503, Sector-44 Noida – 201303 ACCOUNTING FOR MANAGERS Assignment A Marks 10 Answer all questions. l. (a) What do you understand by the concept of conservatism ? Why is it also called the concept of prudence? Why is it not applied as strongly today as it used to be in the Past ? (b) What is a Balance Sheet ? How does a Funds Flow Statement differ from a Balance Sheet ? Enumerate the items which are usually shown in a Balance Sheet and a Funds Flow Statement. (a) (b) Discuss the importance of ratio analysis for inter-firm and intra-firm comparisons including circumstances responsible for its limitations .If any Why do you understand by the term ‘pay-out ratio’? What factors are taken into consideration while determining pay-out ratio? Should a company follow a fixed pay-out ratio policy? Discuss fully.



From the ratios and other data given below for Bharat Auto Accessories Ltd. indicate your interpretation of the company’s financial position, operating efficiency and profitability.

Current Ratio Acid Test Ratio Working Capital Turnover (times) Receivables Turnover Average Collection Period (Days) Inventory to Working Capital Inventory Turnover (times) Income per Equity Share Net Income to Net Worth Operating Expenses to Net Sales Sales increase during the year Cost of goods sold to Net Sales Dividend per share Fixed Assets to Net Worth Net Profit on Net Sales

Year I 265% 115% 2.75 9.83 37 95% 6.11 5.10 11.07% 22% 10% 70% Rs. 3 16.4% 7.03%

Year II 278% 110% 3.00 8.41 43 100% 6.01 4.05 8.5% 23% 16% 71% Rs. 3 18% 5.09%

Year III 302% 99% 3.25 7.20 50 110% 5.41 2.50 7.0% 25% 23% 73% Rs. 3 22.7% 2.0%

10.2003) Rs.000 . 9.000 95. What procedure would you adopt to study the liquidity of a business firm? Who are all the parties interested in knowing this accounting information? What ratio or other financial statement analysis technique will you adopt for this.000 ? ? 1.000 Payments By Payments to creditors By wages By Salaries By Drawings By Sunday office expenses 1. Bad debts written off were Rs. receipts To Loan from Dass @ 9% per annum (taken on 1.000 2.25.000 paid as insurance premium for the year ending 30th June.000 40.93.000 61.4.000 Rs.000 Discount allowed totaled Rs. 2004 (Rs.10.000 Receipts To Opening balance To Cash sales To Receipt from debtors To Misc.000 On 31st March.000 7.000 By Machinery purchased (on 1.000 1.21. Wages amounting to Rs.81.000 1.000 1.2003) By Closing balance 9.000 1. 2004.7.000 40.50. 5.) 1. Depreciation was written off on furniture @5% per annum and machinery @10% per annum under the straight line method of depreciation.40.000 16. 3.60. Bose has supplied the following information about his business to Summary of Cash book for the year ended 31st March.10. 2004.21.000 and discount received was Rs.20. The office expenses included Rs.5. Prepare trading and profit and loss account for the year ended 31sl March.50. 5.00.000 1.000 were still due on 31st March.10. 2004 is as follows : Assets and Liabilities Sundry debtors Stock Machinery Furniture Sundry creditors On 1st April 2003 (Rs.000 2.) 1.53. 2004 and the balance sheet as on that date.

e) Two cheques of Rs. 12. 500 was recorded in the pass book. d) Out of the cheques of Rs. the Company decides to introduce a new product with marginal investment but largely using the existing plant and machinery.50 It is expected that 2. cheques of Rs. Sales (6. f) Dividends on shares Rs.000 1. per unit 16.20. for which Priya & Co. a) Credit balance as per cash book on 28th February.750 were cleared and credited by the bankers. 18. Since the existing product could not achieve budgeted level for two consecutive years. 125 were also recorded only in the pass book.500 was presented for payment upto 28th February. . 15. 2008 was Rs.500 were collected by the bankers directly.000 were issued but out of them only one cheque of Rs. The cost estimates of the new product are as follows: Cost elements Direct materials Direct labour Direct expenses Variable factory overheads Variable selling and distribution overheads Rs.000 19. 60 per unit.00.40. A company manufactures a single product in its factory utilizing 600% of its capacity. 7.000 units of the new product can be sold at a price of Rs.000 units) Direct materials Direct labour Direct expenses Fixed overheads : Factory Administration Selling and Distribution 12. The fixed factory overheads are expected to increase by 10%.00 1. 7.000 21.Assignment B Marks 10 Answer all questions. 25.5% of factory overheads and 20% of selling and distribution overheads are variable with production and sales. From the following particulars.000 paid into the bank. as on 28th February 2008. Administrative overheads remain unchanged. Administrative overheads are wholly fixed.000 25.000 2. 4. The selling price and cost details are given below: Rs. while fixed selling and distribution expenses will go up by Rs. 15.500 and Rs. did not have any information.000 2. c) Bank charges made by the bank Rs.50 2. 1.00 1.000 b) Interest charged by the bank up to 28th February Rs.00 15.000 96. determine the bank balance as per pass book of Priya & Co. 5.500 annually.

