MB0041 Set1

Name:
Roll No:
Learning Centre:
Subject: MB0041 Financial and Management Accounting
Assignment No: Set 1
Date of Submission at the Learning Centre:

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MB0041 Set1

Q.1 Explain the Various accounting Concepts and Principles?

Answer:

Accounting information is used by various stakeholders. Since all the stakeholders should
understand the accounting languages in the same sense, certain principles, concepts and
policies of accounting have been laid down.

Accounting principles: Accounting principles are basically the rules of action

adopted by the accountant universally while recording accounting transaction. The
accounting principles are

a) Principles of income recognition:

b) Principles of Matching cost and Revenue

c) Principles of historical costs

d) Principles of full disclosure

e) Double aspect principle

f) Modifying principle

g) Principle of materiality

h) Principle of consistency

i) Principles of Conservatism or Prudence

a) Principle of income recognition: According to this concept, revenue is considered as

being earned on the date on which it is realized i.e. the date on which goods and
services are transferred to the customers for cash or for promise.

b) Principle of matching cost and revenue: Revenue earned during a period is

compared with the expenditure incurred to earn that income, whether the
expenditure is paid during that period or not.

c) Principle of historical cost: All the assets are recorded at the cost of acquisition and
this cost is the basis for all subsequent accounting for the assets.

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d) Principle of full disclosure: The business enterprise should disclose relevant

information to all the parties concerned with the organization it means that any
information of substance or of interest to the average investors will have to be
disclosed in the financial statement.

e) Double Aspect Principle: A business entity is an independent unit and it receives

benefits from some and gives benefits to some other. Benefit received and benefit
given should always match and balance.

f) Principle of Materiality: While important details of financial status must be

informed to all relevant parties, insignificant facts which do not influence any
decisions of investors or any interested group need not be communicated.

g) Principle of Consistency: Once a method of accounting is adopted, it should not be

changed

h) Principle of Conservatism or Prudence: The value of investments is normally taken

at cost, even if the market value is higher than the cost. However this does not mean
that the income or the value of assests should be intentionally under stated.

Accounting concepts: Concepts take the form of assumption or condition, which

guide the accountants while preparing accounting statements. There are five basic concepts
of accounting

Business entity concepts, Going concern concepts, Money measurement concepts,

Periodicity concept and Accrual concept.

a) Business entity concept: Business is separate entity and it is different from the
owner or the proprietor.

b) Going concern concept: The business entity will continue fairly for a long time to
come

c) Money Measurement Concept: All the transactions of a business are recorded in

terms of money.

d) Periodicity Concept: The accounting period be half year or even a quarter. The
financial statement should be prepared at the end of each accounting period so that
income statement shows profit of loss for the accounting period.

e) Accrual Concept: Profit earned or loss suffered for an accounting period is the result
of cash and credit transactions.

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MB0041 Set1

Q.2 Pass journal entries for the following transactions [10 Marks]
1. Madan commenced business with cash Rs. 70000
2. Purchased goods on credit 14000
3. Withdrew for private use 3000
4. Goods purchased for cash 12000
5. Paid wages 5000

SL Credi
No Contents Debit t
D 7000
1 Cash A/c r 0
7000
To Madan’ Capital A/c 0
( Being Capital brought in)
D 1400
2 Purchase A/c r 0
1400
To Creditors’s A/c 0
(Being good purchase on credit)
D
3 Madan’s Capital A/c r 3000
To Drawings A/c 3000
(Being cash withdrawn for
private use)
D 1200
4 Purchase A/c r 0
1200
To Cash 0
(Being cash purchase made)
D
5 Wages A/c r 5000
To cash A/c 5000
( Being Wages paid)
Tot 1030 1030
al 00 00

Q.3 Explain the various types of errors disclosed by Trial Balance?

Those errors that can be disclosed by trail balance can easily be located. As soon as the trail
balance does not tally, the accountant can proceed to find out the spots where the errors
might have been committed. The following are the errors which are disclosed by trial
balance
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a) Posting a wrong amount: This mistake may occur while posting an entry for
subsidiary book of ledger.

b) Posting to the wrong side of an account: This error is committed while posting
entries from subsidiary books of ledger

c) Wrong totaling: Both under casting and over casting are detected by trial balance.

d) Omitting to post an entry from subsidiary book of ledger. If an entry made in the
subsidiary book does not get posted to ledger, the trial balance does not tally.

e) Ommission of an account altogether from being shown in trial balance.

f) Posting an amount to a correct account more than once. This results in imbalance in
the trial balance.

g) Posting an item to the same side of two different ledger account. If two accounts are
debited / credited for the same transaction , this type of error occur.

