) 10,000 5,000 (A) 4,400 (A)
9,450 (A)
Material mix variance Taka Total
(Revised Standard Quantity Actual Quantity)
Standard Price
A (1.59-1.60) 6,000 60 (A)
B (2.66-2.4) 12,000 3,120 (F)
C (4.25-4.5) 10,000 2,500 (A) 560 (F)
Material Yield Variance

(Standard Output for Actual Mix Actual Output) (6.25 8 ) 12,640 4,937.50 (A)
Standard Cost per Ton
Direct labor variance
Direct labor cost variance
Direct labor rate variance Direct labor idle time variance Direct labor efficiency variance
Direct labor cost variance: It is the difference between standard direct labor cost and actual direct labor cost
incurred for the production achieved.
Direct labor cost variance = Direct labor rate variance + Direct labor idle time variance + Direct labor
efficiency variance.
Direct labor rate variance: It is the difference between standard direct labor rate and actual direct labor rate
incurred for the production achieved.
Direct labor rate variance = (Standard rate Actual rate) Actual hours/production.
Direct labor efficiency variance: It is the difference between the standard hours for the actual production
achieved and the hours actually worked, valued at standard labor rate.
Direct labor efficiency variance = (Actual production Standard production) Standard rate per unit.;
Standard production = ( Actual hours excluding abnormal time Standard hour required per unit)
Direct labor idle time variance is that portion of total direct labor variance which is due to specified idle time
of the workers.
Direct labor idle time variance = Abnormal idle hours Standard rate per hour.
Problem:
The direct labor of a section of an engineering factory is 100 workers paid at the rate of Tk.6 per day of
08 hours each. The normal production is 1,000 pieces per week of 48 hours. During a particular week
an order for 1,500 pieces was completed expending in all 7,650 hours made up 6,300 hours at normal
wages and 1,350 hours at overtime wages at double rate. The total wages came to Tk.6,300.
Calculate the average labor cost per piece during the week and analyze the labor cost variance for the
week.
Solution:
Average labor cost per piece = Wages paid during the week Units produced
= Tk.6,300 1,500 = Tk.4.20
Standard wages rate per hour = Tk.6 8 = Tk.0.75
Actual (normal) wages rate per hour during the week = Wages paid Total normal hours
= {Tk.6,300 (6,300 1 + 1,350 2)}= Tk.0.70
Standard hours required for actual production = {(100 48) 1,000} 1,500 = 7,200 hours
Standard labor cost = 7,200 hours @ Tk.0.75 = Tk.5,400
Labor cost variance = Standard labor cost Actual labor cost = Tk.5,400 Tk.6,300 = Tk.900 (A)
Overtime variance = Over time hours Premium per hour = 1,350 0.70 = Tk. 945 (A)
Labor rate variance = (Standard labor rate Actual labor rate) Actual hour
= (0.75 - 0.70) 7,650 = Tk.382.50 (F)
Labor efficiency variance = (Standard labor hours Actual labor hours) Standard rate
= ( 7,200 - 7,650) 0.75 = Tk.337.50 (A)
Labor cost variance = Overtime variance + Labor rate variance + Labor efficiency variance
= Tk.945 (A) + Tk.382.50 (F) + Tk.337.50 (A) = Tk.900 (A)
Overhead variance
The difference between the standard overhead cost absorbed in the output
produced and the actual overhead cost incurred is called overhead variance or
overhead cost variance.
Overhead Variance
Fixed overhead Variable Overhead
Production overhead Administrative overhead Selling & distribution overhead
Overhead expenditure variance Overhead efficiency variance Overhead volume variance
Overhead price variance Overhead utilization variance Seasonal variance Calendar Variance Capacity variance
Volume
Efficiency
variance
Overhead expenditure variance = Actual overhead Standard Overhead
Overhead efficiency variance = Standard overhead rate (Actual hours Standard hours for actual production)
Overhead volume variance = (Actual overhead Standard overhead for standard production)
Overhead Variance
i. Overhead expenditure variance: Overhead expenditure variance arising out of the difference between the
standard allowance for the output produced and the actual expenditure incurred, is called overhead
expenditure variance.
ii. Overhead efficiency variance: Overhead efficiency variance arising out of the difference between the
standard or budgeted efficiency and the actual efficiency attained is called overhead efficiency variance.
iii. Overhead volume variance: Overhead volume variance arising out of the difference between the standard
cost of overhead absorbed in actual output and the standard allowance for that output is called overhead
volume variance.
a) Overhead price variance: It is that part of overhead expenditure variance which arises due to the
difference between the standard price of the services specified and the actual price paid.
b) Overhead utilization variance: Overhead utilization variance arising out of the difference between the
standard quantity of the services specified and the actual quantity of services utilized is known as
overhead utilization variance.
1. Seasonal variance: Overhead volume variance arising out of the difference between the standard or
budgeted seasonal output and the average output on the basis of which standards have been set, is called
seasonal variance.
2. Calendar variance: The part of overhead volume variance which arises due to the difference between the
number of working days in the budget period and the actual number of working days in the budget
period, is called calendar variance.
3. Capacity usage variance: The volume variance that arises due to working at higher or lower capacity
usage than standard capacity usage, is called capacity usage variance.
4. Volume efficiency variance: The part of volume variance which reflects the excess or short output arising
out of higher or lower efficiency than the standard efficiency expected, is called volume efficiency
variance.
Problem
PX Ltd. Forecasts its overhead expenditure for a
period as under:
Tk. 30,000 for 10,000 hours
Tk. 27,500 for 9,000 hours
Tk. 25,000 for 8,000 hours
The normal volume of activity is 10,000 hours. During a
period, 8,750 hours were utilized for total overhead
expenditure of Tk. 28,750 of which fixed overheads totaled
Tk. 5,250.
The standard utilization of labor hours should have been
less by 5%.
How will you analyze variance?
Solution
Hours Overhead Hours Overhead
10000 Tk. 30,000 9000 Tk. 27,500
9000 Tk. 27,500 8000 Tk. 25,000
Difference 1000 Tk. 2,500 1000 Tk. 2,500
The difference in overhead represents variable overhead because only variable expenses vary
with chance in hours and fixed expenses remain same. Hence variable overhead of 1,000 hours is
Tk. 2,500.
Variable overhead rate per hour = (2,500 1,000) = Tk. 2.50

Estimated overhead for 10000 hours Tk. 30,000
Less. Variable overhead (1000 2.50) Tk. 25,000
Fixed overhead Tk. 5,000
Normal volume of activities = 10000 hours
Fixed overhead rate per hour = (Tk. 5,000 10000 ) = Tk.0.50
Standard hours for actual production = 8750 5% thereof
= 8750 437.5 = 8312.5 hours
Standard fixed overhead recovered by actual production

= Standard hours of actual production Standard rate per hour
= 8,312.5 Tk.0.5 = 4,156.25
Solution
Standard variable overhead by actual production = Standard hours of actual production Standard rate per hour
= 8312.5 2.50
= Tk. 20,781.25
Actual variable overhead = Total overhead fixed overhead

= (28,750- 5,250)
= Tk. 23,500
Variable overhead variance = Standard variable overhead Actual variable overhead

= (Tk. 20,718.25 Tk. 23,500)
= Tk. 2,781.75 (A)
Fixed overhead variance = Standard fixed overhead - Actual fixed overhead

= Tk. 4,156.25 Tk. 5,250
= Tk. 1,093.75 (A)
Fixed overhead Expenditure variance = Budgeted fixed overhead actual fixed overhead
= Tk. 5,000 Tk. 5,250
= Tk. 250 (A)
Fixed overhead volume variance = Standard fixed overhead Budgeted fixed overhead
= Tk. 4,158.25 Tk. 5, 000
= Tk. 843.75 (A)
Fixed overhead variance = Fixed overhead expenditure variance + Fixed overhead volume variance
= (250 (A) + 843.75 (A)
= 1,093 (A)
Solution
Fixed overhead capacity variance = ( Budgeted hours Actual hours) Standard rate per hour
= ( 10000 8750) Tk. 0.50
= 625 (A)
Fixed overhead efficiency variance = (Actual hours Standard hours for actual production) Standard rate per hour.
= (8750- 8315.50) 0.50
= 834.75 (A)
Sales variance
The budgeted sales and actual sales for a period
in respect of two products are given below:
Product Budgeted Actual
Quantity Rate Amount Quantity Rate Amount

A 1,000 5 5,000 1,200 6 7,200
B 1,200 10 12,000 1,000 9 9,000
Total 2,200 17,000 2,200 16,200
Calculate the necessary sales variance

Solution
In order to calculate all the sales variance, it is
necessary to ascertain:
1. Standard sales, that is the actual quantities
sold valued at standard selling price.
2. Revised standard sales, that is standard sales
expressed in budgeted sales ratio.
Product Standard Revised Standard

Sales Sales
Quantity Price Value Budgeted Ratio Value
A 1,200 5 6,000 5/17 4,706

B 1,000 10 10,000 12/17 11,294
Total 2,200 16,000 16,000
Sales Variance
1. Sales value variance=(Actual SalesBudgeted Sales)
Product
A =7,200-5,000 =2,200(F)
B = 9,000-12,000 =3,000(A)
16,200 17,000 = 800 (A)
2. Sales price Variance=(Actual SalesStandard Sales)

Product
A= 7,200-6,000 = 1,200 (F)
B= 9,000-10,000=1,000(A)
16,200-16,000=200(F)
3. Sales volume variance=(Standard salesBudgeted Sales)

Product
A=6,000-5,000 = 1,000(A)
B=10,000-12,000 = 2,000(F)
16,000-17,000 =1,000(F)
4. Sales quantity variance=(Revised standard quantity-Budgeted sales)

Product
A = 4,706 - 5,000 = 294(A)
B = 11,294- 12,000 = 706(A)
16,00017,000 = 1,000(A)
5. Sales mix variance= (Standard sales Revised standard sales)

Product
A = 6,000 - 4,706 = 1,294 (F)
B = 10,000 11,294 = 1,294 (A)
16,000 16,000 = Nil
Problem: Sales Variance
From the following particulars calculate sales variance :
Budget
Sales
Products Units Per unit Total
Taka Taka
A 5,000 Ibs. 8 40,000
B 1,000 Yards 10 10,000
50,000
Actual
Sales
Product Units Per unit Total
Taka Taka
A 6,000Ibs. 7.50 45,000
B 800 Yards 12 9,600
15,400 54,600
Calculate sales variance for the month.

Solution: Calculation of standard cost
Product Units Rate Total Amount = (Actual quantity Budgeted Rate)
A 6,000 Ibs. () 8 48,000
B 800 Yards () 10 8,000
56,000
Sales value variance = Budgeted sales Actual sales
A = 40,000 - 45,000 = 5,000 (F)
B = 10,000 - 9,600 = 400 (A)
4,600 (F)
Sales price variance = Standard sales Actual sales
A = 48,000 - 45,000 = 3,000 (A)
B = 8,000 - 9,600 = 1,600 (F)
1,400 (A)
Calculation of Revised standard sales: Actual sales amount (Total) Budgeted amount ratio
A = 54,600 4/5 = 43,680
B = 54,600 1/5 = 10,920
Sales quantity variance = Budgeted sales Standard sales
A = 40,000 - 48,000 = 8,000 (F)
B = 10,000 - 8000 = 2,000 (A)
6,000 (F)
Sales volume variance: Revised standard sales budgeted sales
A = 43,680 - 40,000 = 3,680 (F)
B = 10,920 - 10,000 = 920 (F)
4,600 (F)
Sales mix variance = Revised standard sale Standard sales
A = 43,680 - 48,000 = 4,320 (F)
B = 10,920 - 8,000 = 2,920 (A)
1,400 (F)
Sales Variance
From the following particulars calculate sales variance on the basis of profits:
Budget
Sales Costs Profit
Products Units Per unit Total Per unit Total Per unit Total
A 10,000 8 80,000 5 50,000 3 30,000
B 4,000 5 20,000 3 12,000 2 8,000
14,000 1,00,000 62,000 38,000
Actual
Sales Cost Profit
Product Units Per unit Total Per unit Total Per unit Total
A 12,000 7.50 90,00 4 48,000 3.50 42,000
B 3,400 6 20,400 4 13,600 2 6,800
15,400 1,10,400 61,600 48,800
Solution
Calculation of standard sales and standard profit:

Sales Cost Profit
Product Units Per unit Total Per unit Total Per Unit Total
A 12,000 8 96,000 5 60,000 3.50 36,000
B 3,400 5 17,000 3 10,200 2 6,800
15,400 1,13,000 70,200 42,800
Standard production cost and profit

Sales Cost Profit
Product Units Per unit Total Per unit Total Per unit Total
A 12,000 7.50 90,000 5 60,000 2.50 30,000
B 3,400 6 20,400 3 10,200 3 10,200
15,400 1,10,400 70,200 40,200
Sales Variance
Revised standard sales and profit
SU BU Ratio Sales Profit
Total standard units Units
ratio of budget
Product Units Per unit Total Percentage Total

