Section-A 1. Explain: what is a Ledger.

Answer: A Ledger account is summary device and its simplest form is shaped like the letter T and called a T account. The ledger contains all accounts in which all the business transactions pertaining to a business enterprise are recorded. The main function of the ledger is to classify and summarize all the items appearing in journal and other books of original entry under appropriate accounts so that at the end of the accounting period, each account contains the entire information of all transactions relating to it. The term ledger is derived from the Dutch word Ledger which means to ly. Ledger therefore means book where the various accounts kept. In the words of L.C. Cropper, the book in which a traders all transactions are only to recorded in a classified permanent form is called the Ledger. The ledger account may be defined as a summary statement of all the transactions relating to a person, asset, expense or income, which have taken, place during a given period and shows their net effect or closing balance. A journal is maintained only to facilitate the passing of entries. Every entry recorded in the journal must be posted in to the ledger. A ledger contains a number of related accounts. 2. Illustrate with examples- Fixed assets Answer: Assets, which are acquired and held permanently and are used for the purpose of earning profits, are called fixed assets. Land and buildings, plant and machinery and furniture, etc., are some examples of these assets. 3. Write a note on Balance Sheet Answer: A balance sheet [B/S] may be defined as a statement drawn upon a given date, generally at the end of each accounting year, to measure the exact financial position of a business, setting forth the various assets and liabilities of the concern at this date. From this definition it may be understood that the B/S is a statement of assets and liabilities as on a particular date. Its assets on a given date and its liabilities indicate the financial position of a concern on that date. Excess of assets over liabilities represents the capital and is indicative of the financial soundness of a company. A B/S is also described as a statement showing the sources and application of capital. It is a statement and not an account. It is prepared from real and personal accounts. On the left hand side of the B/S, the liabilities and capital are shown. On the right hand side, all the assets are shown. Therefore, the two sides of the balance sheet must always be equal. Otherwise, there is an error somewhere in the books of accounts. A properly drawn up balance sheet gives information relating to : (a) The nature and value of asset

(b) The nature the extent of liabilities (c) Whether the firm is solvent; and (d) Whether the firm is overtrading. In short, it explains the financial condition of the concern. 4. Depreciation is a non cash item. Why? Answer: Depreciation means diminution or fall in value of an asset due to its constant use. It may also arise on account of wear and tear, lapse of time and obsolescence. It is a loss to the business. It is usually calculated at a certain percentage on the value of asset and the amount so obtained is first shown on the debit side of the P&L A/c and then deducted from the original value of asset in the B/S. For Example, a business has furniture of the value of Rs. 50,000 at the end of the year it is depreciated at 5%. Adjusting Entry Depreciation A/c To furniture A/c [5% on Rs. 50,000 = 2,500] 5. Describe the principles of accounting Answer: There are 3 types of accounting: a. Personal Accounting b. Real Accounting c. Nominal Accouting a. Personal Accounting: Any accounting in the name of individual is known as personal accounting. b. Real Accounting: If a good is available for sensory organ then such accountings are called real accounting. c. Nominal Accounting: Any account which is neither real nor personal is known as nominal account. 6. State the features of subsidiary books Answer: The Books of Accounts maintained by an organization other than the cash book may be classified into Journals and Ledgers. The Journal is used as the book of first entry for all transactions, which cannot be recorded in the Cash Book. In other words all non-cash transactions should be recorded be in the journal. For practical convenience the journal is maintained by using a number of books called the subsidiary books may constitute the journal for an enterprise. 1. Purchase Book

Dr. Rs. 2,500 Rs. 2,500

2. 3. 4. 5. 6. 7.

Purchase Returns Book Sales Book Sales Return Book Bills Receivable Book Bills Payable Book Journal Proper

Section-B 1. What are the primary uses of a Trial balance? Answer: a. It is a list of balances of all ledges accounts; no account with a balance can be left out. b. Its object is to check the arithmetical accuracy of the ledger balances. c. It includes the opening stock. d. It is prepared whenever desired or at the end of every month or quarterly, half yearly, or annually. e. It does not give information about the net profit or net loss. f. It is not absolutely necessary to prepare the trial balance. It can be dispensed with. g. It is generally prepared without giving effect to any adjustment. It contains the headings debit and credit. 2. What do you mean by rectification of errors? Answer. (Dont know) 3. Write a note on Petty Cash Book Answer: The term Petty is derived from the French word Petit which means Small. Therefore petty cash book is an additional cash book, which is used for recording petty payments, such as postage and telegrams, printing and stationery, cartage and carriage, advertisement, travelling expenses sundry expenses etc. The purpose of maintaining a petty cash book is to reduce the burden of numerous cash transactions of petty nature on Cash Book. Practically, if every cash transaction is recorded in the main cash book it not only becomes bulky but also become complicated as there could be many petty expenses taking place on a daily basis. Hence, the cashier will be given the authorities to decide upon such petty expenses and record them separately.

