Spring 2011(Feb-July) Master of Business Administration - MBA Semester 1 Subject Code MB0041 Subject Nam e Financial and Management

nt Accounting 4 Credits (Book ID: B1130) Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions. Q.1 Assure you h ave just started a Mobile store. You sell mobile sets and currencies of Airtel, Vodaphone, Reliance and BSNL. Take five transactions and prepare a position stat ement after every transaction. Did you firm earn profit or incurred loss at the end? Make a small comment on your financial position at the end. [10 Marks] Answ er: We shall consider five transactions and show how they are accounted for in t he books of the business. 1. Mr. Rajesh brings Rs.100000 cash as capital into hi s business. 2. He purchases Mobile Set to his shop Rs.10000 3. He buys currencie s for cash Rs.50000 4. He sells currencies worth Rs.30000 for Rs.40000 on credit to Arjun 5. He pays wages to servants Rs.1000 Transaction 1: The business recei ves capital in cash. Capital is a liability and cash is an asset to the business . Liability Capital 100000 Asset Cash 100000 Transaction 2: Mobile Set is purchased for cash. This transaction can be reflect ed as under Capital 100000 Cash Rs. (10000090000 10000) Mobile Set 10000

Total 100000 Total 100000 Transaction 3: Purchased of currencies for cash. This can be reflected in the st atement as under. Capital 100000 Cash Rs. (9000040000 50000) Mobile Set 10000 St ock of 50000 currencies Total 100000 Total 100000 Transaction 4: Sold currencies to Arjun on credit for Rs.40000, the cost of whic h is only Rs. 30000. In this transaction the affected accounts are Currencies ac count, Arjun account and Profit & Loss account. Since the profit belongs to the owner it is fair to add it to the owner s capital. The effect of this transaction ca n appear on the statement as shown below: Capital Profit 100000 10000 Cash Mobil e Set 40000 10000 Total 110000 Stock of 20000 currencies(5000030000) Arjun (Debtors) 40000 Total 110000 Transaction 5: Payment of wages Rs.1000.The cash balance gets reduced in the ass et side and profit gets reduced as a result of the expenditure (wages account) o n the liability side. This changes the statement as shown below: Capital 100000 Cash 39000 (40000 1000) Profit 9000 Mobile Set 10000 (100001000) Stock of 20000 cu rrencies Arjun 40000 (Debtors) Total 109000 Total 109000

According to above book keeping entry Mr. Rajesh brings Rs.100000 cash as capita l into his business. And one end of 5 transection his capital is Rs 109000. so, it is clear that Firm earn profit of Rs 9000. Q.2a. List the accounting standards issued by ICAI. [5 Marks] 2b. Write short no tes of IFRS. [5 Marks] Answer: To bring uniformity in terminology, accounting co ncepts, conventions, and assumptions, the Institute of Chartered Accountants of India (ICAI) established Accounting Standards Board (ASB) in 1977. An Accounting Standard is a selected set of accounting policies or broad guidelines. Example: While depreciating an asset the practice of adopting straight line method or di minishing balance method or any other method is a convention regarding the princ iples and methods to be chosen out of several alternatives. There are altogether 32 accounting standards issued by ASB out of which, one standard (AS8) has been withdrawn pursuant to AS26 becoming mandatory. ACCOUNTING STANDARDS AS No Title Recommendary or Mandatory Mandatory from accounting period beginning 1.4.1991 1.4.1999 1.4.2000 1.4.1995 1.1.1987 1.4.1995 1.4.1991 1.4.1991 1.4.199 1 1.4.1991 AS-1 AS-2 AS-3 AS-4 AS-5 AS-6 AS-7 AS-8 AS-9 AS-10 Disclosure of Accounting Policies Valuation of Inventories Cash Flow Statement C ontingencies and events occurring after the Balance Sheet date (revised) Prior P eriod and extraordinary items and changes in Accounting Policies Depreciation Ac counting (revised) Accounting for construction contracts Accounting for Research and Development Revenue Recognition Accounting for Fixed Assets Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