Amount (Budgeted profit Budgeted sales) amount
100
RSS %
A 11,000 8 88,000 37.50% 33,000
B 4,400 5 20,400 40% 8,800
15,400 1,10,000 41,800
Total profit variance = Budgeted profit Actual profit

A = 30,000 42,000 = 12,000 (F)
B = 8,000 6,800 = 1,200 (A)
10,200 (F)
Profit price variance = Standard profit Actual profit
A = 36,000 42,000 = 6,000 (F)
B = 6,800 6,800 = 0 (F)
6,000 (F)
Total Profit quantity variance = Budgeted profit Standard profit
A = 30,000 36,000 = 6,000 (F)
B = 8,000 - 6, 800 = 1,200 (A)
= 4,800 (F)
Sales Variance
Profit Volume variance = Budgeted profit Revised standard profit

A = 30,000 - 33,000 = 3,000 (F)
B = 8,000 - 8,800 = 800 (F)
3,800 (F)
Profit mix variance = Revised standard profit Standard profit

A = 33,000 - 36,000 = 3,000 (F)
B = 8,800 - 6,800 = 2,000 (A)
1,000 (F)
Budget & Budgetary Control
Definition of Budget
A budget is a comprehensive and co-ordinated plan, expressed in
financial terms, for the operations and resources of an enterprise for
some specific period in future.
(
)
Budget is a financial or quantitative statement, prepared and approved

prior to a defined period of time, of the policy to be pursued during that
period for the purpose of attaining a given objective.
(
-
)
Classification of budget
a) On the basis of budget period
i) Long-term budget: Budget prepare for long term or for more than one
year.
ii) Short-term budget: Budget prepare for short-term; weekly, monthly etc.
b) On the basis of flexibility
i) Fixed budget: Budget prepare on the dependency of specific function or
condition and not possible to change this in any condition.
ii) Flexile budget: Budget may change in respect of level of activity.
c) On the basis of condition
i) Basic budget: Basically this budget is not possible to change and will use
this for long time.
ii) Current budget: Budget prepare on current activities and for a small
period of time.
Classification of Budget
d) On the basis of function

i) Master budget: Budget prepare with combination of the result of planning of
different functional budget.
ii) Functional budget: Budget prepare on the basis of the activities of the
organization.
Functional budget is classified into the following types:
1. Sales Budget 2. Purchase Budget 3. Production Budget 4. Production Cost Budget
5. Over Head Budget 6. Capital Budget 7. Research & Development Budget 8.
Cash Budget
e) On the basis of modernization
i) Computer budget: Budget prepare by the help of computer technology.
ii) Kaizen budget: Budget prepare by collection opinion of officers and employees
of organization from each level of work.
iii) Zero-base budget: Budget prepare by no- dependency on previous
information.
Budget:
A budget has been defined as a financial and/or quantitative statement, prepared prior to
a defined period of time, of the policy to be perused during that period for the purpose of
attaining a given objective.
(
)
Objective:
1. A budgeted is treated as a declaration of polices. It clearly states the objectives to
be achieved.
(
)
2. A budget serves as a blue print of the plan of action or operation to be done in order
to achieve the objectives laid down.
( - - )
3. A budget is means of co-ordination of all the activities of an organization.
( )
4. A budget acts as a means of communication.
( )
5. A budget helps to exercise central control over the entire activities of the organization.
( )
Budgetary Control
Budgetary control may be defined as an establishment of a budget
according to a policy with a view to comparing actual results with
budgeted results in order to secure the objectives of that policy or to
provide a basis for its revision
(

)
Difference between forecast and budget:
Forecast Budget
These represent the estimates of what is likely to be These relate to the policy or program to be followed
happen during a certain future period under in a certain future period under prescribed conditions.
anticipated condition. (
( )
)
** No control can be exercised on forecasts. **Budgeting connotes a sense of control.

( ) ( )
*** The utility of forecasting ends as soon as *** Budgetary control comes after forecasting,
assessment of the future probable events is done for because forecasts are converted into budgets and the
budgeting. control starts after setting up of approved budgets.
( (
)
)
****Forecasts may be done for any purpose **** Budget are prepared after taking into
including budgeting. Forecasts are often necessary consideration for the forecasts on relevant subjects.
before a decision is taken. ( )
(
)
Investment decision
A firms investment decisions involve capital expenditures. They are therefore, referred as capital
budgeting decisions. A capital budgeting decision involves the decision of capital or commitment
of funds to long-term assets that would yield benefits (cash flow) in the future. Two important
aspects investment decisions are: a. the evaluation of the prospective profitability of new
investments and b. the measurement of a cut off rate against that the prospective return of new
investments could be compared. Future benefits of investments are difficult to measure and can
not be predicted with certainty. Risk in investment arise because of the uncertain returns.
Investment proposals should, therefore, be evaluated in terms of both expected return and risk.
Besides the decision to commit funds in new investment proposals, capital budgeting also
involves replacement decisions, that is, decision of recommitting funds when an asset becomes
less productive or non-profitable.
There is a board agreement that the correct cut-off rate or the required rate of return on
investments is the opportunity cost of capital. The opportunity cost of capital is the expected rate
of return that an investor could earn by investing his or her money in financial assets of
equivalent risk. However, there are problems in computing the opportunity cost of capital in
practice from the available data and information. A decision maker should be aware of these
problems.
Advantages of budgetary control system
1. It aims at maximization of profit through effective planning and control.
( )
2. It defines clearly the policy and objective of the organization.
( )
3. It provides a tool for periodic examination of the result of the policy.
( )
4. It aims at the rational utilization of financial and other resources.
( )
5. It helps co-ordination of the various activities of the organization.
( )
6. The task given to each level of management and the way to perform the task
are clearly expressed through the system.
(
)
7. It enables the management and control by exception to be adopted because
reporting is limited to case where actual expenditure exceeds or falls short of
budgeted expenditure.
( )
Advantages of budgetary control system
8. Budgetary control system motivates the personnel to
work efficiently.
(
)
9. System of budgetary control requires the policy-
makers to think about the problems in detail before
any decision is taken.
(
)
10. Budgetary control system helps delegating
authority in terms of responsibility and facilitates
responsibility accounting.
(
)
Kinds of budget
1. Capital budget: Capital budget relates to capital expenditure. Economics
of capital expenditure and investment are the matter to be addressed.
2. Financial budget: Cash budget showing the sources and utilization of
cash. Budgeted balance sheet, budgeted profit & loss account etc. are
included in financial budget.
3. Functional budget: Budget set for each function like sales, purchase,
production, research, finance etc. is called functional budget.
4. Operating budget: The budget shows operations planned for the forth
coming period and includes budgets for sales, production, production
expenses, selling and distribution expenses etc.
5. Program budget: For each plan or program a separate budget is set so
that economics of such plan or program can be assessed. This is called
program budget.
6. Performance budget: Performance budget is prepared showing the
planned performance of individual sectors, areas and functions of
management.
7. Responsibility budget: In this case, budgets are set for operation by an
expensive or a department responsible for it. The executive or the
department, as the case may be, is responsible for the success or failure.
Classification of budget
a) On the basis of budget period
i) Long-term budget: Budget prepare for long term or for more than one year.
ii) Short-term budget: Budget prepare for short-term; weekly, monthly etc.
b) On the basis of flexibility
i) Fixed budget: Budget prepare on the dependency of specific function or condition
and not possible to change this in any condition.
ii) Flexile budget: Budget may change in respect of level of activity.
c) On the basis of condition
i) Basic budget: Basically this budget is not possible to change and will use this for long
time.
ii) Current budget: Budget prepare on current activities and for a small period of time.
d) On the basis of function
i) Master budget: Budget prepare with combination of the result of planning of different functional
budget.
ii) Functional budget: Budget prepare on the basis of the activities of the organization.
Functional budget is classified into the following types:
1. Sales Budget 2. Purchase Budget 3. Production Budget 4. Production Cost Budget 5. Over Head Budget 6. Capital
Budget 7. Research & Development Budget 8. Cash Budget
e) On the basis of modernization
i) Computer budget: Budget prepare by the help of computer technology.
ii) Kaizen budget: Budget prepare by collection opinion of officers and employees of organization
from each level of work.
iii) Zero-base budget: Budget prepare by no- dependency on previous information.
Working capital
Managerial costing is a technique of cost accounting which pays special attention to
the behaviour of costs with changes in the volume of output.
Capital Budgeting
Capital budgeting may be defined as the decision making process by which firms
evaluate the purchase of major fixed assets, including buildings, machinery and
equipment whose cash flows are expected to extend beyond one year.
Capital budgeting decisions are of paramount () importance in financial

decision making.
Rationale ()
1. Investment decisions affecting revenues: Such investment decisions expected to
bring in additional revenue.
( )
2. Investment decisions reducing costs: Such decisions add to the total

earnings of the firm by reducing cost.
( )
Types of capital budgeting decisions
1. Accept-reject decision: All those proposals which yield a rate
of return is greater than a certain required rate of return or
cost of capital are accepted and the rest are rejected.
( , )
2. Mutually exclusive project decisions: The acceptance of one
project will exclude the acceptance of other. The alternative
are mutually exclusive and only one may be chosen.
(

)
3. Capital rationing decisions: In a situation where the firm has
unlimited funds, all independent investment proposals yielding
return greater than some predetermined level, are accepted.
(
)
Techniques of Capital Budgeting
Capital budgeting techniques are two type:
1. Traditional Technique:
a. Pay-back period.
b. Accounting rate of return.
2. Modern technique/discounted cash flow technique:

a. Internal rate of return (IRR).
b. Net present value (NPV).
c. Profitability index (PI)
Traditional Technique
Pay-back-period
Pay-back-period is defined as the number of years required to recover the original
cash outlay invested in a project.
Advantages of P-B-P
1. It is easy to calculate.
2. Earlier cash will recovered.
Disadvantages of P-B-P
3. Pay-back-period did not consider the present value of money; i.e. here inflation is
not consider.
Accept-reject criterion:
If the actual pay-back-period is less than the predetermined pay-back-period, the
project would be accepted; if not it would it would be rejected.
Formula of PBP:
P = (I OC) ; Where, P= Pay-back-period, I = Cash outflow or
investment, OC = Annual cash inflow.
Accounting rate of return (ARR)
ARR is a method of evaluating proposed capital expenditure based upon
accounting information.
A project would qualify to be accepted if the actual ARR is higher than the
minimum desired ARR.
( ARR ARR )
ARR is calculate under two ways:

1. Initial investment
2. Average investment
For initial investment:

ARR = (Net income Investment) 100
For average investment:

ARR = ( Net income Average investment) 100
Problem: Determine ARR from the following data of two machines, A and B.
Machine A Machine B
Cost Tk. 56,125 Tk. 56,125
Annual estimated income after depreciation and tax
Year
1 3,375 11,375
2 5,375 9,375
3 7,375 7,375
4 9,375 5,375
5 11,375 3,375
Estimated life (years) 5 5
Estimated salvage value 3,000 3,000
Depreciation has been charged on straight line basis.
Solution
ARR = (Average income Average investment) 100
Average income of machine A and B = (36,875 5)
= Tk. 7,375
Average investment = {(Cost of machine Salvage value) 2} + Salvage value
= {(56,125 3,000 ) 2} + 3,000
= Tk. 29,562
ARR for machines A and B = { (7,375 29,562.50) 100}
= 24.9%
Modern Technique
1. Net present value (NPV):
NPV = {Ri (1+k)} + { Rii ( 1+k)2} + {Rii (1+k)3 -------
--------- + {Riii (1+k)n} = C
Where,
Ri, Rii, Riii, --------Rn = The net cash flows
K = Cost of capital or interest
C = Initial cost of the project
n = The projects expected life
If a projects NPV is 0, and the discounted factor is higher then the project will be
accepted.
2. Internal rate of return (IRR):

IRR = A+ { C (C-D) (B-A)}
Where,
A = The discount rate of the low trial
N = The discount rate of the high trial
C = The present value of cash inflows discounted by low trial rate
D = The present value of cash inflows discounted by high trial rate.
3. Profitability Index (PI) = (Net present value of all cash inflow Initial cash inflow)
Problem
A company is considering an investment proposal to install a new machine. The project will cost Tk. 50,000. The facility
has a life expectancy of five years and no salvage value. The companies tax rate is 55% and no investment tax credit is
allowed. The firm uses straight line depreciation. The estimated cash flows before tax (CFBT) from the proposed investment.
Proposal are as follows:
Year CFBT
1 10, 000
2 11,000
3 14,000
You are required to compute: 4 15,000
1. Pay-Back-Period
2. ARR 5 25,000
3. IRR
4. NPV @ 10% discount rate
5. PI( Profitability Index)
Table No 1: Present Value of One Taka

