Master of Business Administration- MBA Semester 1

Reg No.: 511011932

MB0041 Financial Management & Accounting - 4 Credits Assignment Set- 1 (60 Marks) ote! "ac# $uestion carries 10 Marks% Ans&er all t#e $uestions% 1% '#at is accounting c(cle) *ist t#e se$uential ste+s in,ol,ed in Accounting c(cle) The A ounting !" #e is a series of ste$s %hi h are re$eated e&er" re$orting $eriod. The $ro ess starts %ith ma'ing a ounting entries for ea h transa tion and goes through #osing the (oo's. )se this tutoria# for an o&er&ie% of the a ounting re+uired (oth during and at the end of the a ounting $eriod. A ounting !" #e , Ste$s -uring the A ounting .eriod These a ounting o urs: /dentif" the transa tion through an origina# sour e do ument 0su h as an in&oi e* re ei$t * an e##ed he '* time ard* de$osit s#i$* $ur hase order1 %hi h $ro&ides: date amount des ri$tion 0a ount or (usiness $ur$ose1 name and address of other $art" 0if $ra ti a#1 Ana#"2e the transa tion , determine %hi h a ounts are affe ted* ho% 0in rease or de rease1* and ho% mu h Ma'e 3ourna# entries , re ord the transa tion in the 4ourna# as (oth a de(it and a redit 4ourna#s are 'e$t in hrono#ogi a# order 4ourna#s ma" in #ude sa#es 4ourna#* $ur hases 4ourna#* ash re ei$ts 4ourna#* ash $a"ments 4ourna#* and the genera# 4ourna# .ost to #edger , transfer the 4ourna# entries to #edger a ounts #edger is 'e$t (" a ount #edger a ounts ma" (e T-a ount form or in #ude (a#an es 05earn more a(out the !hart of A ounts.1 A ounting !" #e: Ste$s at the end of the a ounting $eriod These a ounting " #e ste$s o ur at the end of the a ounting $eriod: Tria# Ba#an e , this is a a# u#ation to &erif" the sum of the de(its e+ua#s the sum of the redits. /f the" don6t (a#an e* "ou ha&e to fi7 the un(a#an ed tria# (a#an e (efore "ou go on to the rest of the a ounting " #e. 0/f the" do (a#an e "ou ou#d sti## ha&e a $ro(#em* (ut at " #e ste$s o ur during the a ounting $eriod* as ea h transa tion " #e* o&ering a ti&ities

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Master of Business Administration- MBA Semester 1

Reg No.: 511011932

#east it (a#an es=1 Ad4usting entries , $re$are and $ost a rued and deferred items to 4ourna#s and #edger Ta ounts Ad4usted tria# (a#an e , ma'e sure the de(its sti## e+ua# the redits after ma'ing the $eriod end ad4ustments >inan ia# Statements , $re$are in ome statement* (a#an e sheet* statement of retained earnings* and statement of ash f#o%s 0this an o ur at other $oints in time %ith a$$ro$riate ad4ustments1 !#osing entries , $re$are and $ost #osing entries to transfer the (a#an es from tem$orar" a ounts 0su h as the re&enue and e7$enses from the in ome statement to o%ner6s e+uit" on the (a#an e sheet1. After-!#osing tria# (a#an e , fina# tria# (a#an e after the #osing entries to ma'e sure de(its sti## e+ua# redits. -% A% Bring out t#e di..erence /et&een 0ndian 1AA2 and 3S 1AA2 norms) Some of these ma4or differen es (et%een )S ?AA. and /ndian ?AA. %hi h gi&e rise to differen es in $rofit are high#ighted hereunder: 1. )nder#"ing assum$tions: )nder /ndian ?AA.* >inan ia# statements are $re$ared in a ordan e %ith the $rin i$#e of onser&atism %hi h (asi a##" means @Anti i$ate no $rofits and $ro&ide for a## $ossi(#e #ossesA. )nder )S ?AA. onser&atism is not onsidered* if it #eads to de#i(erate and onsistent understatements. 2. .ruden e &s. ru#es : The /nstitute of !hartered A ountants of /ndia 0/!A/1 has (een stru turing A ounting Standards (ased on the /nternationa# A ounting Standards 0 /AS1 * %hi h em$#o" on e$ts and B$ruden eC as the $rin i$#e in ontrast to the )S ?AA.* %hi h are Dru#e orientedD* detai#ed and om$#e7. /t is +uite eas" for the )S a ountants to hand#e issues that fa## %ithin the ru#es* %hi#e the /nternationa# A ounting Standards $ro&ide a genera# frame%or' of a ounting standards* %hi h em$hasise Dsu(stan e o&er formD for a ounting. These ru#es are #ess des ri$ti&e and their a$$#i ation is (ased on $ruden e. )S ?AA. has thus issued se&era# /ndustr" s$e ifi ?AA. * #i'e S>AS 51 0 !a(#e T91* S>AS 50 0Re ord and Musi /ndustr"1 * S>AS 53 0 Motion .i ture /ndustr"1 et . 3. >ormatE .resentation of finan ia# statements: )nder /ndian ?AA.* finan ia# statements are $re$ared in a ordan e %ith the $resentation re+uirements of S hedu#e 9/ to the !om$anies A t* 195F. <n the other hand * finan ia# statements $re$ared as $er )S ?AA. are not re+uired to (e $re$ared under an" s$e ifi format as #ong as the" om$#" %ith the dis #osure re+uirements of )S ?AA.. >inan ia# statements to (e fi#ed %ith S:! in #ude G. !onso#idation of su(sidiar" om$anies: )nder /ndian ?AA. 0AS 211* !onso#idation of

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Master of Business Administration- MBA Semester 1

Reg No.: 511011932

A ounts of su(sidiar" om$anies is not mandator". AS 21 is mandator" if an enter$rise $resents onso#idated finan ia# statements. /n other %ords* the a ounting standard does not mandate an enter$rise to $resent onso#idated finan ia# statements (ut* if the enter$rise $resents onso#idated finan ia# statements for om$#"ing %ith the re+uirements of an" onso#idated finan ia# statements in om$an" ta'en in iso#ation statute or other%ise* it shou#d $re$are and $resent a ordan e %ith AS 21.Thus* the

finan ia# in ome of an"

neither re&ea#s the +uantum of (usiness (et%een the grou$ om$anies nor does it re&ea# the true $i ture of the ?rou$ . Sa&&" $romoters hi&e off their #oss ma'ing di&isions into se$arate su(sidiaries* so that finan ia# statement of their >#agshi$ !om$an" #oo's attra ti&e .)nder )S ?AA. 0S>AS 9G1*!onso#idation of resu#ts of Su(sidiar" !om$anies is mandator" * hen e e#iminating materia#* inter om$an" transa tion and gi&ing a true $i ture of the o$erations and .rofita(i#it" of the &arious ma4orit" o%ned Business of the ?rou$. 5. !ash f#o% statement: )nder /ndian ?AA. 0AS 31 * in #usion of !ash >#o% statement in om$anies %hose share are #isted on re ogni2ed ash f#o% finan ia# statements is mandator" on#" for Rs. 50 rore. Thus * un#isted

sto ' e7 hanges and !ertain enter$rises %hose turno&er for the a ounting $eriod e7 eeds om$anies es a$e the (urden of $ro&iding statements as $art of their finan ia# statements. <n the other hand* )S ?AA. 0S>AS 951 mandates furnishing of ash f#o% statements for 3 "ears , urrent "ear and 2 immediate $re eding "ears irres$e ti&e of %hether the om$an" is #isted or not . F. /n&estments: )nder /ndian ?AA. 0AS 131* /n&estments are #assified as !urrent and #assified ?o&ernment or Trust se urities *Shares* 5ong term. These are to (e further

