IBS559 AFM (A) / 0706

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Semester I Mid Semester Examinations Class of 2008
IBS559 Accounting for Managers
Part A
Q. Which of the following is not deferred revenue expenditure?
a. Preliminary expenses
b. Commission on underwriting of shares
c. Discount on issue of shares/debentures
d. Legal expenses incurred in defending a suit for breach of contract to supply goods
e. Promotional expenses to introduce a new product

Q. From the following errors, which will not cause a mismatch in the total of a trial balance?
a. Wrong totaling a subsidiary book
b. Partial omission of an entry
c. Omitting to include an accounts balance in the trial balance
d. Debit entries wrongly recorded as credit entries of vice versa
e. Errors of principle

Q. Which is the correct, if cash sales of Rs.2000 is omitted to be recorded in cash sales account?
a. Debit amount in trial balance has been increased by Rs.2000
b. Debit amount in trial balance has been increased by Rs.4000
c. Credit amount in trial balance has been increased by Rs.2000
d. Credit amount in trial balance has been increased by Rs.4000
e. Credit amount in trial balance has been increased by Rs.1000

Q. What would be the correct entries, if goods in stock worth of Rs.1000 are destroyed by fire and
the general insurance Co. is accepted the claim for Rs.800?
a. Rs.800 will be credited to general insurance Co.
b. Rs.800 will be debited to general insurance Co., Rs.200 will be debited to profit and
loss account and Rs.1000 will be credited to trading account.
c. Rs.1000 will be subtracted from closing stock in trading account
d. Rs.1000 will be debited to trading account, Rs.800 will be credited to general insurance Co.
and Rs.200 will be credited to profit and loss account.
e. Rs.1000 will be added with closing stock in the trading account

Q. Which of the following errors is an error of principle?
a. Purchase amount of Rs.17,283 has been recorded as Rs.17,382
b. Salary paid Rs.20,000 has not been recorded in salary account
c. The machinery account has been debited by Rs.10,000 which has been incurred for
repairs and maintenance of the machine
d. Sales of Rs.1,00,000 has been credited into purchase account
e. Rs.50,000 received from Mr. MN has been credited in Mr. NM account
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Q. As per Trial Balance (TB), sundry debtors are Rs.45,000 and sales are Rs.50,000. Goods sent
on approval basis to Mr. X of Rs.5000 which is due and the cost price of the same is Rs.4000.
What will be the correct entry/ entries at the time of preparing final account, if the value of the
closing stock is Rs.55,000?
a. Value of the closing stock will be Rs.60,000
b. Value of the closing stock will be Rs.59,000
c. Debtors will be Rs.40,000
d. Closing stock will be Rs.59,000, debtors will be Rs.40,000 and sales will be Rs.45,000
e. Closing stock will be Rs.60,000, debtors will be Rs.41,000 and sales will be Rs.46,000

Q. Which is the correct as per the double entry concept?
a. Liabilities = capital + assets
b. Assets + liabilities = capital
c. Capital = assets liabilities
d. Assets = capital liabilities
e. Capital = liabilities assets

Q. As per duality concept or accounting equivalence concept, which of the following is correct?
a. All increase in liabilities and increase in assets represent sources of funds
b. All decrease in liabilities and decrease in assets represent sources of funds
c. All increase in liabilities and decrease in assets represent sources of funds
d. All increase in liabilities and increase in assets represent uses of funds
e. All decrease in liabilities and decrease in assets represent uses of funds

Q. Goods returned from Mr. Ram worth of Rs.5000. Which will be the correct entry?
a. Sales return account
To Mr. Ram account
Dr. Rs.5000
Rs.5000
b. Mr. Ram account
To sales account
Dr. Rs.5000
Rs.5000
c. Sales account
To Mr. Ram account
Dr. Rs.5000
Rs.5000
d. Mr. Ram account
To cash account
Dr. Rs.5000
Rs.5000
e. Mr. Ram account
To purchase return account
Dr. Rs.5000
Rs.5000

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Q. What will be effect on the net income for the current year, if the opening stock is understated by
Rs.10,000 and the closing stock is overstated by Rs.5000?
a. Rs.15,000 overstated
b. Rs.15,000 understated
c. Rs.5,000 overstated
d. Rs.5,000 understated
e. Rs.10,000 overstated