Year 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 .909 .980 .971 .962 .952 .943 .935 .926 .917 .909
2 .908 .961 .943 .925 .907 .890 .873 .857 .842 .826
3 .971 .942 .915 .889 .864 .840 .816 .794 .772 .751
4 .961 .924 .888 .855 .823 .792 .763 .735 .708 .683
5 .951 .906 .863 .822 .784 .747 .713 .681 .650 .621
6 .942 .888 .837 .790 .746 .705 .666 .630 .596 .564
7 .933 .871 .813 .760 .711 .665 .623 .583 .547 .513
8 .923 .853 .789 .731 .677 .627 .582 .540 502 .467
9 .914 .837 .766 .703 .645 .592 .544 .500 .460 .424
10 .905 .820 .744 .676 .614 .558 .508 .463 .422 .386
Table No 2: Present Value of One Taka
Year 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 .901 .893 .885 .877 .870 .862 .855 .847 .840 .833
2 .812 .797 .783 .769 .756 .743 .731 .718 .706 .694
3 .731 .712 .693 .675 .658 .641 .624 .609 .593 .579
4 .659 .636 .613 .592 .572 .552 .534 .516 .499 .482
5 .593 .567 .543 .519 .497 .476 .456 .437 .419 .402
6 .535 .507 .480 .456 .432 .410 .390 .370 .352 .335
7 .482 .452 .425 .400 .376 .354 .333 .314 .296 .279
8 .434 .404 .376 .351 .327 .305 .285 .266 .249 .233
9 .391 .361 .333 .308 .284 .263 .243 .225 .209 .194
10 .352 .322 .295 .270 .247 .227 .208 .191 .176 .162
Table No-3: value of an annuity of one taka
Year 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 .990 .980 .971 .962 .952 .943 .935 .926 .917 .909
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868
8 7.652 7.326 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145
Table No-4: value of an annuity of one taka
Year 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 .901 .893 .885 .877 .870 .862 .855 .847 .850 .833
2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.231 4.111 3.998 3.889 3.784 3.685 2.589 3.498 3.410 3.326
7 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.537 5.328 5.132 4.496 4.772 4.607 4.451 4.303 4.163 4.031
10 5.889 5.650 5.426 4.216 5.019 4.883 4.659 4.494 4.339 4.192
Table No 5: The compound value of an annuity of One Taka
Year 1% 2% 3% 4% 5% 6% 7% % 9% 10%
1 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
2 2.010 2.020 2.030 2.040 2.050 2.060 2.070 2.080 2.090 2.100
3 3.030 3.060 3.091 3.122 3.152 3.184 3.215 3.246 3.278 3.310
4 4.060 4.122 4.184 4.246 4.310 4.375 4.440 4.506 4.573 4.641
5 5.101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.105
6 6.152 6.308 6.468 6.633 6.802 6.975 7.153 7.336 7.523 7.716
7 7.214 7.434 7.662 7.898 8.142 8.394 8.654 8.923 9.200 9.487
8 8.286 8.583 8.892 9.214 9.549 9.897 10.260 10.637 11.028 11.436
9 9.368 9.755 10.159 10.583 11.027 11.491 11.978 12.488 13.021 13.579
10 10.462 10.950 11.464 12.006 12.578 13.181 13.816 14.487 15.193 15.937
Table No 6: The compound value of an annuity of One
Taka
Year 11% 12% 13% 14% 15%S 16%S 17% 18% 19% 20%
2 .901 .893 .885 .877 .870 .862 .855 .847 ..840 .833
2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.537 5.328 5.132 4.946 4.772 4.602 4.451 4.303 4.163 4.031
10 5.889 5.650 5.423 5.216 5.019 4.833 4.659 4.494 4.339 4.192
Solution
Table showing the computation of cash flow after tax
Year CFBT Depreciatio Net Tax @ Net profit Cumulative

C1 C-2 n Profits 55% after tax Cash Flow
C-3 C-4 C-5 C- 6 After Tax
C-7
1 10,000 10,000 - - - 10,000
2 11,000 10,000 1,000 550 450 10,450
3 14,000 10,000 4,000 2,200 1,000 11,800
4 15,000 10,000 5,000 2,750 2,250 12,250
5 25,000 10,000 15,000 8,250 6,750 16,750
11,250 61,250
Calculation of depreciation = (50,000 S.V.) Life time
= (50,000 5) = 10,000
Table showing
The computation of cumulative cash flow
Year CFAT Cumulative cash flows
(Taka) (Including Depreciation)
1 10, 000 10,000
2 10,450 20,450
3 11,800 32,250
4 12,250 44,500
5 16,250 61,250
Req. 1. N.B. If year to year cash flow is not similar then the following formula will use for
calculating PBP
PBP = A + {(NCO- C) D}
Where, PBP = Pay-back-period.
P = 4 + (50,000 44,500) 16,750 NCO = Net cash outlay
= 4.328 Years A = Year in which the cumulative cash
flows is
nearer to the net cash outflow
C = Cumulative cash flow of the
subsequent year of A.
Req.-2
ARR = Average income Investment ( Average net income)
= (11,250 5)
= (2,250 50,000) 100
= 4.5%
Req. -3
IRR = (Investment Average OC or annual cash inflow)
= {50,000 (61,250 5)}
= 50,000 12,250
= 4.0816
The fake payback period = 4.0816. From the table closest to the fake pay back period of
4.0816 against 5 years is 4.10 against 7%. Since the actual cash flow stream is the initial
years is slightly below the average cash flow stream, the IRR is likely to be lower than
7%. Let us try with 6%. The 6% and 7% in the 5 years column in the annuity table.
6% = 4.50
7% = 4.05
Table showing
the computation of present value of cash flows
Discounting rate 6% and 7%
Year CFAT Present value factor Total present value
6% 7% 6% 7%
1 10,000 .943 .935 9,430 9,350
2 10,450 .890 .873 9,300 9,123
3 11,800 .840 .816 9,912 9,629
4 12,250 .792 .763 9,702 9,342
5 16,750 747 .713 12,512 11,942
50,856 49,391
Applying the formula
IRR = A+ {C (C-D)} (B-A)

Where, IRR= Internal rate of return
A= The discount rate of low trial
B= The discount rate of high trial
C = The present value of cash in flows discounted by
low trial rate
IRR
IRR = 6% + {856 (856 + 609) ( 7% - 6%)
= 6.58%
The project would be qualify to be acceptable if the IRR exceeds the cut off rate.
If the IRR will equal with required rate of return management may accept or reject the project.
Req. 4. Table showing
The computation of NPV at a discount rate of 10%
Year CFAT Present value factor @ Total present value

10%
1 10,000 .909 9,090
2 10,450 .826 8,632
3 11,800 .751 8,862
4 12,250 .683 8,367
5 16,750 .621 10,401
Total 45,352
Calculation of net present value (NPV):

NPV = Total present value of cash out flows Total present value of cash inflow
= 50,000 45,352
= -4,648
Profitability Index
PI = (P/v of cash inflows P/v of cash outflows)
= (45, 352 50,000)
= 0.907
Proposal will be acceptable if Profitability Index
is greater than 01.
PI will be greater than 01 only when the

proposal has been a positive net present value.
Problem
S. Ltd. Bought a machine two years ago. In the meantime ultra
modern machines are available in the market. The company wants to
examine whether it would be profitable to replace the old machine by
a new one. The particulars of the two machines are given below:
Cost Tk. 1,40,000
Book value Tk. 1,00,000
Residual value after 05 years Tk. 10,000
Present realizable value Tk. 60,000
Cost of overhauling ( )(after 03 years) Tk. 25,000
Annual operating cost in cash Tk.70,000
New machine in cost Tk. 1,80,000
Annual operating cost (including depreciation) Tk. 61,000
Residual value ( ) after 05 years Tk. 40,000
Cost of capital 18%
Would the new machine be profitable?

S Ltd.
Table showing the computation of present value of cash flows discounting rate 18%
Particulars Cash P.V.F. Total Sketches of cash flows
flows @ P.V.
18% 0 1 2 3 4 5
A. If keeping
Annual operating cost 70,000 3.127 -2,18,890 - -70,000 -70,000 -70,000 -70,000 -70,000
Overhauling cost after 25,000 .609 -15,225 - - - -25,000 - -
3rd year
Salvage value after 05 10,000 .437 4370 - - - - - 10,000
years
Total present value of -2,29,745
cash
B. If Replace:
Annual operating cost 61,000 3.127 -78,175 - -61,000 -61,000 -61,000 -61,000 -61,000
Salvage value 40,000 .437 17,480 - - - - - 40,000
Investment 1,80,000
(-) Residual value 60,000

of the old machine
Net Investment 1,20,000 1.00 -1,20,000 1,20,0
00
Total present value of -1,86,695
cash flows
Problem
A textile company is considering two mutually exclusive investment proposals. Their expected cash flow streams
Year
(CFAT) are given as follows:
Proposal X (Taka in Proposal Y (Taka in
thousand) thousand)
0 (500) (700)
1 145 100
2 145 110
3 145 130
4 145 150
5 145 160
6 150
7 120
8 120
9 110
10 100
The company employs the risk-adjusted method of evaluating risky
projects and selects the appropriate required rate of return as follows:
Project pay back Required rate of return

(Percentage)
Less than 1 year 8%
1 to 5 years 10%
5 to 10 years 12%
Over 10 years 15%
Which proposal should be acceptable to the company?

Solution:
(i) Pay back period for proposal X:
= (Tk. 5,00,000 Tk. 1,45,000)
= 3.448 years
The appropriate risk adjusted rate of return for pay back period of 3.448 years is 0.10.
Pay back period proposal Y:
Year Cash flows Cumulative cash flows
(Taka in thousand) (Taka in thousand)
1 100 100
2 110 210
3 130 340
4 150 490
5 160 650
6 150 800
The pay back period for proposal Y is

PBP = A + {(NCO- C) D} Where, PBP = Pay-back-period.
P = 5 + {(7,00,000 6,50,000) 1,50,000 } NCO = Net cash outlay
= 5.33 Years A = Year in which the cumulative cash flows is
nearer to the net cash outflow
C = Cumulative cash flow of the subsequent year of A.
D = Cash inflow of the next year of subsequent year.
5 years and 4 months and the appropriate risk adjusted rate of return is 0.12.
Net present value of proposal X
Years CFAT Present Value factor Total Present Value
(at 0.10)
1-6 1,45,000 4.355 Tk. 6,31,475
Less cash outflows (5,00,000)
Net Present Value 1,31,475
Net present value of proposal Y

Year CFAT PV factor at 0.12 Total PV
1 100 0.893 Tk.89,300
2 110 0.797 87,670
3 130 0.712 92,560
4 150 0.636 95,400
5 160 0.567 90,720
6 150 0.507 76,050
7 120 0.452 54,240
120 0.404 48,480
110 0.361 39,710
100 0.322 32,200
7,06,330
Less cash out flows (7,00,000)
NPV 6,330
Proposal X should be acceptable to the company as its NPV is higher than that of proposal Y
Problem: Lipi Company manufacturing two products X and Y. A forecast of the number of units to be sold
in the first seven months of 2014 is given below:
Product January February March April May June July
X (units) 10,000 21,000 16,000 20,000 24,000 24,000 25,000
Y (units) 28,000 28,000 24,000 20,000 16,000 16,000 20,000
It is anticipated that:
i) There will no work in progress at the end of any month.
ii) Finished units equal to 25% of sales for the next month will be in stock at the end of each month including December
2013.
Budgeted production and production costs for the year ending December 31, 2014 are as follows:
Production cost Production (Units)
X Y
1,50,000 1,60,000
Taka Taka
Direct material per unit 10 15
Direct labor per unit 8 10
Total factory overhead apportioned to each type of production 7,50,000 9,60,000
Prepare for the six month period ending June 30, 2014., a production budget for each month and a summarized production
cost budget.
Solution
Lipi Company Ltd.
Production Budget for Product X
Budget Period (January to June 2014)
Particulars January February March April May June Total
Units Units Units Units Units Units Units
Estimated Sales 10,000 21,000 16,000 20,000 24,000 24,000 1,15,000
Add. Closing Stock (25% of 5,250 4,000 5,000 6,000 6,000 6,250 32,500
next months sales)
15,250 25,000 21,000 26,000 30,000 30,250 1,47,500
Less Opening Stock -2,500 -5,250 -4,000 -5,000 -6,000 -6,000 28,750
Production Target 12,750 19,750 17,000 21,000 24,000 24,250 1,18,750
Lipi Company Ltd