de(entures or (onds /n&estment $ro$erties <thers-s$e if"ing nature. /n&estments #assified as urrent in&estments are to (e arried in the finan ia# statements at the #o%er of ost and fair &a#ue determined either on an indi&idua# in&estment (asis or (" ategor" of in&estment* (ut not on an o&era## 0or g#o(a#1 (asis. /n&estments #assified as #ong term in&estments are arried in the finan ia# statements at ost. Ho%e&er* $ro&ision for diminution is to (e made to re ognise a de #ine* other than tem$orar"* in the &a#ue of the in&estments* su h redu tion (eing determined and made for ea h in&estment indi&idua##". )nder )S ?AA. 0 S>AS 1151 * /n&estments are re+uired to (e segregated in 3 ategories i.e. he#d to Maturit" Se urit" 0 .rimari#" -e(t Se urit"1 * Trading Se urit" and A&ai#a(#e for sa#es Se urit" and shou#d (e further segregated as !urrent or Non urrent on /ndi&idua# (asis. -e(t se urities that the enter$rise has the $ositi&e intent and a(i#it" to ho#d to maturit" are #assified as he#d-tomaturit" se urities and re$orted at amorti2ed ost. -e(t and e+uit" se urities that are (ought and he#d $rin i$a##" for the $ur$ose of se##ing them in the near term are #assified as trading se urities and re$orted at fair &a#ue* %ith unrea#ised gains and #osses in #uded in earnings. A## <ther se urities are #assified as a&ai#a(#e-for-sa#e se urities and re$orted at fair &a#ue*
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Master of Business Administration- MBA Semester 1

Reg No.: 511011932

%ith unrea#ised gains and #osses e7 #uded from earnings and re$orted in a se$arate om$onent of shareho#dersC e+uit" I. -e$re iation: )nder the /ndian ?AA.* de$re iation is $ro&ided (ased on rates $res ri(ed (" the !om$anies A t* 195F. Higher de$re iation $ro&ision (ased on estimated usefu# #ife of the assets is $ermitted* (ut must (e dis #osed in Notes to A ounts.0 ?uidan e note no G91 . -e$re iation annot (e $ro&ided at a rate #o%er than $res ri(ed in an" ir umstan e. Simi#ar#" * there is no om$u#sion to $ro&ide de$re iation at a higher rate* e&en if the a tua# %ear and tear of the e+ui$ments is higher than the rates $ro&ided in !om$anies A t. Thus * an /ndian !om$an" an get a%a" %ith $ro&iding %ith #esser de$re iation * if the same is in om$#ian e to !om$anies A t 195F. !ontrar" to this* under the )S ?AA. * de$re iation has to (e $ro&ided o&er the estimated usefu# #ife of the asset* thus ma'ing the A ounting more rea#isti and $ro&iding suffi ient funds for re$#a ement %hen the asset (e omes o(so#ete and fu##" %orn out. J. >oreign urren " transa tions: )nder /ndian ?AA.0AS111 >ore7 transa tions 0 Monetar" items 1 are re orded at the rate $re&a#ent on the transa tion date .;ear end foreign urren " assets and #ia(i#ities 0 Non Monetar" /tems1 are re-stated at the #osing e7 hange rates. :7 hange rate differen es arising on $a"ments or rea#i2ations and restatements at #osing e7 hange rates are treated as .rofit E#oss in the in ome statement. :7 hange f#u tuations on #ia(i#ities in urred for fi7ed assets an (e a$ita#i2ed. )nder )S ?AA. 0S>AS 521* ?ains and #osses on foreign urren " transa tions are genera##" in #uded in determining net in ome for the $eriod in %hi h e7 hange rates hange un#ess the transa tion hedges a foreign urren " ommitment or a net in&estment in a foreign entit" . !a$ita#i2ation of e7 hange f#u tuation arising from foreign #ia(i#ities in urred for a +uiring fi7ed assets does not e7ist. Trans#ation ad4ustments are not in #uded in determining net in ome for the $eriod (ut are dis #osed and a umu#ated in a se$arate om$onent of onso#idated e+uit" unti# sa#e or unti# om$#ete or su(stantia##" om$#ete #i+uidation of the net in&estment in the foreign entit" ta'es $#a e . )S ?AA. a#so $ermits use of A&erage month#" :7 hange rate for Trans#ation of Re&enue* e7$enses and !ash f#o% items* %hereas under /ndian ?AA.* the trans#ation $ur$oses. 9. :7$enditure during !onstru tion .eriod: As $er the /ndian ?AA. 0?uidan e note on onstru tion $eriodC 1 * a## in identa# e7$enditure on KTreatment of e7$enditure during #osing e7 hange rate for the Transa tion date is to (e ta'en for

!onstru tion of Assets during .ro4e t stage are a umu#ated and a##o ated to the ost of asset on om$#etion of the $ro4e t. !ontrar" to this* under the )S ?AA. 0S>AS I1 * su h e7$enditure are di&ided into t%o heads , dire t and indire t. Lhi#e* -ire t e7$enditure is a umu#ated and a##o ated to the ost of asset* indire t e7$enditure are harged to re&enue.
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Master of Business Administration- MBA Semester 1

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10. Resear h and -e&e#o$ment e7$enditure: /ndian ?AA. 0 AS J1 re+uires resear h and de&e#o$ment e7$enditure to (e harged to $rofit and #oss a ount* e7 e$t e+ui$ment and ma hiner" %hi h are a$ita#i2ed and de$re iated. )nder )S ?AA. 0 S>AS 21 * a## RMosts are e7$enses e7 e$t intangi(#e assets $ur hased from others and Tangi(#e assets that ha&e a#ternati&e future uses %hi h are a$ita#ised and de$re iated or amortised as RM:7$ense. )nder )S ?AA.* RM- e7$enditure in urred on soft%are de&e#o$ment are e7$ensed unti# te hni a# feasi(i#it" is esta(#ished 0 S<. J1.11 . RM- !ost and soft%are de&e#o$ment ost in urred under ontra tua# arrangement are treated as ost of re&enue. 11. Re&a#uation reser&e : )nder /ndian ?AA.* if an enter$rise needs to re&a#ue its asset ost of re$#a ement and $ro&ide higher harge to $ro&ide for su h due to in rease in

in reased ost of re$#a ement* then the Asset an (e re&a#ued u$%ard and the unrea#ised gain on su h re&a#uation an (e redited to Re&a#uation Reser&e 0 ?uidan e note no 5I1. The in rementa# de$re iation arising out of higher (oo' &a#ue ma" (e ad4usted against the Re&a#uation Reser&e (" transfer to .M5 A ount. $romoters misuti#ise this fa i#it" to hood%in' 12. Ho%e&er for %indo% dressing some the shareho#ders on man" o asions. )S