Q. The basic objective of preparing Profit and Loss Account is:
a. To know the financial position of the organization on a particular period
b. To know the financial results of the organization for a particular period
c. To know the financial results of the organization on a particular date
d. To calculate the cost of goods sold during a particular period
e. To know the financial position of the organization on a particular date

Q. The Indian Accounting Standard -11 (AS-11) deals with:
a. Valuation of inventories
b. Depreciation accounting
c. The effects of changes in foreign exchange rates
d. Accounting for Govt. Grants
e. Accounting for Amalgamations

Q. As per the Indian Accounting Standard -7 (AS-7), the cost that does not relate directly to a
specific contract is:
a. Site labour cost
b. Cost of hiring plant and equipment
c. Claims from third party
d. Insurance
e. Depreciation of plant and equipment used on the contract

Q. As per the Indian Accounting Standard- 15 (AS-15), which of the following retirement benefits is
not usually considered in the financial statement of employers?
a. Provident fund
b. Gratuity
c. Superannuation
d. Leave encashment benefits on retirement
e. Ad-hoc ex-gratia payments made to employees on retirement

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Q. Accounts receivable during 31.3.2006 is Rs.5, 00,000. Provision for discount on accounts
receivable as on 1.4.2005 is Rs.16,000. Discount allowed during 31.3.2006 is Rs.1000 and the
Co. maintains 5% provision for bad debts and 3% on provision for discounts on debtors. From the
above stated information of M/s. Sudha Ltd., find out the amount to be transferred to profit and
loss account as excess provision during 31.3.2006.
a. Rs.25,000
b. Rs.14,250
c. Rs.750
d. Rs.10,750
e. Rs.1,750

Q. XYZ Co. Ltd proposed a dividend of 20 %. The net profit of the Co. is Rs.1,20,000. The called up
equity share capital is Rs.5, 00,000 and the amount of calls in arrears is Rs.30,000. What will be
the amount of dividend payable?
a. Rs.1,00,000
b. Rs.94,000
c. Rs.24,000
d. Rs.1,06,000
e. Rs.1,30,000

Q. As per the Indian Accounting Standard-14 (AS-14), the value of the goodwill is amortized
normally:
a. Over a period not exceeding five years
b. Over a period not exceeding ten years
c. Over a period not exceeding forty years
d. Over a period not exceeding thirty years
e. Over a period not exceeding twenty years

Q. Stock as on 1.4.2006 is Rs.1,50,000 and as on 30.4.2006 is Rs.80,000. Accounts payable as on
1.4.2006 is Rs.50,000 and as on 30.4.2006 is Rs.60,000. As per the policy, the Co. makes all
purchases on credit. During the month of April 2006 the Co. paid Rs.3,70,000 to its suppliers.
The goods are sold at cost plus 20%. From the above data of J K Co. Ltd. find out the sales for
the month of April 2006.
a. Rs.5,50,000
b. Rs.5,40,000
c. Rs.3,70,000
d. Rs.80,000
e. Rs.4,50,000


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Q. From the following information of Shyam Co. Ltd. find out the amount of gross profit for the month
of March 2006.
Stock as on 1.3.2006 is Rs.1, 00,000 and as on 31.3.2006 is Rs.50,000. Accounts payable as on
1.3.2006 is Rs.30,000 and as on 31.3.2006 is Rs.50,000. Purchase and sales during the month
of March 2006 is Rs.3, 00,000 and Rs.4, 37,500 respectively. Find out the amount of gross profit
for the month of March 2006.
a. Rs.87,500
b. Rs.1,37,500
c. Rs.2,80,000
d. Rs.3,87,500
e. Rs.1,17,500

Q. Which of the following is an external user of financial statement?
a. Boards of Directors
b. Partners
c. Suppliers
d. Officers
e. Managers

Q. Which of the following is not a component of current liabilities and provision?
a. Provision for gratuity
b. Sundry creditors
c. Loans from financial institutions
d. Accrued expenses
e. Payments received in advance