Production Cost Budget
Product X
Particulars Details Amount
Direct Materials 1,18,750 units @ Tk.10 11,87,500
+ Direct Labor 1,18,750 units @ Tk.8 9,50,000
Prime Cost 21,37,500
Factory Overhead (7,50,000 1,50,000) 1,18,750 units @ Tk.5 5,93,750
Cost of Production 27,31,250
Solution
Lipi Company Ltd.
Production Budget for Product Y
Budget Period (January to June 2014)
Particulars January February March April May June Total
Units Units Units Units Units Units Units
Estimated Sales 28,000 28,000 24,000 20,000 16,000 16,000 1,32,000
Add. Closing Stock (25% of 7,000 6,000 5,000 4,000 4,000 5,000 31,000
next months sales)
35,000 34,000 29,000 24,000 20,000 21,000 1,63,000
Less Opening Stock -7,000 -7,000 -6,000 -5,000 -4,000 -4,000 -33,000
Production Target 28,000 27,000 23,000 19,000 16,000 17,000 1,30,000
Lipi Company Ltd

Production Cost Budget
Product Y
Particulars Details Amount
Direct Materials 1,30,000 units @ Tk.15 19,50,000
+ Direct Labor 1,30,000 units @ Tk.10 13,00,000
Prime Cost 32,50,000
Factory Overhead (9,60,000 1,60,000) 1,30,000 units @ Tk.6 7,80,000
Cost of Production 40,30,000
Islam Corporation operates two sales divisions for selling two brand product A and
B. The budget committee of the Corporation require a sales budget for the year 2014
from the following information:
Product Division -1 Division-2
A 30,000 @ Tk.30 25,000 @ Tk.30
B 40,000 @ Tk.20 24,000 @ Tk.20
Actual sales for the current year
Product Division-1 Division-2
A 40,000 @Tk.30 30,000 @ Tk.30
B 24,000 @ Tk.20 20,000 @ Tk.20
Adequate market study reveals that product A is popular and possibly underpriced if the
price of product A is increased by Tk.2 it would still find a ready market. On the other
hand product B is over priced and if the price of product B reduced by Tk.4 more sales
of product B is possible.
On the basis of price changes and reports from sales man, the divisional sales
managers estimate the following percentages increased on the budgeted sales:
Product Division-1 Division-2
A 20% 20%
B 25% 25%
You are required to prepare a sales budget for 2014.
Solution
Workings:
i) Calculation of price changes:
Product A Product B
Sales price 30 20
Increase/Decrease +2 -4
Budgeted sales price for 2014 32 16
Calculation of unit changes:

Division -1 Division-2
Product A
Budgeted sales for the current year 30,000 25,000
Add. Increase for price changes 6,000 (+20%) 5,000 (+20%)
Sales Target for 2014 36,000 30,000
Division-1 Division-2
Product B Units Units
Budgeted sales for the current year 40,000 24,000
Add. Increase for price reduction 10,000 (25%) 6,000 (25%)
Budgeted sales/Sales target for 2014 50,000 30,000

Islam & Co.
Sales Budget for 2014
Division Product Budgeted sales for 2014 Budgeted sales for 2013 Actual Sales for 2013
Units Rate Amount Units Rate Amount Units Rate Amount
Division-1 A 36,000 32 11,52,000 30,000 30 9,00,000 40,000 30 12,00,00
B 50,000 16 8,00,000 40,000 20 8,00,000 24,000 20 4,80,000
Total 86,000 19,52,000 70,000 17,00,000 16,80,00
Division-2 A 30,000 32 9,60,000 25,000 30 7,50,000 30,000 30 9,00,000
B 30,000 16 4,80,000 24,000 20 4,80,000 20,000 20 4,00,000
Total 60,000 14,40,000 49,000 12,30,000 50,000 13,00,000
Total A 66,000 32 21,12,000 55,000 30 16,50,000 70,000 30 21,00,000
B 80,000 16 12,80,000 64,000 20 12,80,000 44,000 20 8,80,000
Grand Total 1,46,000 33,92,000 1,19,000 29,30,000 1,14,000 29,80,000

Contract costing
Contract costing is that method of costing in cost accounting which is used to collect and identify
all the expenses relating to a specific contract.
Contract costing is the tracking of costs associated with a specific contract with a customer. For example, a company bids
for a large construction project with a prospective customer, and the two parties agree in a contract for a certain type of
reimbursement to the company. This reimbursement is based, at least in part, on the costs incurred by the company in order
to fulfill the terms of the contract. The company must then track the costs associated with that contract so that it can justify
its billings to the customer
Contract costing is a way of providing a quotation for especially large and long term projects that
will usually be performed over a number of accounting periods.
For example, large civil engineering projects will often involve a business using contract costing
when estimating the cost of participating in the project.
Contract costing is one which is used for the works of civil- engineering nature.
Contract costing
Following are the distinctive features of contract costing:
a) A separate contract account is maintained for each contract.
b) Each contract is considered as a cost unit.
c) A major portion of contract work is done at the contract site.
d) Expenses incurred at the contract site are considered to be direct expenses.
e) Establishment expenses like head office, central store department are treated as overhead expenses.
These overheads are recovered either based on the material consumption ratio, labor cost ratio, labor hour
ratio or the value of material or labor consumption ratio.
f) Number of contract works with a contractor may not be very large.
g. All materials which are used for the purpose of completion of the contract is
allocated to the debit side or charged to contract account.
h. Wages which are paid for the workers employed for the completion of the contracts
are also allocated directly to the contract.
Features of Contract costing
i. As far as indirect costs like salaries of engineers, lighting etc., are
concerned, it is allocated on some reasonable basis such as direct
labor hours or material used or some other basis which depends on
company to company basis.
j. As far as treatment for the machinery used for the completion of

contract is concerned, one can charge the depreciation amount of the
machinery for the year to the contracts account.
h. Until the completion of total work, no profit will transfer to profit

and loss account.
k. Profit will be allocated on cash received of certified work.
l. At the end of contract total profit will transfer to profit & loss account.
Problem:
A contractor obtained a contract to build a house for Tk.2,50,000.The contract was commenced
on January 21, 2014. The following costs were incurred for the contract during the year ended
December 31, 2014:
Taka
Materials purchased 56,200
Materials from store 22,600
Wages 42,000
Plant purchased 20,000
Plant transferred from another contract 8,000
Direct expenses 6,200
Establishment charges 15,600
Material costing of Tk.8,000 were lost by fire and the plant brought from another contract was
sold at Tk.5,000 after it was used in the contract for 9 months. On December 31, 2014 the value
of materials at site was Tk.10,600, the plant was re-valued at Tk.9,000 and the cost of work done
but not certified was Tk.6,000. Cash received during the year was Tk.1,35,000 being 90% of the
work certified.
Prepare the contract account showing the calculation of profit to be certified to the profit or loss
account.
Show also how the relevant items would appear in the profit and loss account and the balance
Contract account
Taka Taka
Material purchased 56,200 Material transferred to Profit and loss 8,000
account
Materials in stores 22,600 Sale of plant 5,000
Wages 42,000 Material at site 10,600
Plant purchased 20,000 Plant re-valued 9,000
Plant transferred from another contract 8,000 Work certified {(1,35,000100) 90} 1,50,000
Direct expenses 6,200 Non-certified work 6,000
Establishment charges 15,600
1,70,600
Estimated profit 18,000
1,88,600 1,88,600
Estimated profit 18,000
Profit and loss account 10,800
Reserve - 7,200
18,000 18,000
Calculation of profit:
Total expenditure 1,70,600

Less. Loss of material 8,000
Sale of plant 5,000
Material balance 10,600
Plant balance 9,000 32,600
Cost of work done 1,38,000
Less. Cost of work not yet certified 6,000
Cost of work certified 1,32,000
Total notional profit (1,50,000 1,32,000) 18,000
Value of work certified: {1,35,000 (100 90)} = Tk.1,50,000

2/3 of Notional profit: (18,000 2/3) = Tk.12,000
Cash received = 12,000 90% = Tk.10,800
Reserve = 18,000 10,800 =Tk.7,200
Profit and loss account
Taka Taka
Loss of material 8,000 Profit from contract 10,800
Net profit 2,800
10,800 10,800
Problem:
A contractor undertook a contract for Tk.5,00,000. The work was started on December 01, 2012
and complete on December 31, 2014. The following information is available in respect of the
contract:
2012 2013 2014
Taka Taka Taka
Materials 10,800 1,00,900 84,200
Wages 7,200 83,000 62,100
Indirect expenses 3,100 40,500 36,500
Plant (used from January 01, 2013) 60,000
Work uncertified 3,600 4,100
Work certified 16,000 2,80,000 5,00,000
Materials in site 1,500 7,000 11,500
Plant is depreciated at 20% p.a. 80% of work certified is received in cash.
Complete the contract work
Solution: Contract Account
December, 2012 Taka December 31, 2012 Taka
Materials 10,800 Material at site 1,500
Wages 7,200 Work in progress:
Indirect expenses 3,100 Work uncertified 3,600
Work certified 16,000
Before completing of total contract work no pf 21,100 21,100
January 1, 2013 December 31,2013
Materials b/f 1,500 Material at site 7,000
Work in progress 19,600 Plant at site (20% depreciated) 48,000
January to December, 2013 Work in progress:
Materials 1,09,00 Work uncertified 4,100
Wages 83,000 Work certified 2,80,000
Indirect expenses 40,500
Plant 60,000
3,05,500
Notional profit 33,600
3,39,100 3,39,100
Profit & loss account {(33,600 80%) 2/3} 17,920 Notional profit 33,600
Reserve 15,680
33,600 33,600
Solution: Contract Account
January 01, 2014 Taka January 1, 2014 Taka
Materials at site 7,000 Reserve b/f 15,680
Plant at site 48,000 October 31,2014
Work in progress: 2,84,100 Material at site 11,500
January to October, 2014 Plant at site (48,000 20%) 10/12 40,000
Materials 84,200 Contra tee's account 5,00,000
Wages 62,100
Indirect expenses 36,500
5,21,900
Profit & loss account 45,280
5,67,180 5,67,180
Job Costing
.
Job costing involves the calculation of costs involved in a construction "job" or the manufacturing of goods done in discrete
batches. These costs are recorded in ledger accounts throughout the life of the job or batch and are then summarized in the
final trial balance before the preparing of the job cost or batch manufacturing statement
Problem: The following information is obtained in respect of Job No.91 which is just completed:
Taka
Direct labor 50,000
Factory overhead 30,000
Administrative expenses 12,000
Selling expenses 6,000
Sales 1,72,500
Another job is available. Direct materials and direct labor cost of the job are estimated to be Tk.48,000 and Tk.72,000
respectively. It is expected that the factory overhead rate will increase by 25% and administrative and selling overhead rate
by 10%. The factory overhead is charged as percentage of wages and administrative and selling overhead as percentage of
work cost.
What price should be quoted for the new job in order to obtain the same margin of profit on the sales price?
Solution:
Job No:91
Statement of cost
Taka
Direct labor 50,000
Prime cost 90,000
Factory overhead (60% of direct labor cost) 30,000
Administrative overhead (10% of production cost) 12,000
Selling & distribution overhead (5% of production cost) 6,000
Profit (20% on sales) 34,500
Sales 1,72,500
Solution:
Job No:91
Statement of cost (New job)
Taka
Direct labor 72,000
Prime cost 1,20,000
Factory overhead (75% of direct labor cost) 54,000
Administrative overhead (11% of production cost) 19,140
Selling & distribution overhead (5.5% of production cost) 9,570
Profit (20% on sales or 25% on cost) 50,677.50
Sales 2,53,387.50
Operating costing
Operating costing is a method of costing applied by undertaking which provide service
rather than production of commodities.
Operating costs are the expenses which are related to the operation of a business, or to the
operation of a device, component, piece of equipment or facility.
The system of cost accounting which uses to calculate of cost of the establishment that provides
service instead of manufacturing any product is called operating costing.
Transportation sector: unit cost: Hour, Kilometer, Mile, Ton, Ton-Mile, Ton-kilometer,
Passenger-Mile
Ton-Mile or Passenger-Mile = Number of transport Number of passenger Distance
Carrying capacity Working day
Fixed cost of service sector: Insurance cost, Tax, Depreciation, Garage and administrative
expenses, Salary of driver
Running cost: Fuel and lubricant, Repair and maintenance, Tyre cost
Operating costing
The average weekly expenses for a running truck is Tk.14,580. During a week the truck operated
as follows:
Day Mileage Ton
Monday 120 4
Tuesday 82 5
Wednesday 130 4
Thursday 100 6
Saturday 50 5
Sunday 110 4
Calculate cost per ton-mile
Solution:
Day Mile Ton Ton-mile
Monday 120 4 480
Tuesday 82 5 410
Wednesday 130 4 520
Thursday 100 6 600
Saturday 50 5 250
Sunday 110 4 440
2,700
Cost per ton-mile = (14,580 2,700) = Tk.5.40
Operating costing
The following particulars relate to the operation of a bus:
Cost of the bus Tk.8,60,000