Q.4 From the following balances extracted from Trial balance, prepare Trading
Account.
The closing stock at the end of the period is Rs. 56000

Particulars Amount in Rs.

Stock on 1-1-2004 70700
Returns inwards 3000
Returns outwards 3000
Purchases 102000
Debtors 56000
Creditors 45000
Carriage inwards 5000
Carriage outwards 4000
Import duty on materials 6000
received from abroad
Clearing charges 7000
Rent of business shop 12000
Royalty paid to extract 10000
materials
Fire insurance on stock 2000
Wages paid to workers 8000
Office salaries 10000
Cash discount 1000
Gas, electricity and water 4000

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Sales 250000

Answer:

Trading account for the year ending:

Particular Rs Particular Rs
7070 By sales
To Opening stock 0 250000
To Purchases Less: Returns inward
102000 3000
Less: returns outward 2470
3000 00
9900
0
5600
By Closing Stock 0
To Fire insurance on
Stock 2000
To Wages to worker 8000
To Gas, Electricity and Water 4000
To Royalty Paid to extract
materials
1000
To import duty 0
To Clearing charges 6000
To Carriage inward 7000
To Gross Profit 5000
9130
0
3030 3030
Total 00 Total 00

Q.5 Differentiate Financial Accounting and Management accounting?

Answer:
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Financial accounting Management accounting

1. The primary users of financial
accounting information are
shareholders, creditors
government authorities
employees etc
2. Accounting information is
always expressed in terms of
money
1. Top, middle and lower level
managers use the information for
planning and decision making
2. Management accounting
may adopt any measurement
unit like labour hours, matching
hours or product units for the
purpose of analysis.

3. Financial data is presented 3. Reports are prepared on

for a definite period, say one year continuous basis, monthly or
of a quarter. weekly or even daily.

4. Financial accounting focuses 4. Management accounting is

on historical data.
5. Financial accounting is
discipline by itself and has its own
principles, policies and
conventions
oriented towards future.
5. Management accounting
makes use of other disciplines
like economics, management,
information system, operation
research etc.,

Q.6 Following is the Balance Sheet of M/s Srinivas Ltd. You are required to prepare a
Fund Flow Statement

Particulars 2006 2007 Particulars 2006 2007

Equity Share 50,000 65,000 Cash balances 10,000 13,000
capital
Profit & Loss 14,750 17,000 Debtors 25,000 27,000
Trade Creditors 29,000 31,000 Investment 5,000 nil
Mortgage 10,000 15,000 Fixed Assets 50,000 80,000
Short term loans 15,000 16,500 Less: -5,250 -7000
Depreciation
Accrued 8,000 7,500 Goodwill 5,000 nil
expenses
Stock 37,000 39,000
Total 1, 26,750 1, 52,000 Total 1, 26,750 1, 52,000

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Answer: Schedule of Change in Working Capital

Balance as on
200 200 Incre Decre
6 7 ase se
Current Assest
100 130
Cash 00 00 3000
250 270
Deptors 00 00 2000
370 390
Stock 00 00 2000
Total current assest, say 720 790
A 00 00
Current Liabilities
290 310
Trade Creditors 00 00 2000
150 165
Short term loans 00 00 1500
800 750
Accrued expenses 0 0 500
Total current liabilities 520 550
say B 00 00
200 240
Working Capital(A-B) 00 00
Net increase in Working 200 240
capital 00 00
400
Net increase in Working 0 - 4000
capital
240 240
Total 00 00 7500 7500

Adjusted Profit and

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Loss Account
To By
175 147
Depreciation 0 Balance b/d 50
500 Funds generated 125
Goodwill 0 from 00
operation(Balancing
figure)
350
Divident 0
170
Balance c/d 00
272 272
Total 50 Total 50

Fund flow statement

150 300
Issued of fresh equity 00 Purchase of fixed 00
500 Payment of 350
Sale of investment 0 dividends 0
500 Increase in working 400
Loan on mortgage 0 capital 0
125
Funds from operations 00
375 375
00 00

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