You are on page 1of 28

Unit 1 Financial Accounting An Introduction

Self Assessment Questions 1. Book keeping _________ the transactions and events, _________the identified transactions and events in a common measuring unit, records them in proper books of accounts and finally classifies them in the ledger. 2. Accounting in addition to book keeping involves ________ the classified transactions and ________ the summarized results. 3. ____________ interprets the analyzed results and communicates the interpreted information to the interested parties. 4. Accounting is a tool for _______________ and ________ 5. Expand SEBI. 6. Mention any five stakeholders. 7. ________ as chief provider of risk capital is keen to understand both the return from their investments and the associated risk. 8. _________ use financial reports for negotiating wage package, declaration of bonus and other benefits. 9. ___________ has a legitimate interest in financial reports of publicly held enterprise to ensure efficient operation of capital market. 10. The regulatory agencies use _____________ to take action against the firm when appropriate returns are not filed in time or when the returns fails to provide true and fair position of the business or to take appropriate action against the firm when complaints / misappropriation are being lodged. 11. Accounting grossly lacks ____________elements 12. The exact picture of the financial situation can be ascertained only on the ________of an enterprise. 13. The danger of ___________ arises when the management decides to incorporate wrong figures to artificially inflate revenue or deflate losses or when there is a threat of hostile takeover. 14. Accounting ignores the price level changes when financial statements are prepared on __________.

1. Identifies, measures 2. Summarizing, analyzing 3. Accounting 4. Effective planning, controlling 5. Securities Exchange Board of India 6. Shareholders, Creditors, Bankers, Government, Employees 7. Investors 8. Trade Union 9. Stock Exchange 10. Financial Reports

11. Qualitative 12. Liquidation 13. Window dressing 14. Historical Cost

Unit 2 Accounting Concepts, Principles, Bases and Policies


Self Assessment Questions: 1. Accounting principles are _______, associated with theory and practice of accountings. 2. Accounting Principles are classified as ________ and ________. 3. Assets may be depreciated on fixed installment method or reducing balance method. Is it a concept or a convention? 4. A business is started with an assumption of making profit. Is this assumption, a concept or a convention? 5. The purpose of establishing ICAI and ASB is to ________. 6. How many accounting standards are issued by ASB so far? 7. State true or false: a. If the household expenses of Rs 25,000 of a proprietor are shown as business expenses, the profit of the business will be understated to the extent of Rs.25,000. b. If a proprietor invests Rs.1,00,000 in the business, it is deemed that the proprietor has given Rs.1,00,000 to the business and it is shown as an asset in the books of the business. 8. Business and its owner are _______________ entities. 9. Profits earned in business form an addition to the _____________ of the owner. 14. An event or a transaction expressed in monetary value is measured but inflation or changes in the purchasing power are ignored in money measurement concept. Say yes or no. 15. Transactions or events should be expressed in ___________. 16. Revenues are matched with expense in accordance with money measurement principle. State true or false 20. Interest earned but not received within an accounting period is called _______. 21. Following straight line method of depreciation of a particular asset year after year adhere to consistency concept. State true or false. 22. Accrued income should be _________ to compute profit and prepaid expenses should be _____ according to accrual concept of accounting. 23. Accrual concept considers not only cash transactions but also ______ transactions. 1 30. A cash payment may be a revenue payment or capital payment. Is it true or false?