Estimated resale value at the end of its life Tk.60,000
Effective life 8 years
Average annual mileage 20,000
Annual standing charges: Taka
License and tax 3,000
Administration and garage expenses 9,000
Drivers salary and fringe benefits 12,000
Conductors salary and fringe benefits 30,000
Running costs:
Fuel Tk.40 per 20 miles
Lubricants Tk.40 per 2000 miles
Tyre and parts Tk.800 per 4,000 miles
Repair and maintenance Tk.100 per 1,000 miles
Prepare a statement showing the cost per mile of operating the bus.
Operating costing
Calculation of cost per mile of bus:
Fixed cost: Taka Cost per mile
License and tax 3,000
Insurance 9,000
Administration and garage expenses 12,000
Drivers salary and fringe benefits 30,000
Conductors salary and fringe benefits 24,000
Depreciation (8,60,000 60,000) 8 1,00,000
1,78,000 20,000 8.90
Running costs:
Fuel (40 20) 2.00
Lubricants (40 2,000) 0.02
Tyre and parts (800 4,000) 0.20
Repair and maintenance (100 1,000) 0.10 2.32
Cost per mile 11.22

Operating Cost
Problem: A transport company is operating 3 buses each of which has a capacity of 50 seats. The vehicles are operated 6
days in a week between two cities 40 miles apart. Each bus makes two round trips daily and on an average 80% of the
capacity is actually used. Costs of running the buses during a week were: Petrol: Tk.8,640, Lubricant: Tk.520, Repair and
maintenance Tk.13,160, Depreciation: Tk.3,600, Supervision: Tk.1,200, Taxes: Tk.200, Garage rent: Tk.100, Drivers salary:
Tk.360, Assistants salary: Tk.240 and other fixed expenses Tk.780. Calculate the cost per passenger mile.
Passenger Mile = No. of Buses Number of Days Total Distance Number of Trips Capacity Used Number of seats
= 3 2 6 40 2 80/100 50 = 1,15,200
Cost per passenger mile:
Variable cost: Taka Taka
Petrol 8,640
Lubricant 520
Repair and Maintenance 13,160 22,320
Fixed cost:
Depreciation 3,600
Supervision cost 1,200
Taxes 200
Garage rent 100
Drivers salary 300
Assistances salary 240
Other fixed expenses 780 6,480
Total cost 28,800
Cost per passenger mile = 28,800 1,15,200 = Tk.0.25
Hum-281
Accounting:
Accounting: Meaning and importance of accounting; some relevant accounting principles; journal-and ledger;
trial balance; final accounts ( Income statements and balance sheet); considering adjusting entries.
Costing: Concept of cost, classification of costs, labor, overhead and job costing; managerial costing and
operating costing.
Management:
Management and Organization: Brief history of development of management theories; management
functions; principles of management; organization structure; type of organization; line of command and
response; span of control; centralization and de-centralization; authority and responsibility relationship.
Personal Management: Management function; principles of management and industrial relations; manpower
planning; recruitment and development; discipline; leadership; type of leading; communication skills; morale
and motivation; human needs and theories of motivation; reaction to frustration; job rotation; enlargement and
enrichment.
Performance Appraisal and Compensation: Job evaluation; merit rating; salary and wages; wages incentive
plans; wages and productivity; fringe benefits.
Marketing Management: Purchasing procedures; contracts and sub-contracts; purchasing problem; marketing
concepts; industrial and consumer selling; distribution channels of goods; marketing problems; sales promotion
techniques; advertising; organization for purchasing and selling; sales department.
Management
Management is the process of reaching organizational goals by working with and through people
and other organizational resources.
Management is often included as a factor of production along with machines, materials and
money
Management is the process of designing and maintaining an environment in which individuals

working together in gropes efficiently to accomplish selected aim using resources, human,
financial material and information.
This definition may be expended:

i. As manager, people carry out the managerial functions of planning, organizing, stuffing,
leading and controlling.
ii. It can be applied to any kind of organization.
iii. It applies to managers at all organizational level.
iv. All managers have same aim; to create surplus.
v. It is concerned with the team productivity, which implies effectiveness and efficiency.
Management has the following 3 characteristics:
i. It is a process of continuing and related activities.
ii. It involves and concentrates on reaching organizational goals.
iii. It reaches these goals by working with and through people and
other organizational resources.
MANAGEMENT FUNCTIONS:
The 4 basic management functions that make up the management
process are described in the following sections:
i. Planning
ii. Organizing
iii. Influencing or motivating
iv. Controlling.
PLANNING:
Planning involves choosing tasks that must be performed to attain organizational goals,
outlining how the tasks must be performed, and indicating when they should be
performed.
Planning activity focuses on attaining goals. Managers outline exactly what

organizations should do to be successful. Planning is concerned with the success of the
organization in the short term as well as in the long term.
ORGANIZING:
Organizing can be thought of as assigning the tasks developed in the planning stages, to
various individuals or groups within the organization. Organizing is to create a
mechanism to put plans into action.
People within the organization are given work assignments that contribute to the
companys goals. Tasks are organized so that the output of each individual contributes
to the success of departments, which, in turn, contributes to the success of divisions,
which ultimately contributes to the success of the organization.
INFLUENCING:
Influencing is also referred to as motivating, leading or directing. Influencing can be
defined as guiding the activities of organization members in the direction that helps the
organization move towards the fulfillment of the goals.
The purpose of influencing is to increase productivity. Human-oriented work situations

usually generate higher levels of production over the long term than do task oriented
work situations because people find the latter type distasteful.
CONTROLLING:
Controlling is the following roles played by the manager:
i. Gather information that measures performance
ii. Compare present performance to pre established performance norms.
iii. Determine the next action plan and modifications for meeting the desired
performance parameters.
iv. Controlling is an ongoing process.
Principles of Management
The 14 management principle from Henry Fayol:
i. Division of works: Specialization allows the individual to build up experience and to continual improve
his skill. Thereby he can be more productive.
ii. Authority: The right to issue command, along with which must go the balanced responsibility for its
function.
iii. Discipline: Employee must obey but this is two-side; employee will obey the orders if management play
their part by providing good leadership.
iv. Unity of command: Each worker should have only one boss with no other conflicting lines of
command.
v. Unity of direction: People engaged in the same kind of activities must have same objectives in a single
plan. This is essential to ensure unity and coordination in the enterprise. Unit of command does not exist
without unit of direction but does not necessarily flows from it.
vi. Subordinate of individual interest (to the general interest) : Management must see that the goals of the
firms are always paramount.
vii. Remuneration: Payment is an important motivator although by analyzing a number of possibilities. Fayol
point out that there is no such thing as a perfect system.
viii. Centralization (or Decentralization): This is a matter of degree depending on the condition of the
business and the quality of its personnel.
Principles of Management
The 14 management principle from Henry Fayol:
ix. Scalar chain (Line of authority): A hierarchy is necessary for unit of direction. But lateral communication
is also fundamental as long as supervisors level in the organization. It should not be over stretched and
consist of too many levels.
x. Order: Both material order and social order are necessary. The former minimize lost time and useless
handling of material. The latter is achieved through organization and selection.
xi. Equity: In running a business a combination of kindliness and justice is needed. Treating employees well
is important to achieve equity.
xii. Stability of tenure of personnel: Employees work better if job security and carrier progress assured to
them. An insecure tenure and a high rate of employee turnover will affect the organization adversely.
xiii. Initiative: Allowing all personal to show their initiative in some way is a source of strength for the
organization. Even though it may well improve a sacrifice of personal vanity on the part of many
managers.
xiv. Team spirit: Management must foster the morale of its employee. He further suggest that real talent is
needed to coordinate effort encourage keenness, us each persons abilities and reward each ones merit
without arousing possible jealousies and disturbing harmonious Relations.
Organizational Structure
An organizational structure defines how activities such as task allocation, coordination
and supervision are directed toward the achievement of organizational aims.
An organizational structure defines the scope of acceptable behavior within an

organization, its line of authority and accountability and to some extent the
organizations relationship with its external environment.
The organizational structure pertains to both reporting and operational relationships,

provided they have some degree of performance. The individual elements of an
organizational structure typically include a variety of components that one may
usefully see as building blocks; 1) departments or divisions; 2) management
hierarchy; 3) rules, procedures, and goals; and 4) more temporary building
blocks such as task forces or committees.
KEYS TO ERECTING AN EFFECTIVE ORGANIZATIONAL
STRUCTURE
All sorts of different organizational structures have been proven effective in
contributing to business success. Some firms choose highly centralized, rigidly
maintained structures, while othersperhaps even in the same industrial sector
develop decentralized, loose arrangements. Both of these organizational types can
survive and even thrive. There is no one best way to design an organization or type
of structure. Each depends upon the company involved, its needs and goals, and
even the personalities of the individuals involved in the case of small businesses.
The type of business in which an organization is involved is also a factor in
designing an effective organizational structure. Organizations operate in different
environments with different products, strategies, constraints, and opportunities,
each of which may influence the design of an ideal organizational structure.
As small business owners weigh their various options in this realm, they should make sure that the following factors
are taken into consideration:
Relative strengths and weaknesses of various organizational forms.
Legal advantages and disadvantages of organizational structure options.
Advantages and drawbacks of departmentalization options.
Likely growth patterns of the company.
Reporting relationships that are currently in place.
Reporting and authority relationships that you hope will be implemented in the future.
Optimum ratios of supervisors/managers to subordinates.
Suitable level of autonomy/empowerment to be granted to employees at various levels of the organization (while
still recognizing individual capacities for independent work).
Structures that will produce greatest worker satisfaction.
Structures that will produce optimum operational efficiency.
Once all these factors have been objectively examined and blended into an effective organizational structure, the small
business owner will then be in a position to pursue his/her business goals with a far greater likelihood of success.
This model was quickly adopted by the military as a way to
show a chain of command and of course we have all seen
and experienced this within our organizations
This type of a model makes sense for linear work where no

brain power is required and where the people who work there
are treated like expendable cogs. However, as the war for
talent continues to become more fierce, organizations around
the world are quickly trying to figure out alternatives to the
hierarchy. In fact, every single organization I speak with,
work with, and research, is looking to flatten out their
structure. Nobody ever tells me they want more bureaucracy
and more layers.
There are many challenges with this model but to name a

few. Communication typically flows from the top to the
bottom which means innovation stagnates, engagement
suffers, and collaboration is virtually non-existent. This type
of environment is riddled with bureaucracy and is extremely
sluggish. This is why the hierarchy is perhaps the biggest
vulnerability for any organization still employing it
Hierarchical Organization
Unlike the traditional hierarchy which typically sees
one way communication and everyone at the top with
all the information and power; a flatter structure
seeks to open up the lines of communication and
collaboration while removing layers within the
organization. As you can see there are fewer layers
and that arrows point both ways. Obviously an very
simplified way to look at this type of a company but
hopefully it gets the point across. For larger
organizations this is the most practical, scalable, and
logical approach to deploy across an entire company.
This is the model that most large (and many mid-size)
organizations around the world are moving towards.
Its true, some form of hierarchy still does exist within
this model but that isnt necessarily a bad thing in this
case. In flatter companies there is still a strong focus
on communication and collaboration, improving the
employee experience, challenging the status quo
around traditional management models, and the like.
But instead of completely reinventing the entire
company and introducing a radical new structure and
approach to work, it achieves similar results in far
shorter term and with much less effort and resource
allocation.
Flatter Organization
Unlike any other corporate structure that exists,
flat companies are exactly thatflat. Meaning
there are usually no job titles, seniority, managers,
or executives. Everyone is seen as equal. Flat
organizations are also oftentimes called or
referred to as self-managed organizations (there
can be some differences but for our case we will
put them together). The most famous example of
this comes from Valve, the gaming company
responsible for classics such as Half-Life,
Counter-Strike, Portal, and many others. At Valve
there are no job titles and nobody tells you what
to work on. Instead all the employees at Valve can
see what projects are being worked on and can
join whichever project they want. If an employee
wants to start their own project then they are
responsible for securing funding and building
their team. For some this sounds like a dream for
others, their worst nightmare.
Flat Organization
Somewhere in between hierarchies and flat
organizations lie flatarchies. These types of
companies are a little bit of both structures.
They can be more hierarchical and then have
ad-hoc teams for flat structures or they can
have flat structures and form ad-hoc teams
that are more structured in nature.
Organizations with this type of structure are
very dynamic in nature and can be thought of
a bit more like an amoeba without a constant
structure.
The most common type of example with this
structure is a company with an internal
incubator or innovation program. In this type
of an environment the company operates
within an existing structure but usually allows
employees to suggest and then run with new
ideas. Ideas that company allows employees
to move forward with usually result in
separate teams being formed. Flatarchies Organization
The basic goal with this structure is to allow for
distributed decision making while giving everyone
the opportunity to work on what they do best. There
is still some form of structure and hierarchy but its
not based on people as much as it based on circles or
what most people would think of as departments.
Information is openly accessible and issues are
processed within the organization during special and
ongoing meetings. Now just reading those few
sentences certainly makes it seem like thats the
work should be done, and I agree.
One of the things Ive always said about holacracy is