?AA. does not a##o% re&a#uing u$%ard $ro$ert"* $#ant and e+ui$ment or in&estment. 5ong term -e(ts: )nder )S ?AA. * the urrent $ortion of #ong term de(t is #assified as urrent #ia(i#it"* %hereas under the /ndian ?AA.* there is no su h re+uirement and hen e the interest a rued on su h #ong term de(t in not ta'en as urrent #ia(i#it". 13. :7traordinar" items* $rior $eriod items and hanges in a ounting $o#i ies: )nder /ndian ?AA.0 AS 51 * e7traordinar" items* $rior $eriod items and hanges in a ounting $o#i ies are dis #osed %ithout netting off for ta7 effe ts . )nder )S ?AA. 0S>AS 1F1 ad4ustments for ta7 effe ts are re+uired to (e made %hi#e re$orting the .rior $eriod /tems. 1G. ?ood%i##: )nder the /ndian ?AA. good%i## is a$ita#i2ed and harged to earnings o&er 5 to 10 "ears $eriod. )nder )S ?AA. 0 S>AS 1G21 * ?ood%i## and intangi(#e assets that ha&e indefinite usefu# #i&es are not amorti2ed *(ut the" are tested at #east annua##" for im$airment using a t%o-ste$ $ro ess that (egins %ith an estimation of the fair &a#ue of a re$orting unit. The first ste$ is a s reen for $otentia# im$airment* and the se ond ste$ measures the amount of im$airment* if an". Ho%e&er* if re+uirement to test good%i## for im$airment annua##" remeasurement of the fair &a#ue of a re$orting unit. 15. !a$ita# issue e7$enses: )nder the )S ?AA.* a$ita# issue e7$enses are re+uired to (e %ritten off %hen in urred against $ro eeds of a$ita#s* %hereas under /ndian ?AA. * a$ita# issue e7$ense an (e amorti2ed or %ritten off against reser&es. 1F. .ro$osed di&idend: )nder /ndian ?AA. * di&idends de #ared are a ounted for in the "ear to %hi h the" re#ate. >or e7am$#e* if di&idend for the >; 1999-2000 is de #ared in Se$
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ertain

riteria are met* the

an (e satisfied %ithout a

Master of Business Administration- MBA Semester 1

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2000 * then the

orres$onding

harge is made in

2000-2001 as (e#o% the #ine item .

!ontrar" to this * under )S ?AA. di&idends are redu ed from the reser&es in the "ear the" are de #ared (" the Board. Hen e in this ase under )S ?AA. * it %i## (e harged .rofit and #oss a ount of 2000-2001 a(o&e the #ine. 1I. /n&estments in Asso iated om$anies: )nder the /ndian ?AA.0 AS 231 * in&estment in asso iate om$anies is initia##" re orded at !ost using the :+uit" method %here(" the in&estment is initia##" re orded at ost* identif"ing an" good%i##E a$ita# reser&e arising at the time of a +uisition. The arr"ing amount of the in&estment is ad4usted thereafter for the $ost a +uisition hange in the in&estor6s share of net assets of the in&estee. The onso#idated statement of $rofit and #oss ref#e ts the in&estor6s share of the resu#ts of o$erations of the in&estee.are arried at ost . )nder )S ?AA. 0 S>AS 1151 /n&estments in Asso iates are a ounted under e+uit" method in ?rou$ a ounts (ut %ou#d (e he#d at ost in the /n&estor6s o%n a ount. 1J. .reo$erati&e e7$enses: )nder /ndian ?AA.* 0?uidan e Note 3G - Treatment of :7$enditure during !onstru tion .eriod1* dire t Re&enue e7$enditure during onstru tion $eriod #i'e .re#iminar" :7$enses* .ro4e t re#ated e7$enditure are a##o%ed to (e !a$ita#ised. >urther * /ndire t re&enue e7$enditure in identa# and re#ated to !onstru tion are a#so $ermitted to (e a$ita#ised. <ther /ndire t re&enue e7$enditure not re#ated to onstru tion* (ut sin e the" are in urred during !onstru tion $eriod are treated as deferred re&enue e7$enditure and #assified as Mis e##aneous :7$enditure in Ba#an e Sheet and %ritten off o&er a $eriod of 3 to 5 "ears. )nder )S ?AA. 0 S>AS I1 * the on e$t of $reo$erati&e e7$enses itse#f doesn6t e7ist. S<. 9J.5 a#so madates that a## Start u$ !osts shou#d (e e7$ensed. The enter$rise has to $re$are its (a#an e sheet and .rofit and 5oss A ount as if it %ere a norma# running organi2ation. :7$enses ha&e to (e harged to re&enue and Assets are !a$ita#ised as a norma# organi2ation. The additiona# dis #osure in #ude re$orting of ash f#o%* umu#ati&e re&enues and :7$enses sin e in e$tion. )$on ommen ement of norma# o$erations* notes to Statement shou#d dis #ose that the !om$an" %as (ut is no #onger is a -e&e#o$ment stage enter$rise. Thus * due to a(o&e a ounting anoma#"* A ounts $re$ared under /ndian ?AA. * urren ies. 19. :m$#o"ee (enefits: )nder /ndian ?AA.* $ro&ision for #ea&e en ashment is a ounted an (e amorti2ed o&er F0 months. )nder )S ?AA.* $ro&ision for #ea&e (ased n a tuaria# &a#uation. !om$ensation to em$#o"ees %ho o$t for &o#untar" retirement s heme en ashment is a ounted on a tua# (asis. !om$ensation to%ards &o#untar" retirement s heme is to (e harged in the "ear in %hi h the em$#o"ees a e$t the offer.
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ontain

higher

harges to de$re iation %hi h are to (e ad4usted

suita(#" under )S ?AA. ad4ustments for indire t $reo$erati&e e7$enses and foreign

Master of Business Administration- MBA Semester 1

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20.

5oss on e7tinguishment of de(t: )nder /ndian ?AA.* de(t e7tinguishment $remiums

are ad4usted against Se urities .remium A ount. )nder )S ?AA.* $remiums for ear#" e7tinguishment of de(t are e7$ensed as in urred. B% '#at is Matc#ing 2rinci+le) '#( s#ould a /usiness concern .ollo& t#is +rinci+le) The Mat hing $rin i$#e is a u#mination of a rua# a ounting and the re&enue re ognition $rin i$#e. The" (oth determine the a ounting $eriod* in %hi h re&enues and e7$enses are re ogni2ed. A ording to the $rin i$#e* e7$enses are re ogni2ed %hen o(#igations are in urred 0usua##" %hen goods are transferred or ser&i es rendered* e.g. so#d1* and offset against re ogni2ed re&enues* %hi h %ere generated from those e7$enses 0re#ated on the ause-and-effe t (asis1* no matter %hen ash is $aid out. /n ash a ountingNin ontrastN e7$enses are re ogni2ed %hen ash is $aid out* no matter %hen o(#igations are in urred through transfer of goods or rendition of ser&i es: e.g.* sa#e. /f no ause-and-effe t re#ationshi$ e7ists 0e.g.* a sa#e is im$ossi(#e1* osts are re ogni2ed as e7$enses in the a ounting $eriod the" e7$ired: i.e.* %hen ha&e (een used u$ or onsumed 0e.g.* of s$oi#ed* dated* or su(standard goods* or not demanded ser&i es1. .re$aid e7$enses are not re ogni2ed as e7$enses* (ut as assets unti# one of the +ua#if"ing onditions is met resu#ting in a re ognition as e7$enses. 5ast#"* if no administrati&e and resear h and de&e#o$ment osts1. .re$aid e7$enses* su h as em$#o"ee %ages or su( ontra tor fees $aid out or $romised* are not re ogni2ed as e7$enses 0 ost of goods so#d1* (ut as assets 0deferred e7$enses1* unti# the a tua# $rodu ts are so#d. The mat hing $rin i$#e a##o%s (etter e&a#uation of a tua# $rofita(i#it" and $erforman e 0sho%s ho% mu h %as s$ent to earn re&enue1* and redu es noise from timing mismat h (et%een %hen osts are in urred and %hen re&enue is rea#i2ed. T%o t"$es of (a#an ing a ounts e7ist to a&oid fi titious $rofits and #osses that might other%ise o ur %hen ash is $aid out not in the same a ounting $eriods as e7$enses are re ogni2ed* (e ause e7$enses are re ogni2ed %hen o(#igations are in urred regard#ess %hen ash is $aid out a ording to the mat hing $rin i$#e in a rua# a ounting. !ash an (e $aid out in an ear#ier or #atter $eriod than o(#igations are in urred 0%hen goods or ser&i es are de#i&ered1 and re#ated e7$enses are re ogni2ed that resu#ts in the fo##o%ing t%o t"$es of a ounts: A rued e7$ense: :7$ense is re ogni2ed (efore ash is $aid out. -eferred e7$ense: :7$ense is re ogni2ed after ash is $aid out.
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onne tion %ith

re&enues an (e esta(#ished* osts are re ogni2ed immediate#" as e7$enses 0e.g.* genera#