AS-11 AS-12 AS-13 AS-14 AS-15 AS-16 AS-17 AS-18 AS-19 AS-20 AS-21 AS-22 AS-23 Accounting for the effects of changes in foreign exchange rates (Revised) Accoun ting for Government Grants Accounting for Investment Accounting for Amalgamation Accounting for retirement benefits in the financial statement of employers Borr owing Costs Segment Reporting Related party disclosure Leases Earnings Per Share Consolidated financial statement Accounting for taxes on income Accounting for investments in associates in consolidated financial statements Mandatory Mandatory -------Mandatory Mandatory Mandatory Mandatory Mandatory Man datory Mandatory Mandatory Mandatory Mandatory 1.4.1995 1.4.1994 ------1.4.1995 1.4.1995 1.4.2000 1.4.2001 1.4.2001 1.4.2001 1. 4.2001 1.4.2001 1.4.2001 1.4.2002 b) International Financial Reporting System: IFRS are standards, interpretations and framework for the preparation and presentation of financial statements. IFR S was framed by International Accounting Standards Board (IASB). The objective o f financial statement is to provide information about the financial position, pe rformance and changes in the financial position of an entity. It should also pro vide the current financial status of the entity to all the users of financial in formation. IFRS follows accrual basis of accounting and the financial statements are prepared on the basis that an entity will continue for the foreseeable futu re. IFRS helps entities access global capital market with ease. Under IFRS, we n eed to submit a statement of financial position (Balance Sheet), Comprehensive i ncome statement (Profit & Loss/ Income and Expenditure account), either a statem ent of changes in equity or statement of recognized income or expenses, cash flo w statement and notes including summary of significant accounting policies. An A ccounting Standard is a selected set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. T here are altogether 28 accounting standards issued by ASB which have to be adopt ed by

management of different enterprises to improve the quality of presentation of fi nancial statements in our country.

Q.3 Prepare a Three-column Cash Book of M/s Thuglak & Co. from The following par ticulars: [10 Marks] 20X1 Jan 1. Cash in hand Rs. 50,000, Bank Overdraft Rs. 20, 000 2. Paid into bank Rs. 10,000 3. Bought goods from Hari for Rs, 200 for each 4. Bought goods for Rs. 2,000 paid cheque for them, discount allowed 1% 5. Sold goods to Mohan for each Rs. 1.175 6. Received a cheque from Shyam to whom goods were sold for Rs. 800.Discount allowed 12.5% 7. Shyam s cheque deposited into bank 8 . Purchased an old typewriter for Rs. 200 , Spent Rs. 50 on its repairs 9. Bank notified that Shyam s cheque has been returned dishonored and debited the account in respect of charges Rs. 10 10. Received a money order Rs. 25 from Hari 11. Shyam settled his account by means of a cheque for Rs. 820, Rs. 20 being for interest charged. 12. Withdrew from the bank Rs. 10,000 18. Discounted a B/E for Rs. 1,0 00 at 1% through bank 20. Honored our own acceptance by cheque Rs. 5,000 22. Wit hdrew fir personal use Rs. 1,000 24. Paid tread expenses Rs. 2,000 25. Withdrew from bank for private expenses Rs. 1,500 26. Purchased machinery from Rajiv for 5,000 and paid him by means of a bank draft purchased for Rs. 5,005 27. Issued c heque to Ram Saran for cash purchased of furniture Rs. 1,575 28. Received a cheq ue for commission Rs. 500 from R.& Co. and deposited into bank 29. Ramesh who ow ned us Rs. 500 became bankrupt and paid us 50 paise in the rupee 30. Received pa yment of a loan of Rs. 5,000 and deposited Rs. 3,000 out of into bank 31. Paid r ent to landlord Mohan by cheque of Rs. 220 31. Interest allowed by bank Rs. 30 31. Ha f-yearly bank charges Rs. 50

Answer: Receipts To balance b/d To balance b/d(OD) To capital To sales To sales To M.O T o Shyam To honored To commission To Ramesh To Loan To Interest Discount Cash 500 00 Bank 20000 10000 1175 800 25 820 5000 500 250 250 2000 3000 30 Payment By Pur chase By Purchase By Purchase By Cheque ret By Drawings By Disc B/E By Drawing B y Trend Exp By Pvt Exp By Purchase By Purchase By Rent By Bank charges By balanc e c/d Discount 20 250 100 810 10000 1000 1000 2000 1500 5005 1575 220 50 120 482 50 52275 19740 41325 Cash 200 Bank 2000 100 Total 350 52275 41325 Q.4 Choose an Indian Company of your choice that has adopted Balance Score Card and detail on it. [10 Marks] Answer: The Balanced Score Card is a framework for integrating measures derived from strategy. While retaining financial measures o f past performance, the Balanced Score Card introduces the drivers of future fin ancial performance. (Figure 1) The drivers (customer, internal business process, learning & growth perspectives) are derived from the organization's strategy tr anslated into objectives and measures.