A petty cash book may be either a simple petty cash book or an analytical petty cash book. 4. What do you mean by Imprest System of Petty cash Book? Answer: It is also known as receiving petty cash as much expended in the previous period. In this system, the cashier will be given with a definite sum for the petty expenses. By the end of a month or a specified period, the balance amount is calculated and the total expenses equal the total money received towards petty expenses for the next period. If Rs 100 is kept as imprest cash and if Rs 75 is expended during one month for petty expenses, the accountant will receive Rs 75 so that Rs 100 is continued in the petty cash book for the next month. In other words an imprest system of petty cash means that the general ledger account petty cash will remain dormant at a set amount. 5. How to balance a Ledger Account? Answer: Balancing of an account or striking the balance of an account is the process or act of ascertaining whether a particular account as received more benefits than it has given or has given more benefits then it has received, on a particular date. In other words it implies a process of ascertaining the net balance of an account after considering the total of both debit side and credit side. The balance is put on the side, which is smaller, and two totals debit side and credit side are made equal. Against the balance a reference is put that it has been carried forward (c/ f). The balance of an account will be termed as debit balance if the total of debit side is greater than the total of credit side. On the other hand, if total of credit side is greater than total of debit side, balance will be a credit balance. The process of balancing account should be balanced by1. Totalling both the side of the account, 2. Ascertaining the difference between the totals of two sides, 3. If the debit side is more than the credit side, the balance is shown as By balance c/d on the credit side of its account and it indicates debit balance, 4. If the credit side is more than the debit side, the balance is shown as To balance c/d in the debit side and it indicates credit balance, 5. These balances are transferred to the next period on the reverse or b/d side.

6. How to close a suspense Account? Explain. Answer: (Dont know)

Section-c 1. Differentiate between financial and cost accounting Answer: Financial Accounting Cost Accounting

1. Accounting of monetary transactions 1. Accounting of product cost or service of the business cost.

2. Consists of recording, classification 2.Consists of developing product or and with element wise cost breakdown service cost analysis of financial

transactions..

3. Leads to preparation of income 3. Leads to development of product or statement and balance sheet at periodic service cost, interval. indicating profitability of each product or service as and when required .

4. Aims at external reporting to the 4. Aims at internal reporting both routine shareholders, investors, Government as well as and decision making.

special reporting to managers for internal control authorities and other outside parties

5.

The

accounting

systems

are 5. The system is much less structured

mandatory required u/s 233-B of the and is not and structured as per legal and other mandatory, except those covered

Companies Act, 1956

by cost audit requirements

6. Subject to verification by external 6. Cost audit is not compulsory but auditor. selective to some specific

industries/products

7. Focuses on the firm as a whole.

7.

Focuses

on

parts,

departments,

products, divisions etc. as well as on the firm as whole. 8. Depends on other disciplines such as 8. Generally stands on its own. economics, finance, operations research, statistics, etc.

2. Fixed and Variable cost Answer: 1. Fixed Budget: This is a budget in which targets are rigidly fixed. Such budgets are usually prepared from one to three months in advance of the fiscal year to which they are applicable. Thus, twelve months or more may elapse before figures forecast for the December budget are used to measure actual performance. Many things may happen during this intervening period and they may make the figures go widely out of line with the actual figures. Though it is true that a fixed, or static budget as it is sometimes called, can be revised whenever the necessity arises, it smacks of rigidity and artificially so far as control over costs and expenses are concerned. Such budgets are preferred only where sales can be forecast with the greatest of accuracy which means, in turn, that the cost and expenses in relation to sales can be quite accurately ascertained. 2. Flexible Budget: The figures used in this form of cost and expense budget are made adaptable to any month of the fiscal year. The figures range from the lowest to the highest probable percentages of operating activity in relation to the

standard operating performance. From this point of view, a flexible budget prepared for an expenses group can be for the entire fiscal year, or as long as there is no need of material changes in the standards. Thus, the flexible budget proposes a distinct advantage over the static budget particularly where it is difficult to forecast sales costs and expenses with any degree of accuracy. 3. Differentiate between LIFO and FIFO Answer: First In First Out (FIFO) Method: Under this method, the stock received first (oldest stock) is issued first. In other words, the stock received last (latest stock) remains in the stock. Their relevant prices are used for pricing the issues as well as inventory. Accordingly, the closing inventory is valued at latest purchase prices and issues of stocks are valued at oldest purchase prices. Last In First Out (LIFO) Method: Under this method the stock received last (latest purchases) is issued first. In other words, the stock received first (oldest stock) remains in stock. The relevant prices are used for pricing the issues as well as inventory. Accordingly the closing inventory is valued at oldest purchases and issues of stocks are valued at latest purchase prices.