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

A rued e7$enses is a #ia(i#it" %ith an un ertain timing or amount* (ut %here the un ertaint" is not signifi ant enough to +ua#if" it as a $ro&ision. An e7am$#e is an o(#igation to $a" for goods or ser&i es re ei&ed >R<M a ounter$art* %hi#e ash for them is to (e $aid out in a #atter a ounting $eriod %hen its amount is dedu ted from a rued e7$enses. /t shares hara teristi s %ith deferred in ome 0or deferred re&enue1 %ith the differen e that a #ia(i#it" to (e o&ered #atter is ash re ei&ed >R<M a ounter$art* %hi#e goods or ser&i es are to (e de#i&ered in a #atter $eriod* %hen su h in ome item is earned* the re#ated re&enue item is re ogni2ed* and the same amount is dedu ted from deferred re&enues. -eferred e7$enses 0or $re$aid e7$enses or $re$a"ment1 is an asset* su h as ash $aid out T< a ounter$art for goods or ser&i es to (e re ei&ed in a #atter a ounting $eriod %hen the o(#igation to $a" is a tua##" in urred* the re#ated e7$ense item is re ogni2ed* and the same amount is dedu ted from $re$a"ments. /t shares hara teristi s %ith a rued re&enue 0or a rued assets1 %ith the differen e that an asset to (e o&ered #atter are $ro eeds from a de#i&er" of goods or ser&i es* at %hi h su h in ome item is earned and the re#ated re&enue item is re ogni2ed* %hi#e ash for them is to (e re ei&ed in a #ater $eriod* %hen its amount is dedu ted from a rued re&enues. :7am$#es A rued e7$ense a##o%s one to mat h future osts of $rodu ts %ith the $ro eeds from their sa#es $rior to $a"ing out su h osts. -eferred e7$ense 0$re$aid e7$ense1 a##o%s one to mat h osts of $rodu ts $aid out and not re ei&ed "et. -e$re iation mat hes the ost of $ur hasing fi7ed assets %ith re&enues generated (" them (" s$reading su h osts o&er their e7$e ted #ife. A rued e7$enses A rued e7$ense is a #ia(i#it" usedNa ording to mat hing $rin i$#eNto ena(#e management of future osts %ith an un ertain timing or amount. >or e7am$#e* su$$#"ing goods in one a ounting $eriod (" a &endor* (ut $a"ing for them in a #ater $eriod resu#ts in an a rued e7$ense that $re&ents a fi titious in rease in the re ei&ing om$an"Cs &a#ue e+ua# to the in rease in its in&entor" 0assets1 (" the ost of the goods re ei&ed* (ut un$aid. Lithout su h a rued e7$ense* a sa#e of su h goods in the $eriod the" %ere su$$#ied %ou#d ause that the un$aid in&entor" 0re ogni2ed as an e7$ense fi titious#" in urred1 %ou#d effe ti&e#" offset the sa#e $ro eeds 0re&enue1 resu#ting in a fi titious $rofit in the $eriod of sa#e* and in a fi titious #oss in the #atter $eriod of $a"ment* (oth e+ua# to the ost of goods so#d. .eriod osts* su h as offi e sa#aries or se##ing e7$enses* are immediate#" re ogni2ed as e7$enses 0and offset against re&enues of the a ounting $eriod1 a#so %hen em$#o"ees are
S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

$aid in the ne7t $eriod. )n$aid $eriod osts are a rued e7$enses 0#ia(i#ities1 to a&oid su h osts 0as e7$enses fi titious#" in urred1 to offset $eriod re&enues that %ou#d resu#t in a fi titious $rofit. An e7am$#e is a ommission earned at the moment of sa#e 0or de#i&er"1 (" a sa#es re$resentati&e %ho is a ounting $eriod. The om$ensated at the end of the fo##o%ing %ee'* in the ne7t ommission as an e7$ense in urred om$an" re ogni2es the

immediate#" in its urrent in ome statement to mat h the sa#e $ro eeds 0re&enue1* so the ommission is a#so added to a rued e7$enses in the sa#e $eriod to $re&ent it from other%ise (e oming a fi titious $rofit* and it is dedu ted from a rued e7$enses in the ne7t $eriod to $re&ent it from other%ise (e oming a fi titious #oss* %hen the re$ is om$ensated. -eferred e7$enses A -eferred e7$ense 0$re$aid e7$enses or $re$a"ment1 is an asset used to ena(#e management of osts $aid out and not re ogni2ed as e7$enses a ording to the mat hing $rin i$#e. >or e7am$#e* %hen the a ounting $eriods are month#"* an 11E12 $ortion of an annua##" $aid insuran e ost is added to $re$aid e7$enses* %hi h are de reased (" 1E12th of the ost in ea h su(se+uent $eriod %hen the same fra tion is re ogni2ed as an e7$ense* rather than a## in the month in %hi h su h ost is (i##ed. The not-"et-re ogni2ed $ortion of su h osts remains as $re$a"ments 0assets1 to $re&ent su h ost from turning into a fi titious #oss in the month#" $eriod it is (i##ed* and into a fi titious $rofit in an" other month#" $eriod. Simi#ar#"* ash $aid out for 0the ost of1 goods and ser&i es not re ei&ed (" the end of the a ounting $eriod is added to the $re$a"ments to $re&ent it from turning into a fi titious #oss in the $eriod ash %as $aid out* and into a fi titious $rofit in the $eriod of their re e$tion. Su h ost is not re ogni2ed in the in ome statement 0$rofit and #oss or .M51 as the e7$ense in urred in the $eriod of $a"ment* (ut in the $eriod of their re e$tion %hen su h osts are re ogni2ed as e7$enses in .M5 and dedu ted from $re$a"ments 0assets1 on (a#an e sheets. -e$re iation -e$re iation is used to distri(ute the ost of the asset o&er its e7$e ted #ife s$an a ording to the mat hing $rin i$#e. /f a ma hine is (ought for O100*000* has a #ife s$an of 10 "ears* and an $rodu e the same amount of goods ea h "ear* then O10*000 of the ost of the ma hine is mat hed to ea h "ear* rather than harging O100*000 in the first "ear and nothing in the ne7t 9 "ears. So* the ost of the ma hine is offset against the sa#es in that "ear. This mat hes osts to sa#es. 4% 2ro,e t#at t#e accounting e$uation is satis.ied in all t#e .ollo&ing transactions o. Mr% 5
S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