which would take the total cost of the project to Rs. Case study: Please read the case study given below and answer questions given at the end. To establish labor standards. The consultants further advised that Geeta's wage rates were below the prevailing rate of Rs per hour. or 16 units per day for each worker. informing the workers of the new standard cost system and answering questions.75 lakh. 3.However. 8 lakh. The production vice-president conducted several sessions prior to implementation in the plant. (b) Make any further observation/recommendations about profitability of the company on the basis of the above data . The primary area of concern identified by management is direct labor. Geeta & Company has retained an engineering consulting firm. The labor standard of one unit every 30 minutes. believed that a labor standard of 40 minutes per unit or 12 units per day for each worker would be more reasonable. After a complete study of the work process.000. The company is considering adopting a standard cost system to help control labor and other costs. Case Study Labor standards Geeta & Company has experienced increased production costs. The new standards were not related to incentive pay but were introduced when wages were increased to Rs7 per hour. after making assumption that the present investment is Rs. You are required to (a) Decide whether the new product be introduced. 75. The standard cost system was implemented on January 1. would be employed in the plant as a motivation device. recommended by the consulting firm. 19--. (a) What is Master Budget? How it is different from Cash Budget? (b) What are the various methods of inventory valuation? Explain the effect of inventory valuation methods on profit during inflation. At the end of six months of operation. these statistics on labor performance were presented to executive management: . After much discussion. the consultants recommended a labor standard of one unit of production every 30 minutes. 8. management decided to use a dual standard. while a cost standard of 40 minutes per unit would be used in reporting. he president of Geeta & Company believed the standard should be set at a high level to motivate the workers and to provide adequate information for control and reasonable cost comparison. `Geeta's production vice-president thought that this labor standard was too tight. What are the provisions of Accounting Standard 2 (AS-2) with regards to inventory valuation? 4. and from experience with the labor force. Management also concluded that the workers would not be informed of the cost standard used for reporting purposes. The company considers that 20o/o pre-tax and interest return on investment is the minimum acceptable to justify any new investment. Useful historical data are not available because detailed production records have not been maintained. there will be an increase of working capital to the extent of Rs.

167 U U Materials quality. .100 3. Please advise the company in reviewing the standards.633 F F F 5.700 2.000 5. Questions: 1.300 3. and plant facilities and conditions have not changed to a significant extent during the six month period.500 3.033 Rs1.000 June 4. the likely effect on motivation of adopting the labor standard recommended for Geeta & Company by the engineering firm. 2.100 Rs5.900 4.800 Rs3.000 May 4. Describe the impact of different types of standards on motivations.300 U Rs933 U Rs1.950 Rs6.900 April 4. F = Favorable Rs3150 Rs2.400 3.January February March Production (units) Direct labor hours Quantity Variances: Variance based on labor standard (one unit each 30 minutes) Variance based on cost standard (one unit each 40 minutes) *U = Unfavorable. labor mix.000 2.250 U -0- Rs5.850 U* U U Rs2.800 Rs3. and specifically.