2 31. A payment which is revenue in nature is expenditure. Is it true or false? 3 32. Plant is purchased and payment is made. Is it an expenditure or acquisition of asset? 4 33. All revenue expenses are charged against ___________. 5 34. Capital payments resulting in acquisition of assets appear in the balance sheet. True or False? 6 35. Matching concept of accounting considers only revenue incomes and expenses relating to a particular accounting period. True or False? 7 36. Incomes and expenses for an accounting period are considered to compute _____. 8 37. Expenditure paid or payable and revenue earned whether realised or not in cash are taken into account to find out profit or loss. True or False? 9 38. For the actual revenue received, outstanding incomes are ________ and income received in advance are_________________ to find out the revenue income for the given period. 10 39. For the actual revenue expenses (costs) paid during the accounting period, outstanding expenses are _____ and prepaid expenses are _____ to find out expenses for the accounting period. 11 40. All assets are shown at historical cost in balance sheet. True or False? 12 41. Depreciation is charged against the historical cost of assets. True or False? 13 42. Historical cost is the cost at which an asset is actually purchased. True or False? 14 43. Machinery is bought for Rs.200000 and its market value is Rs.80000. Which of these values do you consider to mention in the balance sheet according to cost principle? 15 44. Inflation accounting has emerged as a result of limitation of historical cost concept. True or False? 16 45. The principle of full disclosure implies that information which is of ___________ should be stated in financial statements. 17 46. The material information that is disclosed should be of great interest to the average investors. True or False? 18 47. Non-disclosure of material information amounts to ___________. 19 48. Disclosing about assets without disclosing about liabilities is against the principle of full disclosure. True or False? 20 49. Under dual aspect principle, total benefits received by business should match with total benefits given. True or False? 21 50. Total liabilities should be equal to ___________ as per dual aspect principle. 22 51. For every debit, there should be an equivalent credit. This is called _________ of accounting. 23 52. Modifying principle is also known as _____________. 24 53. The modifying principles states that benefit derived should over weigh the cost of implementing it. State true or False? 25 54. A firm plans to establish costing department. By doing so it was estimated that the cost of the product would increase by 50%. Is it advisable to have costdepartment? 26 59. The purpose of principle of consistency is to help for ______ from one period to another period. 27 60. Consistency principle helps for proper assessment of profit or loss. True or False? 28 61. Provision should be made whenever _____________ is anticipated. 29 62. The underlying spirit of principle of conservatism is __________ .

30 63. State the name of the relevant accounting principles for the following statements. 31 a. Following FIFO method of stock valuation year after year 32 b. Appending notes to the financial statements. 33 c. Anticipate no profit but provide for all probable losses

SAQ 1: 1 1. Doctrines 2 2. Concepts, conventions 3 3. Convention 4 4. Concept 5 5. Bring uniformity in accounting terminology and principles 6 6. 32 7 7. a. True, b. False 8 8. separate 9 9. capital 10 10. False 11 11. True 12 12. False 13 13. To replace it after a certain period.

1 20. Accrued interest 2 21. True 3 22. Added, deducted 4 23. Credit 5 24. Realized 6 25. True 7 26. True 8 27. Yes 9 28. No 10 29. No 11 30. True 12 31. True 13 32. Asset Acquisition 14 33. Profit 15 34. True 16 35. True

1 45. Substance 2 46. True 3 47. Fraud 4 48. True 5 49. True 6 50. Total Assets 7 51. Double entry principle 8 52. Costbenefit principle 9 53. True 10 54. No 11 55. True 12 56. False 13 57. True 14 58. True 15 59. Comparison 16 60. True 17 61. Risk

Unit 3 Double Entry Accounting


Self Assessment Questions 1: 1 1. The system of recording transactions based on dual aspect concept is called 2 a) Double account system 3 b) Double entry system c) Single entry system 2. Show the dual aspect effect of the following transactions on the assets and liabilities of business. a. Purchased goods for cash Rs.80000 b. Purchased delivery van on credit for Rs.400000 c. Paid Rs.5000 to a supplier of goods on credit d. The proprietor withdrew Rs.20000 from the bank account of business for Personal expenses. 3. State yes or no 1 a) State Bank of India is a Nominal Account. 2 b) Machinery is a Real Account. 3 c) Life Insurance Corporation is a Personal Account. 4 d) Proprietors Capital Account is a Personal Account. 5 e) Loan Account is a Real Account. 6 f) Postage and Telegram Account is a Nominal Account. 7 g) Interest on investment Account is a Nominal Account. 8 h) Carriage on Goods Account is a Real Account 9 i) The giver of a benefit must be debited. 10 j) Nominal Accounts fall in the category of impersonal accounts. 11 k) Every debit has an equal and corresponding credit. 12 l) Loss by fire is a Nominal Account. 13 m) Outstanding Wages Account is a Nominal Account. 14 n) Brokerage Account is a Real Account. 15 o) Investment Account is a Personal Account. 1 7. A transaction is a business activity which involves transfer of money or moneys worth. True or False 2 8. An event happens as a result of internal policy of an organization. True or False 3 9. Business transactions and events have equal importance in finding the financial results of the business concern. True or False? 4 10. Identify the following as transactions or events as the case may be.