(a) Commence /usiness &it# cas# 6s%70000 (/) 2aid rent in ad,ance 6s%1000 (c) 2urc#ased goods .or cas# 6s%18000 and Credit 6s%-0000 (d) Sold goods .or cas# 6s%-7000 costing 6s%--000 (e) 2aid salar( 6s%7000 and salar( outstanding is 6s%4000 (.) Boug#t mo+ed .or +ersonal use 6s%-00009 Sol% Accounting "$uation : *ia/ilities ; Ca+ital Assets <ransaction Cas# ; Stock a) Commenced Business 'it# cas# 70=000 c) 2urc#ased goods .or cas# 18000 and credit -0=000 e& "$uation d) Sold goods +er cas# 6s% -7=000 Costing 6s% --=000 e& "$uation /) 2aid 6ent in ad,ance 1=000 e& "$uation e) 2aid Salar( 6s% 7000 and Salar( outstand is 6s% 74=000 e& "$uation .) Boug#t Mi+er 2ersonal use -0000 P 25*000 , 22*000 5I*000 P 1F*000 11*000 P 0 Q 0 P 0 P 3000 Q 20*000 P 0 P 53*000 Q 20*000 P 0 P 53*000 Q 20*000 P 0 P 52*000 Q 0 P 0 0-1 5000 Q 20*000 P 3000 P GG000 Q 0 P 0 , 20*000 : -0=000 ; 4000 ; -4=000 -1J000 P 3J000 32000 P 32000 Q 20000 P 0 P 0 Q 20*000 P 0 P 50*000 50*000 P 0 : Ca+a/ilities ; Ca+ital : Creditor ; Salar( ; Ca+ital Q 0 P 0 P 50*000

5F*000 P 1F*000 0-1 5000 P 0 51*000 P 1F* 000

.or 0-1 20*000 P 0 41=000 ; 16=000

Balance S#eet o. 5 as at! *ia/ilities !reditor Sa#ar" outstanding !a$ita# Amount 20*000 3000 2G*000 4>=000 4>=000 Assets !ash in hand Sto ' Amount 31*000 1F*000

S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

10

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

4% Follo&ing are t#e e?tracts .rom t#e <rial Balance o. a .irm as on 41st Marc# -05> Sundr" -e(tors .ro&ision for -ou(tfu# -e(ts .ro&ision for -is ount on -e(tors Bad -e(ts -is ount Additional 0n.ormation! 1) Additional Bad @e/ts re$uired 6s%4=000 -) Additional @iscount allo&ed to @e/tors 6s%1=000 4) Maintain a +ro,ision .or /ad de/ts A 10B on de/tors 4) Maintain a +ro,ision .or discount A -B on de/tors 6e$uired! 2ass t#e necessar( Cournal entries and s#o& t#e rele,ant accounts including .inal accounts% Sol% Dournal "ntr( 2articular Bad @e/ts AEc @r% @iscount Allo&ed @r% <o sundr( @e/tors (Being @iscount Allo&ed @r%) 2ro.it s#ares AEc @r% <o Bad @e/ts <o discount Allo&ed (Being 2 5 * .or @iscount) 2 5 * AEc @r% <o +ro,ision .or @ou/t.ul @e/its <o +ro,ision .or discount on de/tors% 2ro.it & *oss AEc 2articular <o +ro,ision .or @ou/t.ul @e/ts <o +ro,ision .or discount <o Bed do/ts 4000 (;) Additional 4000 Amount 10*000 2200 I000 2articular Amount 12*200 10*000 2200 9000 I000 2000 5000 @r% G000 1000 Cr% -r 2*05*000 3*000 1*000 !r 10*000 1*J00

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11

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

<o @iscount Allo&ed 1000 (;) Additional 1000 Balance S#eet *ia/ilities 2ro,ision .or /ad de/ts 10=000 (;) Additional 10=000 2ro,ision .or discount 1800 (;) Additional --00 G000 20*000 Amount Assets @e/tors -0=700 (-) Bad @e/ts 4000 (-) @iscount 1000 200*000 Amount 2000

S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

12

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

7% A% Bring out t#e di..erence /et&een trade discount and cas# discount% !ash -is ount /s a redu tion granted (" su$$#ier from the in&oi e $ri e in onsideration of immediate or $rom$t $a"ment As an in enti&e management to $rom$t $a"ment in redit en ourage Trade -is ount /s a redu tion granted (" su$$#ier from the #ist $ri e of goods or ser&i es on (usiness onsideration re: (u"ing in (u#' for goods and #onger $eriod %hen in terms of ser&i es

A##o%ed to $romote the sa#es

Not sho%n in the su$$#ier (i## or in&oi e !ash dis ount a ount is o$ened in the #edger A##o%ed on $a"ment of mone" /t ma" &ar" %ith the time $eriod %ithin %hi h $a"ment is re ei&ed

Sho%n (" %a" of dedu tion in the in&oi e itse#f Trade dis ount a ount is not o$ened in the #edger A##o%ed on $ur hase of goods /t ma" &ar" %ith the +uantit" of goods $ur hased or amount of $ur hases made

B% "?+lain t#e term (1) asset (-) lia/ilit( &it# t#e #el+ o. e?am+les% (1) asset! assets are e onomi resour es. An"thing tangi(#e or intangi(#e that is a$a(#e of (eing o%ned or ontro##ed to $rodu e &a#ue and that is he#d to ha&e $ositi&e e onomi &a#ue is onsidered an asset. Sim$#isti a##" stated* assets re$resent o%nershi$ of &a#ue that an (e on&erted into ash 0a#though ash itse#f is a#so onsidered an asset1. The (a#an e sheet of a firm re ords the monetar" &a#ue of the assets o%ned (" the firm. /t is mone" and other &a#ua(#es (e#onging to an indi&idua# or (usiness. T%o ma4or asset #asses are tangi(#e assets and intangi(#e assets. Tangi(#e assets ontain &arious su( #asses* in #uding urrent assets and fi7ed assets. !urrent assets in #ude in&entor"* %hi#e fi7ed assets in #ude su h items as (ui#dings and e+ui$ment. /ntangi(#e assets are non$h"si a# resour es and rights that ha&e a &a#ue to the firm (e ause the" gi&e the firm some 'ind of ad&antage in the mar'et $#a e. :7am$#es of intangi(#e assets are good%i##* o$"rights* trademar's* $atents and om$uter $rograms* and finan ia# assets* in #uding su h items as a ounts re ei&a(#e* (onds and sto 's. (-) lia/ilit( &it# t#e #el+ o. e?am+les! a #ia(i#it" is defined as an o(#igation of an entit" arising from $ast transa tions or e&ents* the sett#ement of %hi h ma" resu#t in the transfer or use of assets* $ro&ision of ser&i es or other "ie#ding of e onomi (enefits in the future. A## t"$e of (orro%ing from $ersons or (an's for im$ro&ing a (usiness or $erson in ome
S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

