Master of Business Administration Semester I - (Book ID: B1130) MB0041 Financial and Management Accounting Assignment

NAME ROLL NO.

PRADEEP KUMAR
:

571116570

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Q1. Distinction between book-keeping and accountancy

Ans:1. Bookkeeping vs Accounting. Bookkeeping and accounting are two different departments dealing with the accounts of company. Bookkeeping is the initial stage, in which we keep the record of income and expenditure, whereas in Accounting department accountants analyze the companys financial activity and prepare reports. Both are very important for the proper management and financial success of a business. Bookkeeping In simple words, recording the financial dealings of a company or individual is bookkeeping, like sales, purchase, revenues and expenditures. Traditionally, it is called as bookkeeping since records were kept in books; now there are specific software for this purpose, but the old name is still in use. Usually, bookkeepers are appointed to keep the record in accurate and precise manner. This activity is very important for the financial health of a company, as it informs the management about up to date financial condition of their company. Commonly used books are, daybook, ledger, cashbook and business checkbook, many others are also used, according to the nature of business. A bookkeeper enters a particular financial activity in its respective book and post to the ledger as well. Single entry and double entry are two types of bookkeeping. As the name suggest, in single entry a transaction is either recorded in debit or in credit column of the same account, but in case of double entry, two entries of each transaction are carried to ledger, one in debit column and other under credit heading. Accounting Accounting deals with organized recording, reporting and analysis of financial activity of a company. Making statements regarding assets and liabilities also come under the jurisdiction of accounting. Accountants are also responsible for making monthly fiscal statements and yearly tax returns. The accounting departments also do preparation of companys budgets and plan loan proposals. Moreover, they analyze the cost of companys products or services. Now a day, Accounting is called language of business, as it provides required information to many people, for instance, Management accounting is the branch, which keep the mangers of the

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company informed. Financial accounting informs the outsiders, like bank, vendors and stakeholders, about the financial activity of company. The nature of information for the outsiders and insiders is different, that is why big companies need both of these branches. Differences and Similarities Both are different sections of finance department, bookkeeping involves the keeping of systematical record of companys financial activity, where as accounting is the next section, which analyze these records to prepare different reports and proposals. Bookkeeping in the procedure, which helps the management to manage day-to-day financial activity of company, whereas Accounting justifies these financial actions and find their reasons. In large companies, accounting department is also very large to analyze the fiscal activity of business, on the other hand, an individual usually does Bookkeeping or at the most two people are involved in this activity, even in big companies. Conclusion Bookkeeping and Accounting are essential for the successful running of any business. Bookkeeping is important as it is the primary stage of keeping financial records and accounting is the building of analysis based on the brick of bookkeeping .

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Q2. Pass journal entries for the following transactions: . a) Madan commenced business with cash Rs. 70000 b) Purchased goods on credit 14000 c) Withdrew for private use 3000 d) Goods purchased for cash 12000 e) Paid wages 5000
Ans: 2. Date: Amount in Amount in (Dr.) (Cr.) a.) Cash a/c 70,000 To Capital A/c 70,000 Being madan commenced business with cash.Rs. 70,000 b.) Purchase a/c To Creditor A/c Being goods purchase on credit. c.) Drawings a/c To Bank A/c Being amount withdraw from bank for personal use. d.) Purchase A/c To Cash A/c Being goods purchase with cash. e.) Wages A/c To Cash A/c Being goods purchase with cash. Total 14,000 14,000 3,000 3,000 12,000 12,000 5,000 5,000 1.04,000 1.04,000 Particulars J. f

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Q3. Write short notes on : A. Outstanding Expenses B. Prepaid Expenses

Ans : #Outstanding Expenses: Outstanding expenses are the expenses which have fallen due at the end of the accounting period but which has not been paid. Its a liability for the company and will be shown under the Current liabilities and provisions. outstanding expenses means in past year or month we did not pay. we have to pay in future this are called outstanding expenses ex,, salaries, wages, rent, other expenses #Outstanding means due by company. Entry of outstanding should be Expense a/c Dr. To, O.S. Expense A/c Cr Expense will reflect to P&L account and while O.S. Expense will show in Liabilities in (Balance Sheet) #Prepaid Expenses #prepaid expenses are the expenses which paid during the year before its due. The money is paid out but its not due at the end of the period. Its an asset and will be shown under current Assets in the Balance sheet. prepaid expenses are current assets of company it comes at asset side of balance sheet Entry of outstanding should be Prepaid Expenses A/C To Cash / Bank A/C Dr Cr.

Prepaid Expenses shows in Balance Sheet under Current Assets & Loans & Advances Heads. after completion a period of this it is reverse back to Profit & Loss A/c

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Q.4 Given variable cost Rs.5,00,000. Fixed cost Rs.3,00,000. Net profit Rs.1,00,000. Sales Rs.10,00,000. Find (a) MCSR (b) BEP (c) Profit when sales amounted Rs.12,00,000 (d) sales required to earn a profit of Rs.2,00,000. Hint: Your answers should match this (a)600000 ; (b) 600000; (c) 600000 ; (d) 1000000
Ans:- Veriable Cost Rs.5,00,000.00 Fixed Cost Rs.3,00,000.00 Net Profit Rs.1,00,000.00 Sale Rs. Rs.10,00,000.00
(A)

MCSR OR Profit Volume Ratio = (contribution x 100)/Sales

Contribution = Sales Variable cost So, Contribution = Rs(10,00,000-5,00,000) = Rs 5,00,000 Now, put the value of contribution in the above formula of MCSR or Profit volume Ratio. MCSR = (5,00,000/10,00,000)/100 = 50% BEP = (Fixed Cost x Total Sales)/(Total Sales Variable Cost)

(B)

BEP = Rs (3,00,000x10,00,000)/(10,00,000-5,00,000) = Rs 6,00,000

(C) MCSR = Contribution

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____________________________ Sales = 500000 ________ = 1200000 = .04166 Ans

Contribution = Profit Sale

= 1200000 200000 = 1000000 Ans.