5 i) Depreciation of assets :___________ 6 ii) Tax rates announcement :___________ 7 iii) Acquisition of assets :___________ 8 iv) Selling an asset :____________ 9 v) Transfer of profits to Reserve Fund:______________ 11. Liabilities plus Equity is equal to ____________________________. 12. Assets minus liabilities to outsiders are equal to __________________. 13. If assets are Rs.5 lakhs, liabilities are Rs.3 lakhs, find out the equity. 14. If Owners equity is Rs.3 lakhs, Outsider liabilities are Rs.2 lakhs, Owners share of profit is Rs.1 lakhs, find out the total value of assets. 15. Every transaction influences balance sheet and it is shown by accounting equation True or False? SAQ 1. (b) 2. a. Stock of goods increases and cash balance is reduced b. Delivery Van is an asset and the supplier of the delivery van becomes a creditor and it appears as liability c. Creditors balance is reduced on liabilities side and cash paid brings down the cash balance on the asset side d. The bank balance comes

3. Yes : (b, c, d, f, g, j, k, l,)

No : (a, e, h, i, m, n, o) 1 4. True 2 5. Personal, real and nominal 3 6. True 4 7. True 5 8. True 6 9. True 7 10. i) Event ii) Event iii) Transaction iv) Transaction v) Event 8 11. Assets 9 12. Equity 10 13. Rs.2 lakh

Unit 4 Secondary Books


Self Assessment Questions: 1. All purchases cash or credit is entered into purchases day book. (State True/False) 2. Purchases of goods and other assets can also be recorded in purchase book. (State True/False) 3. Inwards Invoice is a document to verify the quantity, price and other details of goods purchased. (State True/False) 4. Purchases made from Mr. Ganesh on credit for Rs 6000, entered in the purchases book. What is the journal entry? 5. Sales day book contains only credit sales of goods made. (State True/False) 6. Sale of any other asset other than goods is also recorded in sales day book. (State True/False) 7. Persons to whom sales are made on credit are called ________. 8. Outward invoice is a document issued to customer, when the goods are sold on credit. (State True/False) 1 9. Purchase returns are also called returns outwards. (State True/False) 2 10. Purchase returns take place when the goods bought are not as for the specification. (State True/False) 3 11. When goods bought are returned the suppliers account is _________ and purchase return account is _____________. 4 12. Debit note is a document to show the supplies account is being debited. (State True/False) 5 13. Sales return are also called returns inwards. (State True/False) 6 14. Credit note is a document to indicate that the goods are received as returned by customers. (State True/False) 7 15. Credit noted is sent by _____________ to __________. 8 16. A bill is an instrument in writing similar to that of a promissory note. (State true or false) 9 17. Who is a drawer of a bill of exchange in a business? 10 18. Who is the acceptor of a bill of exchange in a business? 11 19. Bills Receivable account shows _____________balance. 12 20. Can bills receivable be discounted? 21. Bills of exchange drawn by the supplier of goods and accepted by the proprietor of the business are called _________. 22. Every bill has ______days of grace . 23. Bill payable account shows _________ balance.

24. Bill payable represents a ________. 25. When bills payable account is credited ________ account is debited. State True or False 1 26. Cash book and cash account are one and the same. (State true/false) 2 27. Trade discounts allowed to customers or received from suppliers are not recorded in cash book. 3 28. Cash discount allowed to customers appears on the ____ side of cash book. Cash discount received appears on the ____ side of cash book. 4 29. Discount columns are independently totaled and not balanced. (State true/false) 5 30. Contra entry is an entry where both cash account and bank account are affected. (T/F) 1 31. Petty cash book is maintained in case of petty organization. 2 32. Imprest system of cash book is a system where the expenses incurred are reimbursed. 3 33. The closing balance in imprest system of petty cash book always remains the same. 4 34. Imprest system of cash book is also called analytical cash book. 1 35. Rules of debit and credit are different for different types of accounts. True or False? 2 36. The words To Balance b/d or By Balance b/d denote an opening entry. State true or false. 3 37. _________ And __________ are balanced while ______ are closed by transfer to trading and profit and loss account. 4 38. In the ledger account during the beginning of the accounting period To Balance b/d denotes debit balance and By balance b/d denotes credit balance. State true or false.