13

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

%hi h is $a"a(#e during short or #ong time. The" em(od" a dut" or res$onsi(i#it" to others that entai#s sett#ement (" future transfer or use of assets* $ro&ision of ser&i es or other "ie#ding of e onomi (enefits* at a s$e ified or determina(#e date* on o urren e of a s$e ified e&ent* or on demandR The dut" or res$onsi(i#it" o(#igates the entit" #ea&ing it #itt#e or no dis retion to a&oid itR and* The transa tion or e&ent o(#igating the entit" has a#read" o urred. 5ia(i#ities in finan ia# a ounting need not (e #ega##" enfor ea(#eR (ut an (e (ased on e+uita(#e o(#igations or onstru ti&e o(#igations. An e+uita(#e o(#igation is a dut" (ased on ethi a# or mora# onsiderations. A onstru ti&e o(#igation is an o(#igation that an (e inferred from a set of fa ts in a $arti u#ar situation as o$$osed to a ontra tua##" (ased o(#igation. The a ounting e+uation re#ates assets* #ia(i#ities* and o%nerCs e+uit": Assets Q 5ia(i#ities P <%nerCs :+uit" The a ounting e+uation is the mathemati a# stru ture of the (a#an e sheet. The Austra#ian A ounting Resear h >oundation defines #ia(i#ities as: Dfuture sa rifi e of e onomi (enefits that the entit" is $resent#" o(#iged to ma'e to other entities as a resu#t of $ast transa tions and other $ast e&ents.D Regu#ations as to the re ognition of #ia(i#ities are different a## o&er the %or#d* (ut are rough#" simi#ar to those of the /ASB. :7am$#es of t"$es of #ia(i#ities in #ude: mone" o%ing on a #oan* mone" o%ing on a mortgage* or an /<). 5ia(i#ities are de(ts and o(#igations of the (usiness the" re$resent reditors #aim on (usiness assests. :7am$#e of 5ia(i#ities A## 'inds of $a"a(#e 11 Notes $a"a(#e - an %ritten $romise. 21 A ounts .a"a(#e - an ora# $romise. 31 /nterests .a"a(#e. G1 Sa#es .a"a(#e.

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1G

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

6% A .res# MBA student Coined as trainee &as asked to +re+are <rial /alance% Fe &as una/le to su/mit a correct trial /alance% Gou= as a senior accountant .ind out t#e errors and recti.( t#em% A.ter redra.ting t#e trial /alance +re+are trading and 2ro.it and loss account% .arti u#ars !a$ita# !ash in Hand .ur hases Sa#es !ash at (an' >i7tures and >ittings >reeho#d $remises 5ighting and Heating Bi##s Re ei&a(#e Return /n%ards Sa#aries !reditors -e(tors Sto ' at 1st A$ri# 200I .rinting Bi##s .a"a(#e Rates* ta7es and insuran e -is ount re ei&ed -is ount a##o%ed AdCustments! 1) Stock on #and on 41st Marc# -008 &as ,alued at 6s%1800 -) @e+reciate .i?tures and .ittings /( 6s%-7 4) 6s%47 &as due and un+aid in res+ect o. salaries 4) 6ates and insurance #ad /een +aid in ad,ance to t#e e?tent o. 6s%40 Sol. Corrected <rial Balance as at 41st Marc# -008 2articulars Ca+ital Cas# in Fand 2urc#ases Sales Cas# at /ank Fi?tures and Fittings Free#old +remises *ig#ting and Feating Bills 6ecei,a/le 6eturn 0n&ards Salaries Creditors @e/tors Stock at 1st A+ril -00> 2rinting
S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

-e(it J*990

!redit I*FI0 30 11*0F0

JJ5 225 1.500 F5 J25 30 1.0I5 1J90 5*I00 3*000 225 1*JI5 190 GG5 21*1I5 200 21*I05

@e/it Amount 30 J*990

Credit Amount I*FI0 11*0F0

JJ5 225 1.500 F5 J25 30 1.0I5 1J90 5*I00 3*000 225

15

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

Bills 2a(a/le 6ates= ta?es and insurance @iscount recei,ed @iscount allo&ed

1*JI5 190 GG5 200 22*9G0 22*9G0

<rading And 2ro.it and *oss Account .or t#e (ear ended 41st Marc# -008 @r% 2articular To <$ening Sto ' To .ur hase To ?ross .rofit Ed To Sa#aries 10I5 Add <utstanding 35 To 5ighting and heating To .rinting To Rates* Ta7es and /nsuran e 190 5ess: /nsuran e )n$aid G0 To -is ount A##o%ed To -e$re iation of furniture M >ittings 150 200 25 1>>7 Amount 6s% 3000 J990 JG0 1-=840 1110 F5 225 2articular B" Sa#es 110F0 5ess returns 30 B" !#osing Sto ' B" ?ross .rofit Ed B" -is ount B" net #oss Transit and to a$ita# aE Amount 6s% 11030 1J00 1-=840 JG0 GG5 G90 Cr%

1>>7

Balance S#eet as at 41st Marc# -008 *ia/ilities !urrent 5ia(i#ities !reditors Bi##s .a"a(#e <utstanding Sa#ar" !a$ita# <$ening Ba#an e IFI0 )ne7$ired Rates and /nsuran e >i7ed Assets >urniture and fittings 225 5ess: -e$re ation 25 >ree ho#d .romises 10=H80
S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

Amount 1J90 1JI5 35

Assets !urrent Assets !ash in Hands !ash at Ban' Bi## Re ei&a(#e -e(tors !#osing Sto '

Amount 30 JJ5 J25 5I00 1J00

G0

5ess: Net #ess G90

I1J0

200 1500 10=H80

1F

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

MB0041 Financial Management & Accounting - 4 Credits Assignment Set- - (60 Marks) ote! "ac# $uestion carries 10 Marks% Ans&er all t#e $uestions% 1% 3ncertainties ine,ita/l( surround man( transactions% <#is s#ould /e recogniIed /( e?ercising +rudence in +re+aring .inancial statement% "?+lain t#is conce+t &it# t#e #el+ o. an e?am+le% The #ast on e$t is a(out $ruden e or other%ise 'no%n as onser&atism. /t is the in #usion of a degree of aution in the e7er ise of the 4udgments needed in ma'ing the estimates onditions of un ertaint". /ts $ur$ose is to a&oid the instan es of re+uired under

o&erstatement of assets or in ome and understatement of #ia(i#ities or e7$enses. A#though the said $ra ti e does not a##o% the reation of hidden reser&es or the e7er ise of $ro&isions* the de#i(erate understatement of assets or in ome* nor the de#i(erate o&erstatement of #ia(i#ities or e7$enses. <ther%ise* it #a 's the +ua#it" of re#ia(i#it" due to the #a ' of neutra#it" of the finan ia# statements. The $re$arers of finan ia# statements need to assume the $resen e of ine&ita(#e un ertainties that surround man" e&ents and ir umstan es. :7am$#es of %hi h are the o##e ti&it" of dou(tfu# re ei&a(#es* the $ro(a(#e usefu# #ife of $#ant and e+ui$ment* as %e## as the num(er of %arrant" #aims that ma" o ur. Su h un ertainties are re ogni2ed (" the dis #osure of their nature and e7tent* as %e## as through the e7er ise of $ruden e in the $re$aration of finan ia# statements. The four different non-management sta'eho#der grou$s interested in the finan ia# statements of an enter$rise are the institutiona# shareho#ders 0in&estors or o%ners1* the de(t ho#ders 0a#so 'no%n as (ondho#ders1* the go&ernment* and the em$#o"ees.