Q. Which of the following will appear in Profit and Loss Appropriation Account?
a. Auditors fees
b. Directors fees
c. General managers commission
d. Provision for taxation for current years
e. Proposed dividend
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Q. After preparing the final accounts the accountant found that Plant purchased for Rs.1,50,000 has
been passed through the purchase account. What will be the rectification entry?
a. Plant account
To Profit & Loss Adjustment Account
Dr. Rs. 1,50,000
Rs. 1,50,000
b. Plant account
To suspense account
Dr. Rs. 1,50,000
Rs. 1,50,000
c. Purchase account
To cash account
Dr. Rs. 1,50,000
Rs. 1,50,000
d. Plant account
To purchase account
Dr. Rs. 1,50,000
Rs. 1,50,000
e. Plant account
To cash account
Dr. Rs. 1,50,000
Rs. 1,50,000

Q. From the following data of Sundaram Co. Ltd., find out the amount of profit made during the year
31.3.2006. The balance in the capital account as on 1.4.2005 is Rs.1,20,000. The promoters
have introduced a further capital of Rs.2,00,000. The balance in the capital account as on
31.3.2006 is Rs.4,00,000.
a. Rs.80,000
b. Rs.3,20,000
c. Rs.4,80,000
d. Rs.2,00,000
e. Rs.4,00,000

Q. In the Balance Sheet, when assets and liabilities are arranged according to their realizability and
payment preference, it is called as:
a. Fixity basis
b. Liquidity order basis
c. Accrual basis
d. Matching basis
e. Cost basis
Q. Paid up capital of XYZ Co. Ltd. is Rs.15,00,000. The Co. earned a profit of Rs.3,00,000 during
the year 31.3.2006 and proposed that Rs.1,80,000 would be distributed as dividend to its
shareholders. How much amount the Co. should transfer to its general reserve?
a. Rs.7,500
b. Rs.15,000
c. Rs.22,500
d. Rs.30,000
e. Rs.37,500
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Q. Profit and Loss Account is in the nature of
a. Nominal account
b. Real account
c. Personal account
d. Fixed assets account
e. Liabilities account

Q. From the following, which is not considered as subsidiary book?
a. Bills Receivable Book
b. Bills Payable Book
c. Journal Proper
d. Cash Book
e. Purchase Return Book

Q. The net profit before remuneration is Rs.4,00,000. Calculate the maximum remuneration payable
to the whole-time directors @ 10% of net profits assuming that the remuneration payable to them
is to be calculated on net profits remaining after payment of commission to part time directors
and the commission to part time directors @ 1% of net profits is to be calculated on net profits
remaining after payment of remuneration to the whole-time directors.
a. Rs.39,640 (approx.)
b. Rs.3,883 (approx)
c. Rs.3,604 (approx)
d. Rs.12,066 (approx)
e. Rs.10,725 (approx)

Q. The Trial Balance of ABC Co. Ltd as on 31.3.2006 as follows:
Dr. Rs. Cr. Rs.
14% debentures 20,00,000
Interest on
debenture 70,000

How much amount should be charged in P& L A/c.?
a. Rs.2,80,00 in Dr. side
b. Rs.2,80,00 in Credit side
c. Rs.2,10,00 in Debit side
d. Rs.2,10,00 in Credit side
e. Rs.70,000 in Debit side


IBS559 AFM (A) / 0706
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Part B
Problems testing, Conceptual Understanding and Application Analytical Ability,
Caselets, Situational Analysis
1. The total of the debit side of the Trial Balance (TB) of M/s. Shree Leathers Shoe Co. Ltd. As on
31.03.2006 is Rs.16,65,900 and that of the credit side is Rs.4,24,700.
After several checking, the accountant has found out the following mistakes.
Item of Account
Correct figure (as it
should be in TB)
Rs.
Actual (wrong) figure as
it appeared in TB
Rs.
Stock as on 1.4.2005 1,49,000 1,48,000
Sales 6,17,800
6,17,800 it was recorded
on the debit side in TB
Rent, Rates and Taxes 19,200 21,600
M/s. Pankaj Leather Traders (supplier of
leather)
62,400 60,700
M/s. Kamani Shoe Traders (customer of
Shree Leathers)
78,100 80,600
Purchases 2,10,000 2,10,100
Interest received from Bank deposit 39,900 40,000