The Balanced Score Card is more than a measurement system it can be used as an o rganizing framework for their management processes. The real power of the Balanc ed Score Card is when it is transformed from a measurement system to a managemen t system. It fills the void that exists in most management systems - the lack of a systematic process to implement and obtain feedback about strategy In India few noted organizations have adopted Balanced Score Card successfully. The commercial vehicles business unit (CVBU) of Tata Motors was among the first Asian organizations to be inducted into the prestigious Balanced Scorecard Hall of Fame, in recognition of its exemplary success with the model. The company is one of the world's top 10 truck manufacturers and the CVBU began deployment of B alanced Scorecard in 2000, in an attempt to remedy years of poor financial perfo rmance. The focus was on achieving a turnaround, and then progressing to sustain able growth. Within 2 years of

implementation, the company began to show tangible improvement in performance in cluding a 40% growth in revenue. The implementation of the Balanced Scorecard ha s enabled them to focus on different elements of operational performance. Defini ng, cascading and communicating strategies across the organization have brought about transparency and alignment. The scorecard incorporates SQDCM (Safety, Qual ity, Delivery, Cost and Morale) and VMCDR (Volume, Market Share, Customer Satisf action, Dealer Satisfaction and Receivables). Q.5 From the following data of Jagdish Company prepare (a) a statement of source and uses of working capital (funds) (b) a schedule of changes in working capita l Assets 2008 Cash 1,26,000 Short-term 42,400 investment Debtors 60,000 Stock 38 ,000 Long term 28,000 Investment Machinery 2,00,000 Building 2,40,000 Land 14,00 0 Total 7,48,400 Liabilities and Equity Accumulated 1,10,000 depreciation Credit ors 40,000 Bills Payable 20,000 Secured loans 2,00,000 Share capital 2,20,000 Sh are premium 24,000 Reserves and 1,34,400 surplus Total 7,48,400 Income statement Sales 2,40,000 2007 1,14,000 20,000 50,000 28,000 44,000 1,40,000 80,000 14,000 4,90,000 60,000 30,000 10,000 1,00,000 1,60,000 Nil 1,30,000 4,90,000

Cost of goods sold Gross Profit Less Operating expenses: Depreciation machinery 20 ,000 Depreciation building 32,000 Other expenses 40,000 Net profit from operation Gain on sale on long-term investment Total Loss on sale of machinery Net Profit 1,34,600 1,05,200 92,000 13,200 4,800 18,000 2,000 16,000 Adjustments: 1) Machinery worth Rs.70000 was purchased and worth Rs.10000 was so ld during the year [Accumulated depreciation on machinery is Rs.18000 after adju sting depreciation on machinery sold]. Proceeds from the sale of machinery were Rs.6000 2) Dividends paid during the year Rs.11600 [ 10 Marks] Answer: a) a stat ement of source and uses of working capital (funds) Adjusted Profit and Loss Acc ount: To By Depreciation machinery & 92000 Sales of goods 105200 building Net prof it from operation 13200 Gain on sale on long-term 4800 investment Loss on sale o f machinery 2000 sale of machinery 6000 Dividends paid 11600 Funds generated fro m 2800 Operation (balancing figure) 118800 118800 b) Schedule of changes in Work ing Capital: Particulars Assets Cash Short-term investment Debtors Stock Previou s Year 2007 1,14,000 20,000 50,000 28,000 Current Year 2008 1,26,000 42,400 60,0 00 38,000 Increase 12000 22400 10000 10000 Decrease

Long term Investment Machinery Building Land Total Liabilities and Equity Accumu lated depreciation Creditors Bills Payable Secured loans Share capital Share pre mium Reserves and surplus Total 44,000 1,40,000 80,000 14,000 4,90,000 60,000 30,000 10,000 1,00,000 1,60,000 Ni l 1,30,000 4,90,000 28,000 2,00,000 2,40,000 14,000 7,48,400 1,10,000 40,000 20,000 2,00,000 2,20,00 0 24,000 1,34,400 7,48,400 60000 160000 0 258400 50000 10000 10000 100000 60000 24000 4400 258400 16000 Q.6 what is a cash budget? How it is useful in managerial decision making? [10 M arks] Answer: A proper control over cash is very essential. Cash is an important component in any activity. The control becomes inescapable. If cash is not prop erly managed or if it is mismanaged, the ultimate result would be disastrous. In many times and in many business situations, business failures are noticed due t o the lacunae found in the cash management. Hence cash budgeting occupies a pivo tal place in the study of Financial Management. Cash budgeting is the process of forecasting the expected receipts known as cash inflows, and expected payments known as cash outflows to meet the future obligations. The written statement of receipts and payments is known as the cash budget. It is a crystal ball which en ables one to observe the future movements in cash position. It is a mere forecas t of cash position of an undertaking for a definite period of time. The period m ay be daily, weekly, monthly, quarterly, semi-annually, or annually. The major t wo components of cash budget would be forecast first the cash receipts and then second forecasting the cash disbursements. The receipts of cash are formatted as follows: 1. Opening balance of cash in hand and cash at bank 2. Cash sales 3. C ollection from debtors to whom sales are affected on credit basis 4. College fro m Bills received 5. Interest and advances and loans granted

6. Dividends received from investments 7. Sale proceeds from capital assets 8. P roceeds from issue of shares and debentures 9. Other sources. After determining the various sources, the quantum of receipt should be estimated. Past analysis w ill help to identify the problem areas for effecting collection of cash.