4. What do you mean by works on cost? Answer: (Dont know) 5. Explain why Inventory Management Play a significant role. Answer: Objectives of Inventory Valuation (a) Determination of Trading Profit: Inventory is an important item for ascertaining the trading profit or gross profit. Gross profit is the excess of sales over cost of goods sold. Cost of goods sold is computed by adjusting the opening and closing stocks to purchases, as shown follows: Cost of goods sold = Opening stock + Purchases - Closing stock.

From the above equation it may be understood that the values of stocks influence the cost and thereby affect the gross profit. For example, over valuation of closing stock will reduce the cost and increase the current profit and reduce profits of subsequent years and vice versa. (b) Determination of Financial Position: Inventory plays an important role in the ascertainment of the financial position of a business. Closing stock is shown as a current asset in the balance sheet. Over and under valuation of stock will give a misleading picture about the working capital position and the overall financial position of the business.

6. How to treat loss of weight in raw material while preparing stores ledger? Answer: (Dont know)

Section-D 1. What do you mean by Zero Based Budget? Answer: ZBB is a new approach to budgeting, it is defined by Peter A. Pyhor as an "operating planning and budgeting process, which requires each manager to justify his entire budget in Retail from scratch (hence zero-base) and shifts the burden of proof to each manager to justify why he should spend any money at all." This approach requires that all activities should be identified in 'decision packages', which should be evaluated by systematic analysis and ranked in order of importance. ZBB examines a programme or activity from scratch (i.e., zero-base). The manager proposing the activity should prove that the activity is essential and his budgeting request for funds is reasonable. Nothing can be taken for granted, for it was being done or allowed in the past. Hence, ZBB is a technique whereby each

programmes, whether new or existing must be justified in its entirety each time a new budget is formulated.

2. What do you mean by Budgeting? Answer: A budget is a "financial and quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued during the period for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital." Budgeting is essentially concerned with planning and the following steps are involved in a budgetary control system: 1. Establish a plan or target of performance, which coordinates all the activities of the business. 2. Record the actual performance. 3. Compare the actual performance with that planned. 4. Calculate the differences, or variances and the reasons for them. 5. Act immediately, if necessary, to remedy the situation. 3. Distinguish between fixed and flexible budget Answer: 1. Fixed Budget: This is a budget in which targets are rigidly fixed. Such budgets are usually prepared from one to three months in advance of the fiscal year to which they are applicable. Thus, twelve months or more may elapse before figures forecast for the December budget are used to measure actual performance. Many things may happen during this intervening period and they may make the figures go widely out of line with the actual figures. Though it is true that a fixed, or static budget as it is sometimes called, can be revised whenever the necessity arises, it smacks of rigidity and artificially so far as control over costs and expenses are concerned. Such budgets are preferred only where sales can be forecast with the greatest of accuracy which means, in turn, that the cost and expenses in relation

to sales can be quite accurately ascertained. 2. Flexible Budget: The figures used in this form of cost and expense budget are made adaptable to any month of the fiscal year. The figures range from the lowest to the highest probable percentages of operating activity in relation to the standard operating performance. From this point of view, a flexible budget prepared for an expenses group can be for the entire fiscal year, or as long as there is no need of material changes in the standards. Thus, the flexible budget proposes a distinct advantage over the static budget particularly where it is difficult to forecast sales costs and expenses with any degree of accuracy. 4. What are the limitations of budgetary control? Answer: Management must consider the following limitations in using the budgeting system as a device to solve managerial problems: 1. Budgeting is not an exact science; its success depends upon the precision of estimates. Estimates are based on facts and managerial judgment. Managerial judgment can suffer from subjectivity and personal biases. The efficacy of budgeting thus depends upon the quality of managerial judgment. 2. A perfect system of budgeting cannot be organized in a short period. Business condition change rapidly. Therefore, the budgeting system should be continuously adapted to changing circumstances. Budgeting has to be a continuous exercise; it is a dynamic process. Management should not lose patience; it should go on trying various techniques and procedures in developing and using the budgeting system. 3. A skilfully prepared budget system will not by itself improve the management of an enterprise unless it is properly implemented. For the success of the budgetary system, it is essential that it is understood by all, and that the managers and subordinates put in concerted efforts for accomplishing the budget goals. All persons in the enterprise must be fully involved in the preparation and execution of budgets, otherwise budgeting will not be effective.