4.14 Answer for Self Assessment Questions

1 1. False 2 2. False 3 3. True 4 4. Purchases A/c Dr. To Ganesh account (Being purchases made) 5 5. True 6 6. False 7 7. Debtors 8 8. True 9 9. True 10 10. True 11 11. Debited, Credited 12 12. True

1 13. True 2 14. True 3 15. Businessman, the Customer 4 16. True 5 17. Owner of the business who is the seller 6 18. Customer / debtor 7 19. Debit 8 20. Yes 9 21. Bills payable 10 22. Three 11 23. Credit 12 24. Liability 13 25. Suppliers account / Creditors account

1 26. True 2 27. True 3 28. Debit, 4 29. Credit 5 30. True 6 31. False 7 32. True 8 33. False 9 34. True 10 35. True 11 36. True 12 37. Personal, real and nominal 13 38. True

Unit 5 Trial Balance


Self Assessment Questions: 1. Opening journal entries are drawn at the commencement of accounting period. (State whether it is True / False). 2. When all assets are debited and all liabilities are credited, the difference is transferred to ___________ account. 3. If opening liabilities including capital are more than assets, to what account the difference is transferred? 4. Pass the opening entry in the journal of Bharat as on 1st April 20X1. Cash in hand Rs.1,000; Cash at bank Rs.5,000; Stock Rs.20,000; Land and Building Rs.1,00,000; Plant and Machinery Rs.50,000; Furniture and Fixtures Rs.25,000; Owing from X Ltd Rs.12,500; Prepaid Insurance Rs.500; Interest received in advance Rs.250; Loan from Y Ltd Rs.10,000; Owing to Z Ltd Rs.3,750. 5. All revenue accounts are closed at the end accounting period. (State whether it is True / False). 6. All trade expenses are closed by debiting _________account 7. All expenses other than _________ are closed by transferring them to P & L account.

8. Are assets and liabilities accounts closed at the end of the accounting year? (State whether it is Yes / No). 1 9. Transaction which are out of trial balance have to be adjusted for proper calculation of profit / loss (state whether it is True / False). 2 10. What is the adjusting entry in the following cases? a. Depreciation of Building b. Closing stock c. Pre-paid Insurance d. Outstanding salaries e. Stock used for personal purposes 1 11. Errors can be committed at all stages, beginning from journal entries, posting of entries in ledger accounts, while balancing the closing balances etc. (True / False). 2 12. Errors of omission, error of principle and compensating errors are not disclosed by trial balance (True / False). 3 13. Errors of casting, posting to wrong side of an account or posting a wrong amount etc can be detected by trial balance (True / False). 1 14. Suspense account is the difference between debit total and credit total of a trial balance. (True / false). 2 15. Suspense account is created temporarily and later, it is removed as and when errors are detected and suitable rectified (True / False). 3 16. If amount paid to Rama Rs 500 is credited to Ramanan accounts, what type of error has occurred and give the rectification entry. 4 17. Instead of putting Rs. 1500 to debit of wages account, Rs 15000 is recorded. Identify the type of error and tell what impact it has on profit? 5 18. Refer Q.No.17. How do you rectify the above error? 19. If error of wrong posting, wrong casting, wrong calculation are committed in the books of original entry or secondary books, such errors are called ________. 20. Error of commission affects trial balance (True / False). 21. Furniture purchased for cash Rs 5000/- is not recorded in journal. Mention the type of error? 22. Error of omission can be detected only after a careful review of ledger balances of previous years (True / False). 23. Error of principle affects the value of revenue and capital items (True / False). 24. It is very difficult to find out the compensating errors. (True / False). 1 25. Summary of all ledger balances is called _____________________ . 2 26. Trial balance is necessary to prepare _________________________ . 3 27. The broad two categories of errors are a) ________________ b) ____________. 4 28. Is casting error, an error of principle or error of commission? 5 29. Purchase of machinery is included in the purchases book. What type of error is it? 6 30. What is error of omission? Illustrate. 7 31. What are the errors that cannot be disclosed by trial balance? 1 32. The sum of errors in accounting is transferred temporarily to _________ account. 2 33. In which journal do you make rectification entries? 3 34. State any four steps to locate errors. 4 35. If sales account is under cast by Rs. 45, what is the rectification entry?

5 36. Returns inwards book is over cast by Rs. 9, write the rectification entry. 6 37. Salary paid to Gopal is debited to his personal account. What is the rectification entry to correct the error? 7 38. Discount received Rs. 50 is transferred to the debit side of discount account. Write the rectification entry. 8 39. An invoice of purchase for Rs. 760 is entered as Rs. 670. What type of error is this? How to rectify this error?