Q5. Explain the meaning of Depreciation. Mention the different types of depreciation with examples
Ans.: - Introduction:
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Most businesses need to purchase some kind of durable equipment in order to operate. Equipment that lasts longer than one year is called a fixed asset These assets assist in the generation of revenue over time. For instance, an oven that lasts several years may be used to bake many loaves of bread each day. The oven is integral to the sale of each loaf of bread. Property such as ovens, furniture, computers, vehicles, and buildings contribute to the operating capacity of a company over many years. Because of this long-term contribution, fixed assets are treated differently than many other business expenses. The purchase price of these fixed assets is typically expensed over a period of years, rather than in the year the purchase was made. This business expense is known as depreciation Depreciation can be understood in three ways: Popular definition: A decline in the market value of an asset due to wear and tear or obsolescence. A new automobile "depreciates" when you drive it off the lot. Tax definition: A way to recover the cost of a fixed asset through tax deductions. Like other business expenses, depreciation expenses reduce your taxable income. Accounting definition: A means of allocating a portion of a fixed asset's cost to each period that the asset helps generate revenue.

Basic Accounting Rules for Depreciation Confused about depreciation on fixed assets? Depreciation is simply the calculation of wear and tear on assets and is reported annually on your financial statements and utilized as a business expense when submitting tax returns. Learn the most common methods used here.

About This Business Expense Depreciation is the reduction in the book value of an asset due to usage over a period of time. In other words, it is the reduction in the economic usefulness of the asset, or
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the calculation of wear and tear that may have occurred to the asset. This is also done to report the actual value to tax authorities. The present value of the asset, i.e., after deducting the depreciation amount, is then recorded in the accounting books. To calculate, one needs to take into account the economic life and the expected value or scrap value of the asset after its use in the business is over. The calculation is a non-cash expense that is estimated or forecasted. This process occurs at the end of the financial year and the amount is shown in both the balance sheet and the income and loss statement. Here we discuss the different types of depreciation methods and how to calculate them. Straight Line Method This is the simplest, and most commonly used, form of depreciation calculation and refers to reduction of the value as per a constant rate. The depreciation value is calculated by taking the original, purchase, or historical price, less the scrap (or salvage) value, and dividing it by the useful years or the number of years that the asset would be in use in the business. The rate of depreciation remains constant as a fixed expense throughout the years. This depreciation method is useful for those assets in which the usage remains uniform or consistent. Unfortunately, it does not take into account the fact that all assets do not deteriorate equally. MACRS Method The Modified Accelerated Cost Recovery System (MACRS) is widely used in the depreciation of land, buildings or equipment owned and used 100 percent by the company. MACRS is almost always utilized when depreciating assets for tax purposes to enjoy the expense of each depreciated item. In the Bright Hub article, MARCS, you'll find great tips on how to use this method to help your business reap the tax benefits offered by this type of depreciation method. The Internal Revenue Service offers Form 4562 along with detailed instructions on the best way to utilize the MACRS method. You can download the form and instructions here. It you're unsure on how to best utilize the MACRS method, ask your tax professional for help.
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Unit of Production Method This method refers to an association between the assets ability to do work during its useful life and the decline in the worth of the asset. Unfortunately, this depreciation method does not take into account the expected years of the asset but takes into account the measurable units of use. The units could be anything, including number of items produced or hours used for machinery, number of miles traveled by vehicles, etc. Thus, it is calculated by the actual usage of the asset. Again using our alignment machine and assuming the machine can do 15 alignments in one year (365 days): Depreciation cost equals original purchase price less salvage value. ($100,000 10,000 = 90,000). Deprecation per item/unit equals depreciable costs divided by the number of total items or units. ( 90,000 / 5,475 units - 16.44%). Depreciation - 90,000 * 16.44% = 14,796 per year.

Q6. Show the rectification entries for the following: (a). The Sales account is undercast by Rs.15,000
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(b.) Goods returned by the customer Mr.X of Rs.5650 has been posted in the Return Inward Account as Rs.5560 and in Mr.X a/c as Rs.6,550. (c.) Salary paid Rs.6,000 has been posted to Rent account (d.) Cash received from Ram posted to Shyam account Rs.7,000
Ans:a. The Sales account is undercast by Rs.15,000 a. Suspense A/c Dr. 15000/15000/-

To Sales A/c

b. Goods returned by the customer Mr.X of Rs.5650 has been posted in the Return Inward Account as Rs.5560 and in Mr.X a/c as Rs.6,550. b. Sales Return A/c Mr. X A/c Dr. Dr. 90/900/990/-

To Suspense A/c

c. Salary paid Rs.6,000 has been posted to Rent account c. Salary A/c Dr. 6000/6000/-

To Rent A/c

d.Cash received from Ram posted to Shyam account Rs.7,000 d. Shyam A/c Dr. 7000/-

To Ram A/c

7000/-

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