S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

1I

Master of Business Administration- MBA Semester 1

Reg No.: 511011932

The shareho#dersEde(t ho#ders are among the ma4or re i$ients of the finan ia# statements of or$orations. The" range from indi&idua#s %ith re#ati&e#" #imited resour es to #arge* %e##endo%ed institutions su h as insuran e om$anies and mutua# funds. The de ision made (" these $arties in #udes shares to (u"* retain* or se##* and the timing of the $ur hase or sa#e of those shares. T"$i a##"* their de isions ha&e a fo us either on in&estment or on ste%ardshi$* a#though in some ases* it is (oth. /f the em$hasis is on the hoi e of a $ortfo#io of se urities that is onsistent %ith the $referen es of the in&estor for ris'* return* di&idend "ie#d* #i+uidit" and so on* it is said to (e in&estment fo us. <ther%ise* it is ste%ardshi$ fo us. The re+uired information for this hoi e &aries signifi ant#". !onsider a$$roa hes that intend to dete t the im$ro$er $ri ing of se urities (" a fundamenta# ana#"sis a$$roa h om$ared to a te hni a# ana#"sis a$$roa h. The former a$$roa h e7amines firm* industr" and e onom" re#ated information* %here finan ia# statements $#a" a ma4or ro#e. An im$ortant as$e t is the $redi tion of the timing* amounts* and un ertainties of the firm6s future ash f#o%s. /n ontrast* it is through the e7amination of the mo&ement in se urit" $ri es* se urit" trading &o#ume* and other re#ated &aria(#es that the te hni a# ana#"sis is a(#e to dete t the im$ro$er $ri ing of se urities. T"$i a##"* finan ia# statement information is not e7amined in this a$$roa h. Lhen $redi ting the timing* amounts* and un ertainties of the firm6s future ash f#o%s* the $ast re ord of management in re#ation to the resour es under its ontro# an (e an im$ortant &aria(#e. The ana#"sis underta'en for de isions (" shareho#ders and in&estors an (e done (" those $arties themse#&es or (" intermediaries su h as se urit" ana#"sts and in&estment ad&isors. :m$#o"ees* on the other hand* are moti&ated (" numerous fa tors. The" might ha&e a &ested interest in the ontinued $rofita(i#it" of their firm6s o$erations. Therefore* finan ia# statements for them ser&e as an im$ortant sour e of information regarding the $ossi(#e $rofita(i#it" and so#&en " of their om$an" at $resent* as %e## as in the future. The" ma" a#so need them in monitoring the &ia(i#it" of their $ension $#ans. The demand of the go&ernment or regu#ator" agen ies an arise in a di&erse set of areas. These in #ude re&enue raising 0for in ome ta7* sa#es ta7* or &a#ue-added ta7 o##e tion1* go&ernment ontra ting 0for reim(ursing su$$#iers $aid on a ost-$#us (asis or for monitoring %hether the om$anies engaged in go&ernment (usiness are earning e7 ess $rofits1* rate determination 0de iding the a##o%a(#e rate of return that an e#e tri uti#it" an earn1* and regu#ator" inter&ention 0determining %hether to $ro&ide a go&ernment-(a 'ed #oan agreement to a finan ia##" distressed firm. Ho%e&er* due to the di&erse interest of the said indi&idua#s to the information ontained in the finan ia# statements* onf#i ts ma" arise. >or the shareho#dersEde(t ho#ders* the interest of these $arties #ies in the fa t that the mone" in&ested in the firm is their o%n mone". The"
S/88/M MAN/.A5 )N/9:RS/T; -/STAN!: :-)!AT/<N

1J

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%ou#d #i'e to ensure that the" are getting a good return on their in&estment. This is measured (" #oo'ing at ho% mu h $rofit the firm is ma'ing and %hether their in&estment is in reasing in &a#ue. >or shareho#ders in om$anies* this means the" %i## get good di&idends and the mar'et &a#ue of their shares %i## in rease. The" an a#so ma'e a$ita# gains* in ase these shares %i## (e so#d. >or the em$#o"ees* the" are $art of the organi2ation. As a $art of the organi2ation* the" a#so fee# that their efforts ontri(uted to the $rofita(i#it" of the firm. The" %ou#d therefore (e de#ighted if the" %i## (e gi&en in enti&es to their $arti i$ation to the om$an"6s a hie&ement. The" might $refer to (e gi&en (onuses* sa#ar" in reases* and other form of monetar" (enefits. The" might a#so $refer gi&en sto ' o$tions or $romotions* de$ending on the dis retion of (oth $arties. Ho%e&er* for the firm6s $art* it means in reases in the e7$enses of the firm. >or the go&ernment* &arious ministries and de$artments ha&e different interest in the firm6s a(i#it" to $a" ta7es. The" a#so see and re&ie% the ena tment of #a%s for the industr" and the $ro&ision of so ia# ser&i es to the $u(#i . The go&ernment ma" a#so %ant to ensure that the firm om$#ies %ith #a%s on* for e7am$#e* %age $a"ments and em$#o"ee (enefits. These are for their (enefit* as %e## as the (enefit of the so iet" as a %ho#e. -% A% '#en is t#e c#ange in accounting +olic( recommended and &#at are t#e disclosure re$uirements regarding t#e c#ange in accounting +olic() A ounting $o#i ies are the s$e ifi $rin i$#es* (ases* on&entions* ru#es and $ra ti es a$$#ied (" an entit" in $re$aring and $resenting finan ia# statements. Lhen a Standard or an /nter$retation s$e ifi a##" a$$#ies to a transa tion* other e&ent or ondition* the a ounting $o#i " or $o#i ies a$$#ied to that item sha## (e determined (" a$$#"ing the Standard or /nter$retation and onsidering an" re#e&ant /m$#ementation ?uidan e issued (" the /ASB for the Standard or /nter$retation. /n the a(sen e of a Standard or an /nter$retation that s$e ifi a##" a$$#ies to a transa tion* other e&ent or ondition* management sha## use its 4udgement in de&e#o$ing and a$$#"ing an a ounting $o#i " that resu#ts in information that is re#e&ant and re#ia(#e. /n ma'ing the 4udgement management sha## refer to* and onsider the a$$#i a(i#it" of* the fo##o%ing sour es in des ending order: 0a1 the re+uirements and guidan e in Standards and /nter$retations dea#ing %ith simi#ar and re#ated issuesR and 0(1 the definitions* re ognition riteria and measurement on e$ts for assets* #ia(i#ities* in ome and e7$enses in the >rame%or'. An entit" sha## se#e t and a$$#" its a ounting $o#i ies onsistent#" for simi#ar transa tions*
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other e&ents and onditions* un#ess a Standard or an /nter$retation s$e ifi a##" re+uires or $ermits ategorisation of items for %hi h different $o#i ies ma" (e a$$ro$riate. /f a Standard or an /nter$retation re+uires or $ermits su h ategorisation* an a$$ro$riate a ounting $o#i " sha## (e se#e ted and a$$#ied onsistent#" to ea h ategor". To ensure $ro$er understanding of finan ia# statements* it is ne essar" that a## signifi ant a ounting $o#i ies ado$ted in the $re$aration and $resentation of finan ia# statements shou#d (e dis #osed. Su h dis #osure shou#d form $art of the finan ia# statements. /t %ou#d (e he#$fu# to the reader of finan ia# statements if the" are a## dis #osed as su h in one $#a e instead of (eing s attered o&er se&era# statements* s hedu#es and notes. :7am$#es of matters in res$e t of %hi h dis #osure of a ounting $o#i ies ado$ted %i## (e re+uired are ontained in $aragra$h 1G. This #ist of e7am$#es is not* ho%e&er* intended to (e e7hausti&e. An" hange in an a ounting $o#i " %hi h has amateria# effe t shou#d (e dis #osed. The amount (" %hi h an" item in the finan ia# statements is affe ted (" su h hange shou#d a#so (e dis #osed to the e7tent as ertaina(#e. Lhere su h amount is not as ertaina(#e* %ho##" or in $art* the fa t shou#d (e indi ated. /f a hange is made in the a ounting $o#i ies %hi h has no materia# effe t on the finan ia# statements for the urrent $eriod (ut %hi h is reasona(#" e7$e ted to ha&e a materia# effe t in #ater $eriods* the fa t of su h a$$ro$riate#" dis #osed in the $eriod in %hi h the hange is ado$ted. -is #osure of a ounting $o#i ies or of hanges therein annot remed" a %rong or ina$$ro$riate treatment of the item in the a ounts. B% "?+lain 0F6S% /nternationa# >inan ia# Re$orting Standards 0/>RS1 are Standards* /nter$retations and the >rame%or' ado$ted (" the /nternationa# A ounting Standards Board 0/ASB1. Man" of the standards forming $art of />RS are 'no%n (" the o#der name of /nternationa# A ounting Standards 0/AS1. /AS %ere issued (et%een 19I3 and 2001 (" the Board of the /nternationa# A ounting Standards !ommittee 0/AS!1. <n 1 A$ri# 2001* the ne% /ASB too' o&er from the /AS! the res$onsi(i#it" for setting /nternationa# A ounting Standards. -uring its first meeting the ne% Board ado$ted e7isting /AS and S/!s. The /ASB has ontinued to de&e#o$ standards a##ing the ne% standards />RS. />RS are onsidered a D$rin i$#es (asedD set of standards in that the" esta(#ish (road ru#es as %e## as di tating s$e ifi treatments. /nternationa# >inan ia# Re$orting Standards om$rise: /nternationa# >inan ia# Re$orting Standards 0/>RS1 - standards issued after 2001
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hange shou#d (e