5.13 Answers to SAQs and TQs


SAQ: 1. True 2. Capital 3. Goodwill 4. Opening entry:
20X1 April 1 Cash in Hand Dr Cash at Bank Dr Stock Dr Land and Building Dr Plant and Machinery Dr Furniture & Fixtures Dr X Ltd Dr Prepaid Insurance Dr To Interest received in advance To Loan from Y Ltd To Z Ltd To Bharats Capital a/c (Being the balance brought forward from last year)

1,000 5,000 20,000


1,00,000 50,000 25,000 12,500 500

250 10,000 3,750


2,00,000

5. True 6. Trading 7. Trade expenses 8. No 9. True 10. a. Depreciation a/c Dr To Building account b. Closing stock A/c Dr To Trading A/c c. Pre-paid Insurance a/c Dr To insurance A/c d. Salaries A/c To outstanding salaries account. e. Drawings A/c Dr To stock account 11. True 12. True 13. True 14. True 15. True 16. It is a wrong posting and hence it is errors of commission Ramas a/c Dr 500 Ramanans a/c Dr 500 To Suspense a/c 1000 (Being amount paid to Rama wrongly credited to Ramanans account rectified) 17. Posting of wrong amount - Trial balance is affected. Profit (gross) is reduced by Rs 13500.

1 25. Trial balance. 2 26. final accounts 3 27. Error that are disclosed by trial balance and those which cannot be disclosed by trial balance. 4 28. Error of commission. 5 29. Error of principle. 6 30. Omitting completely a transaction from books of original entry. Sales made to Raghu of Rs 12000 completely ignored. 7 31. Error of omission, commission, principle, compensating error. 8 32. Suspense account. 9 33. Journal proper 10 34. Four steps to locate the errors 11 Check the total of both sides of trial balance, 12 Total debtors & creditors accounts, 13 Verify whether balancing is done correctly, 14 Check the totals of ledger balances etc. 15 35. Suspense a/c Dr. 45 To Sales a/c 45 Being sales account which was under cast rectified 1 36. Suspense a/c Dr.9 To Return Inward a/c 9 Being returned inward book which was over cast rectified.

Financial and Management Accounting Unit 5 Sikkim Manipal University Page No. 125

18. Suspense a/c Dr. 13,500 To Wages a/c 13,500 (Being excess debit to wages account rectified) 19. Error of commission 20. False 21. Error of omission 22. True 23.True 24. True

37. Salary a/c Dr.

To Gopal a/c Being wrong debit given to Gopal rectified 38. Suspense a/c Dr. Rs.100 To Discount received a/c Rs.100 Being wrong posting in discount received a/c rectified. 39. This is an error of Commission. By checking the original invoice document, it can be rectified. Purchase a/c Dr Rs.90 To Creditors a/c Rs.90 Being wrong posting in purchase book rectified.

Unit 6 Final Accounts


1 1. Expenses due but not yet paid are known as ______ 2 2. Prepaid expenses appear on the asset side of balance sheet. (State True / False). 3 3. Income earned but not received is called ____________. 4 4. Any income received in advance is a liability (state True / False) 5 5. Advertisement expenses outstanding for the year ending March 2005 is Rs.5000. Give the journal entry 6. Depreciation is for __________ of an asset. 7. What entry is drawn if furniture costing Rs.50000 is depreciated at 5% under straight line method? 8. Calculate the depreciation amount charged for the second year under written down or reducing balance method for Plant and Machinery costing Rs.7,50,000. The depreciation rate is 10%. 0 9. Unrecovered debts are called ______. 1 10. Bad debts are not expenses but they incur loss to the firm. false) 2 11. If bad debts are recovered, what entry can be drawn? 1 12. What is the difference between Bad debts and doubtful debts? 2 13. Provision for Doubtful debts is a charge against the profits of the firm (state True / False ) 3 14. Bad debts incurred in the subsequent period are written off against reserve for bad debts (state True / False). 4 15. Give the journal entry for writing off of bad debts against RBD? 1 16. Provision for Discount on Debtors is a charge against P & L a/c. (State True or False) 2 17. Provision for discount on debtors appears as a liability in the Balance Sheet (State true/false) 3 18. Discount on creditors is an item of income (State True / false ). 4 19. Provision for discount on creditors is shown as an anticipated income (State True/False). 1 2 20. What is the entry for adjusting the closing stock? 21. Closing stock always appears as an asset in balance sheet (State true/false)