that I believe there are ways to achieve some of the
desired effects without having to go through such a
radical change. Its sort of like trying to improve the
way your car runs by taking out the entire engine and
rebuilding it instead of working on some of the core
areas that might really drive performance.
Holocratic Organization
Line of command
an organization of a business where each manager is responsible for doing what his superior tells him to do
Centralization: Centralization and Decentralization
The extent to which authority is concentrated at the top of
management levels. Situation in which decision-making Management
power is at the top of an organization and there is little
delegation of authority. Full centralization means
minimum autonomy and maximum restrictions on
operations of subunits of the organization. Centralization,
is the process by which the activities of an organization,
particularly those regarding Planning decision-making,
become concentrated within a particular location or
group.
Decentralization:
The extent to which authority is delegated to lower
management levels. Delegation of decision-making to
the subunits of an organization. It is a matter of degree.
The lower the level where decisions are made, the greater
is the decentralization. Decentralization is most effective
in organizations where subunits are autonomous and costs
and profits can be independently measured.
Advantage of Decentralize Management
Decentralization is a type of organizational structure in which daily operations and decision-
making responsibilities are delegated by top management to middle and lower-level mangers
within the organization, allowing top management to focus more on major decisions. For a small
business, growth may create the need to decentralize to continue efficient operations.
The benefits of decentralization include:

i. Decisions are made by those who have the most knowledge about local conditions;
ii. Greater managerial input in decision-making has a desirable motivational effect; and
iii. Managers have more control over results.
iv. The devolution of decision-making powers to the lowest levels of government authorityto promote democracy and
participation, such that local people are directly involved in decisions and developments which affect them personally
The costs of decentralization include:

v. Managers have a tendency to look at their division and weak point of overall company goals;
vi. There can be costly duplication of services; and
vii. Costs of obtaining sufficient information increase.
Advantage of Decentralize Management
Empowering Employees
Employees can be empowered by having more autonomy to make their own decisions, giving them a sense of
importance and making them feel as if they have more input in the direction of the organization. It also allows
them to make better use of the knowledge and experience they have gained and implement some of their own
ideas.
Relieving the Burden
Decentralizing takes some of the burden of daily business operations off the business owner. When the owner
allows others to perform such tasks as hiring new employees or ordering supplies, this frees her up to spend
more time on big-picture items, such as planning for expansion or meeting with important clients.
Preparing for Emergencies
A situation may arise where the business owner must be away from the business for an extended period time
because of illness or another type of emergency. A decentralized structure provides a better chance that the
organization will maintain self-sufficiency because managers and employees are accustomed to working
autonomously.
More Efficient Decision-Making

A decentralized organization is able to make decisions more quickly than one with a centralized structure. A
manager often can make a decision without having to wait for it to go up a chain of command, allowing the
organization to react quickly to situations where fast action can mean the difference between gaining and
losing a customer.
Ease of Expansion
For a growing business, decentralization can facilitate the process of expansion. For example, if expansion
results in opening a new business unit in a different geographic area, decentralization allows the new unit to
operate as an independent entity, meaning it can react more easily to the specific needs of the area, such as
deciding to sell products that appeal to the local market.
Responsibility
Responsibility
Responsibility indicates the duty assigned to a position. The person holding the position has to perform the
duty assigned. It is his responsibility. The term responsibility is often referred to as an obligation to perform a
particular task assigned to a subordinate. In an organization, responsibility is the duty as per the guidelines
issued.
Definitions of Responsibility
According to Davis, "Responsibility is an obligation of individual to perform assigned duties to the best of his
ability under the direction of his executive leader." In the words of Theo Haimann, "Responsibility is the
obligation of a subordinate to perform the duty as required by his superior".
Characteristics of Responsibility
i. The essence of responsibility is the obligation of a subordinate to perform the duty assigned.
ii. It always originates from the superior-subordinate relationship.
iii. Normally, responsibility moves upwards, whereas authority flows downwards.
iv. Responsibility is in the form of a continuing obligation.
v. Responsibility cannot be delegated.
vi. The person accepting responsibility is accountable for the performance of assigned duties.
vii. It is hard to conceive responsibility without authority.
Authority
Authority: Authority is the right or power assigned to an executive or a
manager in order to achieve certain organizational objectives.
A manager will not be able to function efficiently without proper authority.
Authority is the genesis of organizational framework. It is an essential
accompaniment of the job of management. Without authority, a manager ceases
to be a manager, because he cannot get his policies carried out through others.
Authority is one of the founding stones of formal and informal organizations.
An Organization cannot survive without authority. It indicates the right and
power of making decisions, giving orders and instructions to subordinates.
According to Henri Fayol, "Authority is the right to give orders and the power
to exact obedience."
According to Mooney and Reily, "Authority is the principle at the root of

Organization and so important that it is impossible to conceive of an
Organization at all unless some person or persons are in a position to require
action of others."
Manpower Planning: its Definition, Process and Affected Factors!
According to Gorden MacBeath, manpower planning involves two stages. The first
stage is concerned with the detailed planning of manpower requirements for all types
and levels of employees throughout the period of the plan, and the second stage is
concerned with planning of manpower supplies to provide the organization with the
right types of people from all sources to meet the planned requirements.
According to Vetter, the process by which management determines how the

organization should move from its current manpower position to its desired manpower
position. Through planning, management strives to have the right number and the right
kinds of people, at the right places, at the right time, doing things which result in both
the organization and the individual receiving maximum long-run benefit.
Coleman has defined human resource or manpower planning as the process of

determining manpower requirements and the means for meeting those requirements in
order to carry out the integrated plan of the organization.
Human resource planning consists of a series of activities:
a) Forecasting future manpower requirements, either in terms of mathematical projections
of trends in the economic environment and development in industry, or in terms of
judgmental estimates based upon the specific future plans of a company;
b) Making a catalogue of present manpower resources and measuring the extent to which
these resources are employed optimally;
c) Anticipating manpower problems by projecting present resources into the future and
comparing them with the forecast of requirements to determine their adequacy, both
quantitatively and qualitatively; and
d) Planning the necessary programs of requirement, selection, training, development,
utilization, transfer, promotion, motivation and compensation to ensure that future
manpower requirements are properly met.
According to Geisler, manpower planning is the processincluding forecasting, developing
and controllingby which a firm ensures that it has the right number of people and the
right kind of people at the right places at the right time doing work for which they are
economically most useful.
Process of Manpower Planning
a) Deciding goals or objectives

b) Auditing of the internal resources
c) Formulation of the recruitment plan
d) Estimating future organizational structure and manpower requirements
e) Developing a human resource plan
Why is recruitment and selection important?
Recruitment and selection generally forms part of the organization's strategic management
of human resources, which has a number of interrelated elements designed to deliver long
term sustainable success.
Effective recruitment and selection ensures that the organization has the necessary
knowledge, skills and experience to fulfill its responsibilities and achieve its objectives.
It also ensures that the organization's culture, ethic values and expectation on behavior are
compatible with those of its employees so that there is unity of direction and purpose.
Equally there are a number of potentially high-impact, high-likelihood risks associated
with recruitment and selection. It is all about acquiring the right number of people with
the right skills, experience and competencies in the right jobs at the right time.
Organizations face a wide variety of risks in relation to recruitment and selection. The
nature of these risks will vary depending upon circumstances; however, we have compiled
a short list of potentially high impact, high likelihood risks below along with the possible
responses that management may take.
5 Different Types of Leadership Styles
Different types of leadership styles exist in work environments. Advantages and
disadvantages exist within each leadership style. The culture and goals of an
organization determine which leadership style fits the firm best.
Laissez-Faire
A laissez-faire leader lacks direct supervision of employees and fails to provide
regular feedback to those under his supervision. Highly experienced and trained
employees requiring little supervision fall under the laissez-faire leadership style.
The laissez-faire style produces no leadership or supervision efforts from
managers, which can lead to poor production, lack of control and increasing costs.
Autocratic
The autocratic leadership style allows managers to make decisions alone without
the input of others. Managers possess total authority and impose their will on
employees. No one challenges the decisions of autocratic leaders. Countries such
as Cuba and North Korea operate under the autocratic leadership style. This
leadership style benefits employees who require close supervision. Creative
employees who thrive in group functions detest this leadership style.
Participative
Often called the democratic leadership style, participative leadership values the input of team
members and peers, but the responsibility of making the final decision rests with the participative
leader. Participative leadership increases employee confidence because employees make
contributions to the decision-making process.
Transactional
Managers using the transactional leadership style receive certain tasks to perform and provide
rewards or punishments to team members based on performance results. Managers and team
members set predetermined goals together, and employees agree to follow the direction and
leadership of the manager to accomplish those goals. The manager possesses power to review
results and train or correct employees when team members fail to meet goals. Employees receive
rewards, such as bonuses, when they accomplish goals.
Transformational
The transformational leadership style depends on high levels of communication from
management to meet goals. Leaders motivate employees and enhance productivity and efficiency
through communication and high visibility. This style of leadership requires the involvement of
management to meet goals
Communication Skills
i. Trustworthiness: Most people want to work and do business with leaders they trust. Trust is
one of the most important qualities we look for in a leader.
ii. Transparency: This goes hand-in-hand with trust. Strong leaders choose to be transparent in
their communications. They want their team to trust not only what they say, but what they
mean. There are no hidden agendas or reading between the lines. Transparency tells people a
lot about your intentions.
iii. Focus and stability: In order to effectively lead, its imperative to focus on key aspects of a
project and remain calm under pressure. Not all projects go as planned. In fact, most do not.
But its during these times that project teams look to their leaders to be rational and practice
sound judgment.
iv. Objectivity and fairness: Complex projects pose more risks to team dynamics, for example
when individual stakeholders or department objectives clash. Strong leaders are inclusive in
their communications and seek to constructively overcome these differences. Effective project
leaders actively listen to more than one side without bias and work with key stakeholders to
prioritize ideas and find the right solutions that best support the overall strategic goals.
v. Confidence: Stakeholders and executives want project leaders that are confident in their
knowledge and abilities, but are not arrogant. There is a big difference between the two:
Arrogance tends to make team members uncomfortable and reluctant, especially when sharing
ideas and voicing differing opinions. Confidence, on the other hand, allows teams to work
toward shared goals.
vi. Leading by example: True leaders make every effort to live by the same rules they expect of
others and affirm to the team that they, too, walk the talk. Strong project leaders foster
participation by allowing team members to utilize their strengths, they give credit where it is due
and remain professional and respectful of others at all times.
Communication Skills
vii. Energy and motivation: Lets face it: No one wants a leader that is pessimistic, negative or disengaged.
With confused schedules and projects that dont always going as planned, a project leaders disposition and
motivational abilities can mean the difference between teams that work cohesively or in complete
dysfunction. Highly effective project leaders boost team morale and motivate. This can influence buy-in at all
levels and keep support throughout the project.
viii. Consistency and flexibility: Flip-flopping is not a good strategy when it comes to leadership. Great
project leaders are reliable and consistent with their communication quality, style, and frequency yet still
adapt based on audience needs. Great project leaders establish themselves as reliable communicators to
develop credibility with project sponsors and flex and adapt during change.
ix. Accessibility: It is impossible for a project leader to be effective if he or she is inaccessible. Team
members and stakeholders need to know they can easily access their project leader and communicate freely
and without barriers. Highly effective project leaders are never closed-off.
x. Clarity: Great project leaders gear their communication methods, mediums and styles toward their
audience. They also have the ability to take something complex and make it simple in order to reach
audiences at different levels.
xi. Respect: Culture, age, gender, experience, education and communication preferences can all impact
communication methods. Highly effective project leaders communicate in a clear and concise manner while
still demonstrating respect and value for the contributions and opinions of others. They understand this is key
in maintaining positive working relationships.
Meaning of Frustration
Frustration is one of the causes of stress. It arises when one's motivation to achieve a desired goal
is blocked.
For example, an employee wants to finish a report before the end of the day but finds that
something or the others keep interrupting him at work. This can lead to his frustration.
Types of Reactions to Frustration

The reactions to frustration are also known as Defense Mechanisms. These defense mechanisms are so called
as they try to defend individuals from the psychological effects of a blocked goal. When some employees get
frustrated, they become tensed and irritable.
Following are the various types of reactions to frustration :-

i. Withdrawal : Behaviors such as asking for a transfer or quitting a job.
ii. Fixation : An employee blames others and superiors for his problems, without knowing complete facts.
iii. Violence : Acting in a aggressive manner.
iv. Regression : Behaving in an immature and childish manner and may depression.
v. Physical Disorder : Physical sicknesses such as fever, upset stomach, vomiting, etc.
vi. Unconcern : Becoming irresponsive and dis-interested in the job and his co-workers.
Sources or Causes of Frustration
Following are the main sources or causes of frustration :-
i. Environment : The workplace environment and natural environment both may
frustrate the employees. For example, there may be break down in machinery, no
canteen facilities, a wet rainy day or a hot sunny day may prevent the employees to
perform their duties efficiently.
ii. Co-workers : Co-workers may be a major source of frustration. They may place
barriers in the way of goal attainment by delaying work, withholding work inputs,
poor presentation of work, affecting its quality, etc.
iii. Employee Himself : The employee himself is rarely recognized as a source of
frustration. The employee may set higher goals than his abilities.
iv. Management : Management may act as the source of frustration, they may block
the promotion of an employee due to change in organization's promotional policies.
Job Rotation
Job Rotation is a management approach where employees are shifted between two or more assignments
or jobs at regular intervals of time in order to expose them to all verticals of an organization. It is a pre-
planned approach with an objective to test the employee skills and capabilities in order to place him or
her at the right place. In addition to it, it reduces the monotony of the job and gives them a wider
experience and helps them gain more insights.
Job rotation is a well-planned practice to reduce the boredom of doing same type of job everyday and
explore the hidden potential of an employee. The process serves the purpose of both the management and
the employees. It helps management in discovering the talent of employees and determining what he or
she is best at. On the other hand, it gives an individual a chance to explore his or her own interests and
gain experience in different fields or operations.
Span of Control
What Is Span of Control?