Being an Accountant, you are required to ascertain the correct total of the Trial Balance,
showing the working notes in details for calculations.
(10 marks)
Suggested Answer:
Particulars Debit (Rs.) Credit (Rs.)
Total balance as per TB 16,65,900 4,24,700
Opening stock undercasted (1,49,000 1,48,000) Add 1,000 ---
Rent , Rates and Taxes overstated (21,600 -
19,200)
Less 2,400 --
M/S. Pankaj Leather Traders (Sundry Creditors )
understated (62,400 60,700)
--- Add 1,700
M/s. Kamani Shoe Traders (Sundry Debtors)
overstated (80,600 78,100)
Less 2,500 --
Purchases overstated (2,10,100 2,10,000) Less 100 --
Sales (but recorded as debit balance) Less 6,17,800 Add 6,17,800
Interest received overstated (40,000 39,900) --- Less 100

Total 10,44,100 10,44,100
Therefore, the correct total of Trial Balance is Rs. 10,44,100.
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2. From the following information of M/s. Mitra and Sons Ltd., prepare a Trading and Profit and
Loss Account for the year ended 31.03.2006 and a Balance Sheet as on that date.
Particulars Amount (Rs.)
M/s.Mitras capital account 1,19,400
M/s.Mitras drawing account 10,550
Sundry creditors 59,630
6% loan account (loan taken) 20,000
Cash in hand 3,030
Cash at bank 18,970
Sundry debtors 62,000
Bills receivable 9,500
Provision for doubtful debt 2,500
Fixtures and fittings 8,970
Plant and machinery 28,800
Stock as on 1.4.2005 89,780
Purchases 2,56,590
Manufacturing wages 40,970
Sales 3,56,530
Return inwards 2,780
Salaries 11,000
Rent and taxes 5,620
Interest paid and discount allowed 5,870
Traveling expenses 1,880
Repairs and renewals 3,370
Insurance (including premium @ Rs. 300 per annum paid up to 30.09.2006) 400
Bad debts 3,620
Commission received 5,640

The following adjustments are to taken into consideration:
a. Cost price of the stock as on 31.03.2006 was Rs. 1,28,960, whereas the market price was
Rs. 1,30,000.
b. Manufacturing wages include Rs. 1,200 for errection of new machinery purchased last
year.
c. Depreciate Plant and Machinery by 5 % and Fixtures and Fittings by 10% per annum.
d. Create a provision of 5% on sundry debtors
e. Charge 5% interest on capital.
f. Interest on loan for the last 2 months is not paid
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g. Commission earned but not received amounts to Rs. 600.
h. A commission of 5 % of net profits (after charging such commission) to be credited to the
General Manager.
(10 + 10 = 20 marks)
Suggested Answer:


In the books of M/s. Mitra and Sons. Ltd.
Trading and Profit and Loss Account for the year ended 31.03.2006.
Dr. Cr.
Particulars Amount (Rs.) Particulars Amount (Rs.)
To opening stock 89,780 By sales
3,56,530
Less return inward
2,780
3,53,750
To purchase 2,56,590 By closing stock 1,28,960
To manufacturing expenses
40,970
Less Plant & machinery erection
1,200
39,770

To gross profit c/d (balancing figure) 96,570
4,82,710 4,82,710
By gross profit b/d 96,570
To salaries 11,000 By commission
received

5640
Add un received
600
6,240
To Rent & taxes 5,620
To interest paid and discount allowed
5,870
Less interest paid
1,000
4,870

To traveling expenses 1,880
To repairs and renewals 3,370
To insurance
400

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Less prepaid (300/12) x 6
150
250
To provision for bad debts 4,220
To interest on capital (5% of 1,19,400) 5,970
To depreciation on plant & machinery 1,500
To depreciation on fixtures and fittings 897
To interest on loan
Paid
1,000
Add outstanding
200
1,200

To General Managers commission
(5/105) x 62,033
2,954
To net profit c/d (balancing figure) 59,079
1,02,810 1,02,810