6.14 Answer to SAQs and TQs


0 1. Outstanding expenses 1 2. True 2 3. Accrued or Outstanding income 3 4. True 4 5. Advertisement expenses a/c Dr To Outstanding Advertisement expenses a/c 2 6. Wear and Tear 3 7. Depreciation a/c Dr.2500 To Furniture a/c 2500 Being furniture depreciated 1 8. (7,50,000-75,000) = 6,75,000 x 10% = 67,500 2 9. Bad debts 3 10. True 4 11. Cash a/c To Bad debts recovered a/c 1 12. Bad debts are totally not recoverable, doubtful debts may be recovered. 2 13. True 3 14. True 4 15. Reserve for Bad debts a/c Dr To Bad debts a/c 1 16. True 2 17. True 3 18. True 4 19. True 5 20. Closing stock a/c Dr To Trading a/c 1 21. True

Unit 7 Introduction to Management Accounting


1 1. Management accountants have transformed from mere cost information providers to _______________________ 2 2. Management accountants facilitate in budget preparation on projected ______ 3 3. Management accountants assess organizations _______________that arise due to changing business environment. 4 4. Competitive position of a firm is determined by how well it provides a platform for __________, ___________________ and adaptation to new technology. 1 5. Management Accounting serves as a vital source of data for management _________. 1 6. It provides a means for communicating management plans ______, __________and at _________levels. 2 7. The management accounting is very helpful in controlling the financial performance of the organization through comparing actual performance with __________________. 1 8. ______________ is the preparation and use of standard costs, their comparison with actual costs and the analysis of variance. 2 9. ___________ will help the management in ascertaining how much cash will be available to meet obligations to trade creditors, to pay bank loans and to pay dividends to the shareholders. 3 10. ______________________reveals the changes in working capital position, the sources from which the working capital was obtained and the purpose for which it was used. 4 11. ____________ means methodical classification of the data given in the financial statements. 5 12. __________________helps to compare the current performance with preplanned performance thereby correcting the deviations if any 1 13. _____________is a performance measure and it reports the wealth generated by a business undertaking over a period of time 2 14. ____________________identify and eliminate non-value added costs 3 15. The drivers of Balanced Score Card are ___________, _________________,___________________ and 1 16. Management accounting aims at preparing and reporting financial data to _____________. 2 17. Management accounting is oriented towards ______ 3 18. In ____________financial data is presented for a definite period, say one year or a quarter 4 19. __________accounting may adopt any measurement unit like labour hours, machine hours or product units for the purpose of analysis

7.15 Answer for SAQs and TQs


SAQ 1: 1 1. Strategic Business Partner 2 2. Revenues and Costs 3 3. Competitive Position 4 4. Learning, continuous improvement 5 5. Planning 6 6. Upward, downward, lateral 7 7. Operating plans & standards 8 8. Standard costing 9 9. Cash budget 10 10. Funds Flow statement 11 11. Analysis 12 12. Budgetary Control 1 13. Value added concept 2 14. Cost Management System 3 15. Customer, internal business process, learning, growth perspective 4 16. Management 5 17. Future 6 18. Financial Accounting 7 19. Management

Unit 8 Financial Statement Analysis


1. Analysis of performance between two companies can be made using ratios. State true or false. 2. Ratios can be expressed in three forms _____________,____________ and _____________. 3. Stock has turned over 3 times a year the ratio is expressed as 4. For capital rich countries, the current ratio is usually ________ 5. In quick ratio _________ and ___________ are excluded because they cannot be readily converted into cash. 6. ___________ ratio is the most rigorous and conservative test of all liquidity ratios 7. ___________ ratio reflects the relative contribution of creditors and owners of the business in its financing 8. In debt equity ratio if the objective is to examine the financing solvency of the firm preference share capital is _________. 9. ___________ is the use of borrowed funds is to enhance higher returns to equity shareholders. 10. ___________ is the ability of a firm to make the contractual payments required on a scheduled basis over the life of the debt. 11. A high debtors turnover ratio indicates ____ time lag between credit sales and cash collection. 12. ______________is indicative of managements ability to operate the business with sufficient success not only to recover all the cost but also to leave a margin of reasonable compensation to the owners. 13. _______________ is based on the relationship between cost of goods sold and assets of a firm.