Span of control is simply the number of staff that report to a manager. Some companies also
have an ideal span of control, which is the number of reports they feel a manager can effectively
manage. In this case, if a manager has fewer reports than the ideal, they may feel he or she is not
being effectively used, while if he or she is handling more they may feel that the manager is
over-stretched and the reports will not receive enough direction.
i. The number of subordinates that a manager or supervisor can directly control. This number
varies with the type of work: complex, variable work reduces it to six, whereas routine,
fixed work increases it to twenty or more.
Types of span of control
ii. Narrow span of management: This means a single manager or supervisor

oversees few subordinates. This gives a rise to a tall organizational structure.
iii. Wide span of management: This means a single manager or supervisor
oversees a large number of subordinates. This gives a rise to a flat structure.
Advantages of tall structure
i. Firstly within tall organizational structure there is a close

supervisory control because of the low span of managers.
ii. Secondly, it is more authorized structure.
iii. Thirdly, in a tall structure the responsible person is other
accountable to the higher authority.
iv. Fourthly, this structure enhance the control of the top regulation over
the organization.
Dis-advantages of tall structure.
i. Firstly employees are less motivated within this structure.
ii. Secondly, verdict making is low.
iii. Thirdly, tall structure creates communication barriers between the
upper and lower management.
iv. Fourthly, less benefit and rewards are given to the body in the tall
organization.
Advantages of flat structure
i. Flat organization is less costly.

ii. Quick decision and action can be taken.
iii. Fast and clear communication.
iv. Subordinates are free from close and strict supervision and control.
v. Superior may not be too dominating because of large number of
subordinates.
Dis-advantages of flat structure
i. There are chance of loose control because there are many subordinate
under one manager.
ii. The discipline in the organization may be bad.
iii. The relation between the superior and subordinate may be bad.
iv. Close and informal relation may not be possible.
v. Because of all these the quality of performance may be bad.
What are the effects of the span of control?
The span of control of the average manager in an organization determines the width of
the organization as seen when viewing the organizational chart. Fewer reports to the
average manager will result in a taller organizational chart, with more management
positions relative to the number of individual contributors. A higher number of reports
to the average manager will result in a flatter or wider chart, with fewer management
positions relative to the number of individual contributors.
The average span of control will also impact the company's time to make decisions
and cost structure.
Higher average span of control means fewer layers of management within the
organization and a relatively flatter organizational structure. This can lead to:
Faster decision-making due to fewer levels of approvals required for a specific
decision, which allows the company to respond more quickly to business issues.
Better and more frequent communication between higher-level managers and staffers,
so the staff is more knowledgeable about company goals and the higher-level managers
are more knowledgeable about daily operational issues faced by staff.
Reduced costs relative to a taller organization, since there are fewer management layers
needing compensation.
Lower average span of control means relatively more layers of management within the
organization and a relatively taller organizational structure. This can lead to:
Fewer opportunities for promotions, since there are fewer management positions in the company.
The concern that manager input will be relatively harder for staffers to obtain, and managers will
have less time to focus on specific decisions. Employees will need to be relatively more self-
motivated and independent in their work style due to having less manager input.
Important strategic decisions by the company will have relatively less time spent on them due to
the reduced time available to focus on individual decisions. This can lead to less-than-optimal
responses to business opportunities and threats.
Motivation
Motivation is internal and external factors that stimulate desire and energy in people to be continually
interested and committed to a job, role or subject, or to make an effort to attain a goal.
Motivation results from the interaction of both conscious and unconscious factors such as the (1) intensity of
desire or need, (2) intensive or reward value of the goal, and (3) expectations of the individual and of his or
her peers. These factors are the reasons one has for behaving a certain way. An example is a student that
spends extra time studying for a test because he or she wants a better grade in the class.
Motivation
Douglas Mcgregor - theory x y
Douglas McGregor's XY Theory, managing an X Theory boss, and William Ouchis Theory Z.
Douglas McGregor, an American social psychologist, proposed his famous X-Y
theory in his 1960 book 'The Human Side Of Enterprise'. Theory x and theory y are
still referred to commonly in the field of management and motivation, and whilst
more recent studies have questioned the rigidity of the model, Mcgregor's X-Y
Theory remains a valid basic principle from which to develop positive management
style and techniques. McGregor's XY Theory remains central to organizational
development, and to improving organizational culture.
McGregor's X-Y theory is a salutary and simple reminder of the natural rules for
managing people, which under the pressure of day-to-day business are all too easily
forgotten.
McGregor's ideas suggest that there are two fundamental approaches to managing
people. Many managers tend towards theory x, and generally get poor results.
Enlightened managers use theory y, which produces better performance and results,
and allows people to grow and develop.
McGregor's ideas significantly relate to modern understanding of the psychological
contract, which provides many ways to appreciate the unhelpful nature of X-Theory
leadership, and the useful constructive beneficial nature of Y-Theory leadership.
M
Maslows Hierarchy of Needs

Job Evaluation
For rewarding workers job are studied carefully and regards to operations involved and other
specific tasks. This in known as job analysis.
With the help of job analysis- job descriptions are made which details about capacity and skill
require for performing the job is mentioned.
After this the value of the job is determined for the purpose of payment this is known as job
evaluation.
Job is the regular assignment to individual employees.
The analysis involved different operations and their facts which are useful for preparing job
description and job satisfaction.
Job description gives information regarding the responsibilities, skills and training required.
Job Evaluation: It is the process of comparing job with other jobs in terms of wages that a maker
should be paid for performing any task. In other word, job evaluation is the name given to set of
methods designed to compare jobs systematically with a view to assessing their relative worth.
Objectives of job evaluation:
i) It is a estimate the correct wages for the work performed.
ii) It is a means of reduce wages imbalance in the factories.
iii) Use to resolve wages disputes.
iv) It helps in standardization of wages.
v) It helps to establish a method for future promotion of workers.
Job Evaluation
Key point to be noted about job evaluation:
a) Job evaluation deals in relative positions not in absolutes.
b) Job evaluation assesses jobs, not the individuals in them.
c) The evaluation process is usually carried out by groups rather than individuals.
d) Job evaluation committees utilize concepts such as logic, fairness and consistency in their
assessment of job.
e) There will always be same element of subjective judgment in job evaluation.
f) Job evaluation by itself can not determined pay scales or pay levels. It can only provide the
basic data on which decisions about pay can be taken.
Methods of Job-evaluation:
Most job evaluation methods can be divided into two categories:
i. Non-quantitative method:
a) Ranking technique
b) Classification method.
ii. Quantitative method
a) Factor comparison
b) Point ranking.
Job Evaluation
a) Ranking technique: This is the simplest method. Here job description is made in order of
rank. Here job description is made ascending order i.e. starting with minimum requirement
and ending with maximum requirement. During ranking the following factors are considered:
i. Volume of work
ii. Supervision needed
iii. Responsibilities in work
iv. Difficulties in work
v. Working condition
vi. Knowledge of experience needed.
Advantage: This is simple and the result can be quickly obtained.
Disadvantage:
i. It does not give the actual information of comparison with other job.
ii. It can only the effectiveness in a relatively simple and clear-cut organization structure.
b) Classification method: In this method of job evaluation several classes or classification ob jobs
are made.
Example: Class 150: Skilled workers doing die working.
Class 151: Worker working in lathe or milling machine
Class 152: Less skill machine operation grinding and drilling
Job Evaluation
After classification, different jobs are fitted into particular class of them relative position is
determined. The disadvantage of this method is that it is difficult to describe and define each
class.
Factor comparison method: In this method job analysis is made by considering the following
05 main factors:
i. Mental requirement
ii. Skill requirement
iii. Physical requirement
iv. Responsibility requirement
v. Working condition
This plan starts with money value paid for several important jobs. Here at a time one job is taken
and is compared with other job with respect to above 05 factors. Finally a wages rate for each job
is fixed.
Advantage:
vi. It can be used for calculation of all kind of job.
vii. It can be used for combination of clerical, manual and supervisory staff.
viii. The worker can do the rating with some training.
Dis-advantages:
ix. It is complicated: Costly to introduce job evaluation.
x. Stuff must be qualified & trained. Controversy on the selection of key job.
Job Evaluation
Point rating: Here point values are assigned to each requirement. Here four factors such as skill, effort,
responsibility and job condition are taken as a basis of point values in some causes three factors are again
subdivided for more accuracy.
Point method of job evaluation ( National metal trade association, USA)
Characteristics:
First Degree Second Degree Third Degree Fourth Degree Fifth Degree
i. Skill: a) Education 14 28 42 56 70
b) Experience 22 44 66 88 110
c) Initiative & 14 28 42 56 70
ingenuity
ii. Efforts: a) Physical demand 10 20 30 40 50
b) Mental demand 5 10 15 20 25
iii. Responsibility:
a) Equipment or process 5 10 15 20 25
b) Material of product 5 10 15 20 25
c) Safety of others 5 10 15 20 25
d) Work of others 5 10 15 20 25
iv) Job condition:
a) Working condition 10 20 30 40 50
b) Unavoidable Hazard 5 10 15 20 25
100 200 300 400 500
Job Evaluation
Job evaluation of a gate keeper:
Factors Points
Skill 10 *140 points equipment to Tk.560
Effort 20 each point Tk.4
Responsibility 80 * Advantage: Evaluation is more accurate
Working condition 30 * Disadvantage: Much complicated & costly method.
Factor Comparison Method:

Job Title Skill Mental and Educational Requirement Physical Requirement Responsibilities Working condition
Tool Maker 1.1 1.4 13.5 3.3 12.5
Pattern Maker 2.1 2.7 12.4 4.4 11.8
Auto- electrician 3.5 4.2 4.8 5.7 8.3
Helper 14.1 13.1 3.1 13.4 3.4
Job evaluation in supervisory & executive position:

Here the characteristics are different and they depends upon the nature of job and their importance.
For supervisory position the characteristics are:
i) Technical education ii) Length of service and experience iii) judgment iv) Planning v) Condition of
work vi) No. of employee under him vii) Responsibility viii) Output.
Characteristics of an executive:
i. Planning ii. Policy formation iii. Methods iv. Administration v. Personal relation vi. Executive contact vii.
Original thinking viii. Analysis of job ix. Financial management x. Influence upon profit xi. Decision making
ability.
Job Evaluation
Merit Rating
The purpose of merit rating is to facilitate the orderly determination of a workers worth to the firm of which
he is an employee. Some time 15 is called employee rating or employees appraisal or efficiency rating or
service rating. Merit ratings or employees an internal part of modern industrial management. During
promotion reward, changing relative status and in comparing the employee from his fellow colleagues merit
rating is important. The merit rating is scientific and should not be arbitrary.
Types of merit rating:

i. Ranking plan
ii. Man to man comparison
iii. Check list
iv. Scale
a. Ranking plan: Whether the worker is marked on the basis of best or most satisfactory to worst or least
satisfactory.
b. Some time the worker is ranked on the basis of 2 radas each denoting a speared level of merit.
c. Other way of ranking is by classifying the in terms of various level of skill and responsibility and ranked
the worker accordingly.
Limitation of ranking:
d. Sometime it is difficult to justify the ranks orders assigned because it is not done on the basis of
standards.
e. It becomes very difficult when the number of worker is very large.
Job Evaluation
Merit Rating
Man to man comparison method: This is widely use for ranking the military officers. This is based on five
basic characteristics.
i. Physical qualities
ii. Intelligence
iii. Leadership
iv. Personal quality
v. General value of the service
Each of these characteristics again sub-divided into five degrees and imaginary values are assigned to the
degrees.
Degree Imagining values
vi. Highest 15
vii. High 12
viii. Middle 9
ix. Low 6
x. Lowest 3
In this way a person to person comparison is made.