In the books of M/s. Mitra and Sons. Ltd.
Balance Sheet as on 31.03.2006.
Liabilities Amount
Rs.
Amount
Rs.
Assets Amount
Rs.
Amount
Rs.
Capital
Add Interest


Add Net profit
Less drawings
1,19,400
5,970
1,25,370
59,079
1,84,449
10,550
1,73,899
Plant and Machinery
Add erection cost

Less depreciation
@5%
28,800
1,200
30,000
1,500

28,500
6 % loan
Add Interest
20,000
200
20,200
Fixtures and Fittings
Less Depreciation @
10%
8,970
897

8,073
Sundry creditors 59,630 Sundry debtors
Less provision @ 5%
62,000
3,100

58,900
Commission of GM 2,954 Bills receivable 9,500
Cash at bank 18,970
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Cash in hand 3,030
Closing stock 1,28,960
Un-received
commission
600
Prepaid insurance
premium
150
2,56,683 2,56,683

Provision for Doubtful Debt Account
Dr. Cr.
Particulars Amount
Rs.
Amount
Rs.
Particulars Amount
Rs.
Amount
Rs.
To bad debt ( during the
year)
3,620 By opening balance
b/d
2,500
To balance c/d (closing
balance)
3,100
By profit & loss
account (balancing
figure)
4,220
6,720 6,720


3. From the following information of Ritu Packers Co. Ltd., prepare Profit and Loss Appropriation
Account for the year ending 31.03.2004 and a Balance Sheet as on that date.
Trial Balance as on 31.03.2004
Particulars Debit Amount (Rs.) Credit amount (Rs.)
Share capital subscribed 20,00,000
Calls in - arrears 1,000
Land at cost 10,00,000
Building at cost 10,00,000
Plant and Machinery at cost 15,00,000
Leasehold property at cost 5,00,000
Furniture and Fixtures at cost 1,00,000
Opening stock 2,50,000
Purchases 25,75,000
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Sales 35,49,000
Managing directors remuneration 50,000
Investment at cost (market price is Rs.1,50,000) 1,00,000
Income received from investment 5,400
12% fully secured debentures 10,00,000
Debentures interest 1,20,000
Sundry debtors 8,50,000
Sundry creditors 4,45,000
Interim dividend paid 1,00,000
Profit and loss account (as on 1.4.2003) 2,00,000
General reserve (as on 1.4.2003) 10,00,000
Share suspense account (as on 1.4.2003) 3,000
Unclaimed dividend 12,000
Cash and bank balance 7,10,600
Administrative and other expenses 3,02,800
Provision for depreciation (as on 1.4.2003):
On Leasehold Property 2,25,000
On Building 2,00,000
On Plant and Machinery 5,00,000
On Furniture and Fixtures 20,000
91,59,400 91,59,400
Additional information:
1. The cost price of the closing stock is Rs.7,50,000 whereas the market price is Rs.8,30,000.
2. No effect is given to the following Board of Directors resolutions:
a. Forfeiting 500 shares for non- payment of call Rs.100.
b. For reissue of 500 forfeited shares as fully paid for a consideration of Rs.3,000
received and lying to share suspense account.
3. The directors have recommended the following appropriations:
a. Final dividend at Rs.2 per share including the interim dividend already declared and
paid.
b. Transfer of Rs.50,000 to general reserve
4. Provide depreciation on fixed assets as follows:
a. Building @ 5% on written down value
b. Plant and Machinery @ 20%
c. Furniture and Fixtures @ 10%
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d. Leasehold Property was purchased on 1.4.1994 for Rs.5,00,000 for a period of 20
years.
5. Provision for taxation to be made @ 40% of the net profit
6. Authorized share capital of the Co. is Rs.50 lakhs divided into 5 lakh equity shares of Rs.10
each.
7. After completion of the Profit and Loss Account for the year ended 31.3.2004 by taking into
consideration the above all relevant information, the net profit has been found out
Rs.4,40,160 (after deducting provision for taxation @ 40%).
(2 + 10 = 12 marks)
Suggested Answer:
Profit and Loss Appropriation Account for the year ended 31.3.2004
Dr. Cr.
Particulars Amount
Rs.
Amount
Rs.
Particulars Amount
Rs.
Amount
Rs.
To final dividend
@ Rs. 2 per share on
2,00,000 equity
shares:
Interim dividend paid
Declared but not paid