8.11 Answer for SAQs and TQs


1 2 rate 3 1. True 2. Proportion, Percentage, Turnover 3. Turnover rate 1 4. Low 2 5. Inventory and prepaid expenses 3 6. Super quick/ cash 4 7. Debt equity 5 8. Included with equity capital 6 9. Trading on equity 7 10. Debt service coverage ratio 8 11. Shorter 9 12. Net Profit margin 10 13. Asset Turnover ratio

Unit 9 Funds Flow Analysis

1. Explain the meaning and the concepts of funds flow statement. 2. Ascertain transactions that involve flow of funds and those that does not involve flow of funds. 3. Know the techniques of preparing fund flow statement. 5. Flow of Funds refers to change in funds or ________________ 6. ____ Working Capital refers to the firms investment in current assets 7. __________ are those expenses which could not be written off during the period of their incidence 8. When a transaction results in decrease of funds it is termed as ___________________. 5. When cash is collected from debtors there is flow of funds. State true or false. 6. When there is sale of fixed assets and cash is obtained there is flow of funds since it involves non-current asset and current asset. State true or false. 7. X Ltd transfers Rs.10 lakhs of its profits to Redemption Reserve account. Does it involve flow of funds? State yes or no 12. The difference in General Reserve between two accounting period shown in the Balance Sheet is transferred to Adjusted Profit and Loss account since it is a _________ 13. Any increase in Equity Share capital shown in the balance sheet is recorded as _________ in Funds Flow Statement 14. Purchase of Fixed Asset is considered as application of fund. How do you ascertain the amount if provision for depreciation is shown separately? 15. While preparing the schedule of changes in working capital: a. Increase in current asset and decrease in current liability results in ______ in working capital b. Decrease in current asset and increase in current liability results in _________ in working capital.

9.10 Answer Self Assessment Questions


1. Change in Working Capital 2. Gross 3. Fictitious Assets 4. Application of Funds 5. False 6. True 7. No 8. False 9. This transaction will not have any effect on flow of funds because it involves only current liability. 10. Creditors paid off by issue of debentures

1 2 3 4 5 12. Non cash items 6 13. Source 7 14. If provision for depreciation is shown separately the difference between closing fixed asset (gross) and opening fixed asset (gross) is taken as additional purchase made during the year. 8 15. (a) increase (b) decrease

11. Building transferred to creditors in satisfaction of their claims.

Unit 10 Cash Flow Analysis

1. Explain the meaning of cash flow statement. 2. Describe the broad classification of cash flow statement 3. Recall the revised AS 3 format of cash flow statement 4. Acquaint with steps in preparation of CFS. 5. Compute the Cash Flow Statement 6. Distinguish between Cash Flow Statement and Funds Flow Statement 7. Preparation and submission of Cash Flow Statement is mandatory according to ______________ 8. Cash Flow Statement has three sub division- _____________ ,________________________ and ______________________. 9. Since depreciation, a component of internal source does not result in outflow of cash; the depreciation amount is ______ to the Net Profit. 10. Give any three internal sources of cash that does not result in outflow of cash. 11. Decrease in liability denotes ____________ of cash 12. Purchase of Plant and Machinery on deferred payment basis is shown separately as source of cash or ________________ 7. Income Tax paid is ___________activity (operating/investing/financing). 8. Purchase of fixed assets is cash flow from ________ activity ( financing / investing). 9. Repayment of long term loans, dividend paid are _____________ activity (financing / investing). 10. Net Increase in cash and cash equivalent + _______________________ = Cash and cash equivalent at the end of the period 11. Decrease in Sundry Debtors should be _________ to Operating profit before working capital changes 12. Increase in Sundry Creditors should be _________ to Operating profit before working capital changes. 13. Dividend received is ____________ activity because income is received from investment in shares of another company. 14. Dividend paid is _____________ activity.

SAQ 1: 1. AS3 2. a. Net cash flow from operating activities b. Net cash flow from investment activities c. Net cash flow from financing activities 3. Added back 4. Depreciation, Amortization of intangible assets, Gains from sale of fixed assets 5. Outflow 6. Deferred credit 7. Operating 8. Investing 9. Financing 10. Cash and cash equivalent at the beginning of the year 11. Added 12. Added 13. Investment 14. Financing

Unit 11 Understanding Cost


1. Unexpired costs is termed as ___________ 2. Different types of job costing are ____________,___________ and __________ 3. Different types of process costing are _________.________ and ____________ 4. Standard costs are predetermined costs which are compared with actual costs and the variance is determined. (state true or false) 5. _______ include costs both fixed and variable are charged to the products, jobs or process 6. Cost of hiring special machines, cost of special moulds are examples of _______ 7. _______ are costs are unavoidable because these costs cannot be changed once incurred.