4. Budgeting is a management tool, a way of managing, not the management itself. The presence of a budgetary system should not make management complacent. To get the best results, management should use budgeting with intelligence and foresight, along with other managerial techniques. Budgeting assists management; it cannot replace management. 5. Budgeting will be ineffective and expensive if it is unnecessarily detailed and complicated. A budget should be precise in format and simple to understand; it should be flexible in application. 6. The purpose of budgeting will be defeated if the budget goals are set carelessly. Budget goals are the definite targets to achieve the overall objectives of the enterprise. They must be in harmony with the aims of the enterprise. 7. Budgeting will hide inefficiencies instead of revealing them if there is no evaluation system. There should be continuous evaluation of actual performance. The standard should also be reexamined regularly. 8. Budgeting will lower the morale and productivity of the personnel if unrealistic targets are set and if it is used as pressure tool. To some extent, budgeting may be used as a pressure device but its extent must be carefully determined.

5. State the methods of preparing cash budget Answer: Preparation of Cash Budget A complete system of budgetary control makes the construction of cash budget easy. It is one of the functional budgets which is prepared along with other budgets. There are three recognised methods of preparing a cash budget. (a) The Receipts and Payments Method; (b) The Adjusted Profit and Loss Method; and (c) The Balance Sheet Method.

Receipts and Payments Method Under this method, all actual possible items of cash receipts and payments for the budgeted period are considered. Sources of information are the various other budgets. For example, (a) Sales from the sales budget (b) Materials, labour, overhead expenditure and capital expenditure etc., from the concerned budgets.

6. Classify budgets with example. Classification of Budgets Though budgets can be classified according to various points of view the following bases of classification are generally in vogue: (a) Classification according to time factor. (b) Functional Classification; (c) Classification according to flexibility factor. (a) Classification according to Time Factor In terms of time factor, budgets are broadly of the following three types: 1. Long-term Budgets: They are concerned with planning the operations of a firm over a perspective of five to ten years. 2. Short-term Budgets: They are usually for a period of a year or two and are in the form of production plan in monetary terms. 3. Current Budgets: They cover a period of a month or so and as shortterm budgets, they get adjusted to prevailing circumstances. (b) Functional Classification: These are called functional budgets whose number depends on the size and nature of the business. The usual functional budgets of a business are: 1. Sales Budget: This is a forecast of total sales, classified according to groups of products, salesman and geographical locations. 2. Selling and Distribution Cost Budget: This is concerned with an estimate of the cost of selling and distribution of goods.

3. Production Budget: This is a forecast based on sales, productive capacity and requirements of inventories, etc. 4. Production Cost Budget: This is related to the cost of production, including direct material cost, direct labour cost and expenses -fixed, variable and semi-variable. 5. Purchase Budget: Correlated with sales forecast and production planning, it deals with purchases that are required for planned production. Purchase would include both direct and indirect materials and goods. 6. Personnel Budget: This has reference to the utilisation of men and would include labour employed in productive activity. 7. Research Budget: This relates to improvement in the quality of the products or research for new products. 8. Cash Budget: This is a sum total of the requirements of cash in respect of various functional budgets as well as anticipated cash receipts.

9. Plant Utilisation Budget: This is intended to Cover the plant and machinery requirements to meet the budgeted Production during the period. 10. Office and Administration Budget: This budget represents cost of all administrative expenses, such as managing director's salary, staff salaries and expenses of office management like rent, commission etc.

11. Capital Budget: This is a forecast of outlay on fixed assets as also of the sources of capital budget. It may differ from that of other budgets as, such expenditure is frequently planned a number of years in advance. 12. Master Budget: The ultimate integration of separate budgets by the accountant provides the. Master Budget which includes estimated profit and loss account for the future period, and an estimated Balance Sheet at the end thereof. (c) Classification according to Flexibility 1. Fixed Budget: This is a budget in which targets are rigidly fixed. Such

budgets are usually prepared from one to three months in advance of the fiscal year to which they are applicable. Thus, twelve months or more may elapse before figures forecast for the December budget are used to measure actual performance. Many things may happen during this intervening period and they may make the figures go widely out of line with the actual figures. Though it is true that a fixed, or static budget as it is sometimes called, can be revised whenever the necessity arises, it smacks of rigidity and artificially so far as control over costs and expenses are concerned. Such budgets are preferred only where sales can be forecast with the greatest of accuracy which means, in turn, that the cost and expenses in relation to sales can be quite accurately ascertained. 2. Flexible Budget: The figures used in this form of cost and expense budget are made adaptable to any month of the fiscal year. The figures range from the lowest to the highest probable percentages of operating activity in relation to the standard operating performance. From this point of view, a flexible budget prepared for an expenses group can be for the entire fiscal year, or as long as there is no need of material changes in the standards. Thus, the flexible budget proposes a distinct advantage over the static budget particularly where it is difficult to forecast sales costs and expenses with any degree of accuracy.