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/nternationa# A ounting Standards 0/AS1 - standards issued (efore 2001 /nter$retations originated from the /nternationa# >inan ia# Re$orting /nter$retations !ommittee 0/>R/!1 - issued after 2001 Standing /nter$retations !ommittee 0S/!1 - issued (efore 2001 >rame%or' for the .re$aration and .resentation of >inan ia# Statements /AS J .ar. 11 D/n ma'ing the 4udgement des ri(ed in $aragra$h 10* management sha## refer to* and onsider the a$$#i a(i#it" of* the fo##o%ing sour es in des ending order: 0a1 the re+uirements and guidan e in Standards and /nter$retations dea#ing %ith simi#ar and re#ated issuesR and 0(1 the definitions* re ognition riteria and measurement on e$ts for assets* #ia(i#ities* in ome and e7$enses in the >rame%or'.D 4% Dournalise t#e .ollo&ing transactions! 01.01.09 02.01.09 03.01.09 0G.01.09 05.01.09 0F.01.09 0I.01.09 Bought goods for Rs.10*000 .ur hased goods from S Rs.20*000 Bought goods from ; for Rs.30*000 against a urrent dated he+ue .ur hased goods from T U$ri e #ist $ri e is Rs.30*000 and trade dis ount is 10VW Bought goods of the #ist $r e of Rs.1*25*000 from M #ess 20V trade dis ount and 2V ash dis ount. .aid G0V of the amount (" he+ue Returned 10V of the goods su$$#ied (" S Returned 10V of the goods su$$#ied (" ;

4% Bring out t#e di..erence /et&een Funds Flo& Statement and Cas# Flo& Statement% Mention u+ to &#at +oint in time t#e( are similar and .rom &#ere t#e di..erences /egin% !ash >#o% Statement : Statement sho%ing hanges in inf#o% M outf#o% of ash during the $eriod. Methods of ash f#o%: 1.-ire t Method : $resenting information in Statement of A. o$erating A ti&ities B. /n&estment A ti&ities !.>inan ia# A ti&ities 2./ndire t Method :uses net in ome as (ase M ma'e ad4ustments to that in ome0 ash M nonash1transa tions. >unds >#o% Statement :Statement sho%ing the sour e M a$$#i ation of funds during the $eriod. Ma4or -ifferen e: The !ash >#o% S tatement a##o%s in&estors to understand ho% a om$an"Cs o$erations are running* %here its mone" is oming from* and ho% it is (eing s$ent. >und >#o% Statement is sho%ing the fund for the future a ti&ites of the !om$an". The main differen es are as fo##o%s:

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1. A ash f#o% statement is on erned on#" %ith the c#ange in cas# +osition %hi#e a fund f#o% ana#"sisEstatement is on erned the hange in %or'ing a$ita# $osition 2. Cash is +art o. &orking ca+ital and an im$ro&ement in ash $osition resu#ts in im$ro&ement in funds $osition (ut the re&erse is not true. 3. A ash f#o% statement is mere#" a re ord of ash re ei$ts and dis(ursements. /t does not re,eal an( im+ortant c#anges in&o#&ing the uti#i2ationEdis$osition of resour es. 7% A% @etermine t#e sales o. a .irm &it# t#e .ollo&ing .inancial data !urrent Ratio 1.5 A id test ratio 1.2 !urrent 5ia(i#ities J*00*000 /n&entor" Turno&er ratio 5 times Sol%

current Ratio =

Current Assets Current Liabilities

Q 1.5 =

Current Assets 800, 000

Q 1.5 7 J00*000 Q !.A !urrent Assets Q 1*200*000

Current Assets Stock Current Liablities 1, 200, 000 Stock Q 1.2 = 800, 000
Q Acid Test Ratio = Q 1.2 7 J00*000 Q 1200* 000 , Sto ' Sto ' Q 2G0*000 A&erage Sto ' Q 1*20*000 Q Stock Turnover Ratio =

Cost of Goods Sold Average Stock

Q 5=

Sales - Gross Profit 1, 20, 000

Sa#es Q F00*000 B% '#at is @u-2ont c#art) @u2ont C#art a# u#ates the 'e" om$onents of an" (usiness for eas" e&a#uation of $erforman e.

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0ncome Statement
Sales
0

Other Income
0

Gross Profit Earnings before interest & taxes (EBIT Operating Expenses "et Profit

EBIT

COGS
0

EBIT on Assets

G&A
0

Interest Pai!
0

Total Assets

Depreciation
0

Sales

Taxes
0

Profit #argin $et%rn on E&%it'

Other Expense
0

Assets
Cash
0

$ecei(ables
0

Sales )ixe! Assets

0

Assets T%rno(er

In(entor'
0

Total Assets

Other Assets
0

C%rrent Assets

+or,ing Capital

C%rrent *iabilities

*ia/ilities & "$uit(

Pa'ables
0

C%rrent *iabilities Total *iabilities "onC%rrent *iabilities

0

"otes Pa'ables
0

Total *e(erage

Other *iabilit'

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Master of Business Administration- MBA Semester 1

Beginning "et +orth
0

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Capital
0

$etaine! Earnings
0

En!ing "et +orth

6% From t#e .ollo&ing data calculate t#e! 1. Brea'-e&en $oint e7$ressed in terms of sa#e amountEre&enue 2. Num(er of units that must (e so#d to earn a $rofit of Rs.F0*000 $er "ear Sa#es $ri e 0$er unit1 9aria(#e manufa turing ost $er unit 9aria(#e se##ing ost $er unit >i7ed fa tor" o&erheads 0$er "ear1 >i7ed se##ing ost 0$er "ear1 Sales 2rice : -0 - Jaria/le Cost : 14 Contri/ution :6 Rs.20 Rs.11 Rs.3 5*G0*000 2*52*000

Contribution Sales 6 100 = 30% Q P /V = 20 P /V = rea! "#en Point$%$ &',2000 30% Fixed Cost P / V Ratio

%$

B:. Q 2*FG0*000

Sales$in$*nit$at$)esired$Profit$%$ &',2000$($60,000 30% 2,8+,0000 %$ 20 %$

Q 1G*2000 )nits

Fixed$Cost$($)esired$Profit P / V Ratio

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2G