Limitation:
xi. Time consuming and timeous
xii. The process of determining razing of persons are arbitrary.
Job Evaluation
Merit Rating
Check list plan: These are the lists made up of a series of questions or statements which concerns the
important aspects of the employees performance on the job. The process of rating consists simply checking
these questions that are applied to the worker or answering the question by yes or no. Here the comparison is
easier and better.
Limitations: i) Time necessary ii)Money needed to built checklists. iii) Services of statistician and expert is
necessary.
Scale plan:
i. Continuous scale: It assumes that the rule has the continuity of making procession discontinuation while
allotting merit. In this scale percentages or numbers are used to indicate of tracts.
Responsibility: 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Hallow effect is one major limitation. Hallow effect means tendency to rate any given employee on the basis
raters overall general impression or Hallow
ii. Description scale: This gives a description of the degree of traits c.g. personality. Poor, fair, good,
excellent.
iii. Alphabetic scale: Alphabets are used to show degree of wait. i.g. D C B A
Discontinuous scale or description step scale:
Job Evaluation
Merit Rating
Discontinuous scale or description step scale:
Average
Below Above
Average 14% Average
14%
24%
Low
High
Percentage
4% 4%
1 2 3 4 5
Rating group into classes
High Grade: Exceptionally in decisions keen and intelligent workers.

Low grade: Dis interested and less workers.
Average grade: Moderately intelligent and hard workers.
Above average: Good keen workers, hard working group.
Below average: This includes workers doing the job but not using interest towards job.
Job Evaluation
Merit Rating
But for high developed country like UK, USA & Japan etc. the rating of the employees in different group may
not corresponds normal distribution curve but the distribution is skewed high.
Wages and incentives plans
It is one of the burning issues in the industries.
Main factor affecting the relations of employee and employer.
Some time it is the only braais of dispute.
About 45-65% of the total factory costs of the product is paid in the form of wages.
i. Wages rates:
Wage: These are the effort made by the employer for the effort part by the worker in production. These are the
programs made for the focus reduces by the laborers.
Wage determines the standard of living of worker and its dependents.

It is necessary that they should regiments a fair return for the efforts of the worker.
Wages should be sufficient to satisfy the worker or working assistance.
Wages should be enough to provide the worker with some content of life and to help him in maintaining
his standard of living.
ii. Nominal wages: It is the amount of money paid a worker in cash for his efforts put in by him in an industry
and no other advantage to the worker is made.
This is also called money wages.

The amount of payment is so calculated that every works should get actual with of his services.
iii. Real wages:
It refers to the amount of necessary, confect, luxurious and case payments which a worker can get in return of
his efforts and works.
It is the total paid to the workers in the form of money of kind both. Sometimes they received free
accommodation, medical facilities, uniform, food etc.
So cash money of benefit is the real wage.
iv. Living wage: When the rate of wages meet the special family life like education, foods, cloths and some
Insurance for any misfortune of life is called living wages.
v. Fair wages: This is the amount paid to the worker along with other necessities in addition to food of family.
It depends on i. Production capacities ii. Duties in according anal iii. Followed national rules of wages
distribution. Iv. The place of the industry in the economy of this country.
vi. Minimum wages: Some time it is necessary to protect the worker from the lamination point of view and at
the same time wage cant be paid beyond the capability of the industry to pay. Productivity of an industry is
the source from which wages are paid. The minimum should be different for allowing the worker to maintain
himself according to this needs.
Some time minimum wages is being protected by:

i. Work men compensation act.
ii. Payment of wages act.
iii. Minimum wages act.
iv. Employee insurance act.
Factor which influencing wages:
The problem of a fair and adequate wage is very complicated. It is difficult to arrive at a solution in factory to
the management and worker.
Factor influencing wages:

The condition of demand and supply.
The respective bargaining capacity of the employee and employer.
Cost of living that varies time to time.
The minimum calorie consumptions
The economic capability of the industry to pay wages.
Level of wages rate ruling in each industrial area.
The workers skill, training and experiences.
The economic outlook of the employer.
The nature of task is valued. (risky, noisy, heavy, hard work)
The regularity in service.
Carrier development opportunities.
Guaranteed wages of employment:

Guaranteed wages of employment is an assurance by the employer to the employee for a certain number of
hour per week of work against which assured payment is made.
Advantage of this system:
Greater security of the employee.
Higher employee morle
Improved labor relation
Employment fanlsilization
Increased insec
Greater purchasing power.
Improved productivity
Characteristics of satisfactory wage system:

It should be of benefit to the employers and employees
It should guarantee a minimum wage to work (this reduces the employee worriers)
It should provide a proper incentive
It should provide a motivation scheme to the worker.
Advantage:
There is no dispute about the amount of payment
It posses security from the stand point of worker.
The quality of worker can be raised vey easily because time calculate for the job.
Trade unions favors this system.
The worker handle this tools & machines carefully, less breakdown and scrap.
The system requires administrative action.
Method of wages payment:
Time or day rate system: The worker is paid on hourly, weekly, daily or monthly rate. So remuneration depends on no.
of hours for which he is employed and not upon the amount of his productivity. This is the most common system.
Advantage
There is no dispute about the amount of payment.
The possess security from the standard point of worker.
The quality of worker can be raised very easily because time can be take for the job.
Trade unions favors this system.
The worker tianse this tools macha carefully, less breakdown & scrap.
The system requires administrative action.
Disadvantage
The management bears the loss resulting from slow & sluggish worker.
The system tend to reduce productions unless a straight supervision is made.
The system tend to give high production cost.
Some time effective worker becomes ineffective. Profit sharing system
High wage plan.
Straight price work rate system: This is an improvement over time rate system. Here payment is made on
output (each unit piece).
Advantage:
Simple to work and worker can easily calculate this wage.
An indarncement is given to the worker to increase these provision.
The relation of the workers & employers improved. No dispute for wages. Worker get satisfactory wages.
The employer knows his labor cost per unit of job.
Workers are paid on their merit.
Wasted time is not been paid under this system.
Stuff supervision, workers are thought their reliance and report.
In this method worker will try to keep their machines free from any defats. Martials demand is more.
Production will improve.
Disadvantage:
It is difficult to fix accurate price work rate.
When worker earnings is high, the employer trend to reduce the rate.
The worker put maximum effort to earn more & more which may result suffering with their health.
Quality of the job or work may be low.
Combination of time rate & price rate system

Incentives
Incentives: It is something that encourage a worker to put in more productive efforts
voluntarily. Most workers are not willing to exit themselves to produce anywhere near their
full capacity unless their interest in work is created by some kinds of reward. The reward is
called incentives.
Types of incentives:
a) Financial incentives: If an employer finds that he will be earning extra profit if a particular
work is completed in prescribed time, then he announces part of the extra profit in the
incentive plan.
Method of financial incentive plan:
i. Price rate system: Under this system price rate is fixed. If the worker completes the job
earlier, he can save time and he can produce extra job. Under such conditions the extra
money goes to him and the company is benefited by the savings in overhead for the extra
output. Example: Worker produces 40 pins/day @ 15 cent/ piece, he earns $6.0 But if he
prepares 55 pins/day he earns: $6+1515 =
ii. Cent percent premium: In this system standard time for the completion of the job is fixed. If
the worker completes the job earlier he gets full payment for time saved. Example: Standard
time 8hours@ wage $10. If he completes in 6 hours this incentive becomes; 6 hours .. 10,
8 hours (10/6 8)
iii. Halsey premium plan: In this system an hourly or daily rate is guaranteed. A standard time is
fixed for the performance of time sprit their on plus a fixed percentage (generally 33.33% of
the time save as incentives. The worker will get 10+ 5/3 = 11.66. Workers gains (5*.5-.83) =
1.67 . So part goes to the worker and part to the employer
iv. Weir provision plan: Similar to Halsey but worker gets up to 75% of the extra out along with
standard day rate.
v. Romans premium plan: Worker is guaranteed his daily and hourly rate , standard time is fixed
for each job. Premium given on the ratio of the saved to the standard time multiplied by the time
taken on the job.
b. Non-financial incentives: In addition to financial incentives, there are non financial incentives
which induce zeal to produce more. Some of the non-financial incentives are
i. Management may induce the feeling of completion among the work through prizes, rewards,
title of best works, man of the month promotion.
ii. Allocation of continuous & stable employment.
iii. Confidence build to the management and relief in its sincerity and goodwill stimulate
workers to work more.
iv. Application for good work, it may use to stimulate loyalty and consistency in the work.
v. Encouragement for suggestions, good working condition.
vi. It may also include provision for good houses, electricity, recreation facilities, good school
for education, good training scheme.
vii. Good costing system; payment system
Therefore the more financial incentives includes all influences plan which stimulate great efforts
on the part of the worker to produce more.
Workers attitude towards incentives:
Workers should be fully informed on the development with facts. So that work may not
misguided. Once the product is increased worker will be informed about it and the incentives for
that are announced.
Advantages of incentives
i. Greater yield
ii. Effective use of material
iii. Reduction spillage
iv. Improvement in quality
v. Better utilization of man and equipment.
vi. Workers belonging near to the organization
vii. Strong thing of efficiency at all level.

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Course Title: Financial and Managerial Accounting

Course Code: Hum 223

Depreciation: Definition, Objectives of depreciation, Methods of proving depreciation.

Depreciation: Definition, Objectives of depreciation, Methods of proving depreciation.

Marginal Costing: Break-even-point, p/v ratio, Margin of safety, fixed

Standard costing: Definition of variance, Calculation of material, labor

Managerial Costing: Use of accounting information in Project evaluation

Definition of accounting, accounting concept and convention, Definition of

Basic accounting principles, cash book, Trial Balance, Balance

Meaning and importance of accounting; some relevant accounting

Accounting is the art of recording classifying and summarizing in a significant manner

Accounting is the process of identifying measuring and communicating economic

Managerial Accounting: Managerial Accounting is concerned with providing

Personal life Family life Social life

Business Organization - Service Organization

iv) Budgetary accounting: It refers to a systematic forecasting of business operations in financial

ix) Human resources accounting: If refers to determine the effectiveness and

iv) Management accounting: It based upon the concept of accounting as a method of

ix) Human resources accounting: If refers to determine the effectiveness and

a) Marketing managers: To compare with the competitor.

d) Finance director: To know the efficient use of fund of the organization.

a) Marketing managers: To compare with the competitor.

d) Finance director: To know the efficient use of fund of the organization.

a) Marketing managers: To compare with the competitor.

d) Finance director: To know the efficient use of fund of the organization.

iii) Reliability: Accounting information should must be reliable.

Accounting concept means to connote necessary assumptions or conditions upon which

Accounting convention is used to signify customs or traditions as a guide to the

The conservatism Concept assumes:

If certain information is important to an investor or lender using the

. Historical Cost Concept

Recognition of law concept ( )

Monetary Unit Assumption

Money value fixed: Accounting ignores value of money.

Recommendation of alternative methods: Possible to select only one method.

Record of future events

Allocation problem: written off fixed assets is not fully correct.

Bookkeeping is the science and art of correctly recording in book

Bookkeeping is the science of recording transactions in money or

Advantages of double entry system of bookkeeping

i) Complete record of each transaction.

Single entry system of bookkeeping: It is a method or a verity of methods

i) Identifying: This is the first stage of accounting cycle. Accountant will

iv) Posting: In journal book accountant records transactions only in

An account is a summarized record of all the transactions relating to a particular person,

Impersonal account is farther classified into the following two types:

a) Real account: An account relating to a property is called real account.

b) Nominal account or proprietary account: An account relating to an income or expenditure

Capital expenditure : All expenses incurred for the acquisition, enlargement or

Revenue expenditure: The day to day expenses for smoothly caring on a

All expenses incurred by way of repairs, replacements and renewals of existing

Types of journal entry

This is a simple journal entry

This is compound journal entry

Date Particulars L.F. Debit Credit

Date Particulars L.F. Debit Credit

Journal is original book of entries in which first time all business

7. Accounting Software: Journal is also needed in every type of accounting software .

January-4 Carriage inward a/c Dr 50

January-7 Purchases a/c Dr 3,000

2006 January, 9 January-9 Accounts Receivable a/c Dr 25,000

2006 January- 15 January-15 Cash a/c Dr 15,000

January-16 Telephone expenses a/c Dr 1,240

2006 January- 18 January-18 Advertisement a/c Dr 15,000