How is the balance sheet linked to the other financial statements? a. b. Understatement of Capital c. Assets are measured using the cost concept. then a. Retained earnings is added to total assets and reported on the balance sheet. Double entry system b. There is no concern because the two amounts are not meant to be equal. The beginning retained earnings balance on the statement of retained earnings becomes the amount of retained earnings reported on the balance sheet. c. it results in a. c. Assets = Liabilities . When the concept of conservation is applied to the Balance Sheet. Overstatement of Assets d. d. Tick Marks (√) the most appropriate answer 1. Net income increases retained earnings on the statement of retained earnings. Overstatement of Capital b. c. Which of the following is a correct expression of the accounting equation? a. There is no link between the balance sheet and the other statements. . It is safe to proceed with the preparation of financial statements. Journalizing 6. They are recorded at cost and adjusted for inflation. Accounting principles require that companies report assets on the income statement. d. Debit c. b. 3. If the sum of the debits and credits in a trial balance is not equal. The chart of accounts also does not balance. Assets = Liabilities + Owners’ Equity 4. 5. b.Liabilities + Owners’ Equity b. They are recorded at market value for financial reporting because historical cost is arbitrary.Owners’ Equity c. d. which ultimately increases retained earnings on the balance sheet. Assets . Understatement of Assets. Assets + Owners’ Equity = Liabilities d.Assignment C Marks 10 Answer all questions. Credit d. 2. Which of the following statements is true concerning assets? a. Most likely an error was made in posting journal entries to the general ledger or in preparing the trial balance. The process of recording the economic effects of business transactions in a book of original entry: a.

Rs3. Cash b. Are static budgets that have been revised for changes in prices. Are used to evaluate capacity utilization. Supplies. Most firms elected to define funds in the statement of changes in financial position as: a. In the cash flow statement. Flexible budgets a.7. Interest expense d. Current assets d. 11. c. Rs7. Rs6. d. Supplies Expense. At December 31. d. 2006. Rs7. b. 000. Depreciation expense b. Supplies. 2006. . Rs1. Accommodate changes in the inflation rate. Rs2. Rs2. Supplies Expense. c. Supplies Expense. Quick assets b. The funds flow statement included: a. Supplies. Only cash transactions. Only transactions affecting current assets. 000. the balances in the Supplies and Supplies Expense accounts will be: a. Gain from asset disposal c. c. 300. plus cash equivalents. d. supplies with a cost of Rs7. Supplies. 500. During 2006. After the adjustments are recorded and posted at December 31. cash is defined as: a. 800. 000 were purchased. All of the above 13. 900. d. the actual supplies on hand amounts to Rs2. Transaction credits d. Owners’ Equity 10. Literal cash on hand or on demand deposit. Amortization of premium on debt 12. In the statement of changes in financial position. 300. Which of the following is not an example of a non-fund adjustment to income required in preparing the statement of changes in financial position when funds were defined as working capital? a. Only transactions affecting fund accounts. 300. 300. b. b. Fund increases c. All sources and uses of resources. Supplies Expense. Z Ltd had Rs1800 of supplies on hand at January 1. 2006. Literal cash on hand or on demand deposit. Fund decreases 9. Rs2. 8. Working capital c. uses of resources are defined as: a. Accommodate changes in activity levels. Transaction debits b. c. plus marketable securities.

16. Reduces working capital. on October 1. Discount on Notes Receivable. Y Ltd sold equipment for Rs4. 000) a. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6. During the month of September. c. 2006. d. The company is over-invested in assets in 2006. d. A change in inventory methods can be justified if the change is made to better match profits with revenue. b. The increase offsets the decrease. received a noninterest-bearing note from Y Ltd. d. d. Rs2. Which of the following combination of financial statements would provide the most indepth information to help understand a company’s liquidity? a. The company was more profitable in 2005. Has no affect on working capital at all. One place that the reader of an annual report would be able to identify that a company changed inventory methods is the footnotes to the financial statements. 000. Will be recorded as interest revenue on October 1. Balance sheet and statement of cash flows. Is the interest explicitly included in the amount of the note. d. Will be recorded in a contra account. A performance report utilizing flexible budgeting would report a flexible budget variance for indirect labor of:a. c. What is the impact of this sale on the working capital? a. 19. Balance sheet and income statement. of . 18. b. Statement of retained earnings and statement of cash flows. c. 000.000 annually. Is an error made in preparing the note. 2006. Rs170 unfavorable. Tax advantages are valid justification for changing inventory methods.600 units of product were produced. The difference of Rs200 between the amount of the note (Rs6. X Ltd considers indirect labor to be a variable cost. The effect of changing inventory method does not need to be disclosed. The master budget includes indirect labor of Rs396. c. 200) and the sales price the merchandise (Rs6.14 Which of the following statements regarding changing inventory methods is true? a. Solid Co. The company produced more sales in 2006 for each dollar invested in assets. The company was less efficient during 2006 in using its assets to produce profits. which of the following conclusions can be made? a. 15. c. 5. 500 loss. Use the information presented below to answer the questions that follow. by Co. c. Rs170 favorable. b. and indirect labor costs of Rs30. The note is due in 3 months.970 were incurred. b. b. 17. X Ltd’s master budget calls for the production of 6. b. 030 unfavorable. Income statement and statement of cash flows. If a company’s asset turnover rate increased from 2005 to 2006. 200. Increases working capital. This resulted in a Rs1. The amount of the note due at the maturity date is Rs6.000 units of product monthly.