1,00,000
3,00,000


4,00,000
By balance b/d 2,00,000
To general reserve
transferred
50,000 By Profit and Loss
Account (profit for the
current year)
4,40,160
To surplus carried to
balance sheet
(balancing figure)
1,90,160
6,40,160 6,40,160



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In the books of Ritu Packers Co. Ltd.
Balance Sheet as on 31.3.2004
Liabilities Amount
Rs.
Amount
Rs.
Assets Amount
Rs.
Amount
Rs.
Share capital:
Authorized share capital:
5,00,000 equity share
capital @ Rs. 10 each

Issued and subscribed:
2,00,000 equity shares
of Rs. 10 each
50,00,000
20,00,000
Reserve and surplus:
Capital reserve (*
working note)
General reserve:
Balance as on 1.4.2003
+ Transfer during the
year

Surplus from Profit and
Loss Appropriation
Account

10,00,000
50,000
2,000
10,50,000
1,90,160
Secured Loans:
12% debentures
10,00,000
Unsecured Loans,
Current Liabilities and
Provisions:
1. Current liabilities
Sundry creditors
Unclaimed
dividend
2. Provisions:
Provision for tax
(4,40,160 x
40/60)
Proposed
dividend
4,45,000
12,000
2,93,400
3,00,000
4,57,000
5,93,400

Fixed Assets:
Land (cost)

Building (cost)
- Depreciation
1.4.03

- Depreciation
31.3.04

Plant & Machinery
cost
- Depreciation
1.4.03

- Depreciation
31.3.04

Leasehold Property
cost
- Depreciation
1.4.03

- Depreciation
31.3.04


Furniture & Fixtures
cost
- Depreciation
1.4.03

- Depreciation
31.3.04



Investment: (cost)
Market price
1,50,000



10,00,000
2,00,000
8,00,000
40,000

15,00,000
5,00,000
10,00,000
2,00,000

5,00,000

2,25,000
2,75,000
25,000


1,00,000
20,000
80,000
8,000


10,00,000
7,60,000
8,00,000
2,50,000
72,000
1,00,000
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Current Assets,
Loans And
Advances:
1. Current
Assets:
Stock
Cash & bank
balance
2. Loans &
Advances
Sundry
debtors



7,50,000
7,10,600

14,60,600
8,50,000
52,92,560 52,92,560
* Working note
Calls- in- arrears Account
Dr. Cr.
Particulars Amount
Rs.
Amount
Rs.
Particulars Amount
Rs.
Amount
Rs.
To opening balance
1.4.2003
1000 By share suspense
account
(balancing figure)
1000
1000 1000

Share Suspense Account
Dr. Cr.
Particulars Amount
Rs.
Amount
Rs.
Particulars Amount
Rs.
Amount
Rs.
To calls in arrears 1000 By reissue of forfeited
500 shares
3000
To capital reserve
account (balancing
figure)
2000
1000 1000



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4. The following details are available from the books of Shrikant Co. Ltd.
Year ending
Particulars
31.3.2004 31.3.2005 31.3.2006
Accounts payable 3,00,000 3,50,000 2,50,000
Discount received 2,000 5,000 2,000
The Co. would like to maintain a reserve for discount on account payable at 3% at the beginning
from 31.3.2004. Find out the amount to be transferred to Profit and Loss Account during the
year 31.3.2006 and show the amount to be appeared in the Balance Sheet on the same date as
accounts payable. All the calculations should be part of your answer.
(8 marks)
Suggested Answer:

Reserve for Discount on Accounts Payable Account
Dr. Cr.
Date Particulars Amount
Rs.
Date Particulars Amount
Rs.
31.3.04 To Profit and Loss Account
(balancing figure)
11,000 31.3.04 By discount received 2,000
31.3.04 By balance c/d 9,000
11,000 11,000
1.4.04 To balance b/d 9,000 31.3.05 By discount received 5,000
31.3.05 To Profit & Loss Account
(additional reserve
required) balancing figure
6,500 31.3.05 By balance c/d 10,500
15,500 15,500
1.4.05 To balance b/d 10,500 31.3.06 By discount received 2,000
31.3.06 By Profit & Loss Account
(offset the income taken in
excess in the previous
year)
1,000
31.3.06 By balance c/d 7,500
10,500 10,500

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Working note:
31.3.2004:
Accounts Payable Rs. 3,00,000
Less- reserve for discounts on accounts payable @ 3% 9,000
----------------
Rs. 2,91,000
==========
31.3.2005:
Accounts Payable Rs. 3,50,000
Less- reserve for discounts on accounts payable @ 3% 10,500
----------------
Rs. 3,39,500
===========

31.3.2006:
Accounts Payable Rs. 2,50,000
Less- reserve for discounts on accounts payable @ 3% 7,500
----------------
Rs. 2,42,500
===========
IBS559 AFM (A) / 0706

19
In the books of Shrikant Co. Ltd.
Balance Sheet as on 31.03.2004.

Liabilities Amount
Rs.
Amount
Rs.
Assets Amount
Rs.
Amount
Rs.

Accounts payable
Less reserve for discount
3,00,000
9,000


2,91,000

Balance Sheet as on 31.03.2005.
Accounts payable
Less reserve for discount
3,50,000
10,500


3,39,500

Balance Sheet as on 31.03.2006.

Accounts payable
Less reserve for discount
2,50,000
7,500


2,42,500




IBS559 AFM (A) / 0706
20
Part C
Case Analysis / Applications of concepts

5. In some areas, the Indian Accounting Standards is different from the US GAAP; though
accounting principles all over the world is basically similar. Discuss such important difference
between the Indian Accounting Standard and the US GAAP with suitable example.
(10 marks)
Suggested Answer:
The basic difference of the US GAAP over the Indian Accounting Standards is as below:
Reporting Vs. Disclosure
The Indian Accounting Standards emphasizes on reporting where as the US GAAP emphasizes
more on disclosure and transparency. E.g. in India it is not necessary to disclose the portion of
long-term debt which has an unexpired term to maturity of less than one year, whereas the US
GAAP insists on disclosing the portion of long-term debt separately which has an unexpired term
to maturity of less than one year.
Form Versus Substance
The Indian Accounting Standards emphasizes on form whereas the US GAAP emphasizes on
the substance of the transaction. E.g. while accounting for a lease in India the depreciation
benefit is available to the lessor as in the form of a lease deal is not a sale, whereas in the US
GAAP a lease deal grants the depreciation benefit on the lessee as the benefits of the
productive use of the asset rests with the lessee.
The other major differences between the US GAAP and the Indian GAAP as below:
No specific format is required for the preparation of financial statement, as long as they
comply with the disclosure requirements of US accounting standards.
Consolidation of group company accounts is compulsory
Disclosure of EPS data is compulsory
Research & Development costs are expenses as incurred
Investments in own shares is permitted. It is shown as a reduction from shareholders equity.
Revaluation of assets is not permitted. Depreciation is over the useful economic lives of
assets. Depreciation and profit and loss is based on historical costs.
Goodwill is treated as any other intangible asset, and is capitalized and amortized. The
carry forward period is 40 years.
Financial leases are to be capitalized
Cash flow statement is compulsory
Current and long term components of assets and liabilities should be disclosed separately.
Current component normally refers to one year of the period of the operating cycle.
The concept of pre-operative expenses does not exist.


IBS559 AFM (A) / 0706

21
6. There are many users of Financial Statements and each interested party may have a different
focus. Who are the users of Financial Statements and what are their focuses?
(10 marks)

Suggested Answer:


Al these above stated parties have their different focuses. As per their requirement they use the
financial statement. Students are expected to give the details of their interests.





Users of Financial Statements:
Internal Users External Users
Management Group:
Board of Directors
Partners
Managers
Officers
Financing Group:
Investors
Lenders
Suppliers
Public Group:
Govt. Agencies
Employees
Customers
Others academicians,
researchers, analysts, etc.