Charged to selling overheads c. d. Cost of research undertaken at the request of the customer should be: a. Recovered from the customer. and production overheads c. None of the above. Charged to costing profit and loss account b. Arise from yearly budget appropriations b. Which of the following is not an advantage for using standard costs for variance analysis? a. d. b. A cost. Historical cost b. Maximize profits. Committed fixed costs are those. Direct material and direct wages b. The main purpose of cost accounting is toa. Salaries due for the month of March will appear a.d. Standards are developed using past costs and are available at a relatively low cost. Rs2. c. d. To watch cash flows 22. Nowhere in the Cash Book. Conversion cost is total of: a. All of above 26. Out of pocket cost. 030 favorable. Standards simplify product costing. As a contra entry d. Imputed cost c. Are incurred because management can afford c. Provide information to management for decision making c. Direct wages and production overheads. On the Payment side of the Cash Book c. direct wages. Direct material. 20. which does not involve cash outlay. Explicit cost. d. b. is called: a. All of above 25. . 24. help in fixing selling price d. which: a. Standards can take into account expected changes planned to occur in the budgeted period. Arise from additional capacity. 21. Standards are usually expressed on a per unit basis. On the Receipt side of the Cash Book b. 23. d.

000. d. c. Principle. 30. c. 320 has been debited to Eknath's account at Rs. b. a. d. .780. 3. b.000. Rs. b. d. Rs. The revenue recognition principle requires that sales revenues be recognized: a. Depreciation is dependent on a number of estimates. 28. Liabilities. 31. 11. in the current year. d. d. Prepayments. the corporation must have adequate cash. b. c. Both a and b above. 230.220 and owner's equity is Rs. 33. Temporary accounts. Omission. 11. Commission. Rs. When the goods are transferred from the seller to the buyer. When a change in an estimate is required. When cash is received. d. 29. the board of directors must declare a dividend.220.220. 15. None of the above. 26. 32. b. In order to pay a dividend: a. all of the above. to prior periods. Rs. the corporation must have adequate retained earnings. Income taxes refundable. Compensatory. Petty cash. 15. d. the change is made: a. c. b. When the merchandise is ordered. Interest receivable. The assets of the business will be.27. Liabilities of business are Rs. c. b. c. in the future year. An entry of Rs. If is an error of a. c. Unearned revenues are: a. All of the following are “other receivables” except: a. Advances to employees. both a and b above.

None of the above. d. Budgeted Figures. Presentation of Figures from Financial Accounting. Inventories. Presentation of Figures from Cost Accounting. . Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income are referred to as: a. Financing activities. b. Time. c. Standards. 38. Real Accounts. 36. Management Accounting is mainly related to a. All of the following are used in preparing a statement of cash flows except: a. Nominal Accounts. 39. All of the above. Principles c. Variance Analysis is done with regards to actuals witha. Operating activities. Both (a) and (b) above. b. d. c. All of the above. d. Liquid Assets are inclusive of all current assets except a. Personal Accounts. b. c. b.34. c. b. 37. Both (a) and (b) above. b. Prepaid Expenses. Cash. Additional information. d. c. A trial balance. Benchmarks d. Investing activities. Outstanding Expenses are the examples of a. Usage. Current income statement. b. b. All of the above. 40. d. 35. c. Depreciation is result of a. Obsolescence. Comparative balance sheet.