11.12 Answer to SAQs and TQs


1 2 3 4 5 6 7 1. Assets 2. Batch costing, Contract Costing and Composite costing 3. Unit costing, Operating costing and Operation costing 4. True 5. Absorption costing 6. Direct costing 7. Sunk Cost

Unit 12 Marginal Costing and

Break Even Analysis


1. Elements of costs are classified into ______ and ______ 2. Fixed Cost is treated as __________ and charged to P& L account 3. _____________ costs are treated as product cost. 4. The _____________shows the relationship among unit sale price, variable cost, sales volume, sales mix and fixed cost 5. Fixed cost remains constant _________. 6. Those activities that results in cost are known as ___________. 7. Variable cost is fixed ______ but varies in________. 8. Contribution is also known as contribution margin or _____________. 9. Fixed cost Loss = ______________ 1. Variable cost , fixed cost 2. Period cost 3. Variable 4. CVP analysis 5. In total 6. Cost drivers 7. Per unit, total 8. Gross margin 9. Contribution 5. In total 6. Cost drivers 7. Per unit, total 8. Gross margin 9. Contribution

12.18 Answer Self Assessment Questions


1. Variable cost , fixed cost 2. Period cost 3. Variable 4. CVP analysis

Unit 13 Decisions Involving Alternative Choices


1 1. Relevant Costs are costs which would _________as a result of the decision. 2 2. ___________ are historical cost that cannot be recovered in a given situation. 3 3. Opportunity costs are _________________for not pursuing the alternative course 4 4. ____________ is also known as discretionary cost.

13.13 Answers to SAQ and TQs


Answer to SAQ 1. Change 2 Sunk cost 3. Monetary benefits foregone 4. Avoidable cost

Unit 14 Budgetary Control


1 1. Budgets are not actual but ______. 2 2. After setting up objectives in terms of plans, it becomes imperative to organize the factors of production to convert into a ____________and ______________ 3 3. _______signifies such systematic efforts which help the management to know whether actual performance is in line with predetermined goal, policy and plans. 4 4. Internal refinement, broad indexation of activities, concentrated details is the essential features in _______. 1 5. Budgetary control acts as a ________ for the management. It prevents wastages of all types 2 6. Business forecasts are the foundation of ________ 3 7. _______ must wholeheartedly support the activities which developing a budget. 1 8. ______ is also known as static budget because it is prepared for a fixed or standard volume of activity. 2 9. Types of budgets are _____________. 3 10. In _______ budget the revenues and costs targets are set in respect of different levels of activity say from zero to hundred percent of the production volume.

4.14 Answer Self Assessment Questions


1 2 3 4 5 6 7 8 9 10 1. Estimates 2. Reality and workable preposition 3. Control 4. Planning 5. Safety signal 6. Budgets 7. Management 8. Fixed budget 9. Fixed , flexible, functional 10. Flexible Answer for Terminal Questions 1 1. Refer to unit 14.5 2 2. Refer to unit 14.6 3 3. Refer to unit 14.7 4 4. Refer to unit 14.11

Unit 15 Standard Costing


1 1. Standard costing is defined as a technique of cost accounting which compares the _____________ of each product or service with the actual cost . 2 2. Standard cost focuses on _________. 3 3. Standard cost and budget control _________. 1 4. Standards are established for _________, __________ and _______________. 2 5. Variation refers to _____________. 3 6. When the actual cost is less than the standard cost, the difference is termed as ____________ or credit variance 4 7. Variances are interpreted as __________ and _____________. 1 2 3 1 2 1 2 3 8. The formula for Material Cost variance is ______________. 9. The formula for Material price variance is __________. 10. The formula for Material usage variance is _______. 11. The formula for Material mix variance is __________. 12. The formula for Material yield variance is __________. 13. The formula for Direct labor variance is ___________. 14. The formula for Labor efficiency variance to _________________. 15. The formula for Labor rate variance is __________.

15.19 Answer to SAQs and TQs


1 2 3 4 5 6 7 1. Standard cost 2. Financial control 3. Closely interrelated 4. Direct martial, direct labor, overheads 5. Deviation 6. Favourable 7. Favorable and adverse 1 2 3 4 5 6 7 8 8. SC AC 9. (SP AP) x AQ 10. SQ AQ x SP 11. RSQ AQ x SP 12. SY AY x SR 13. SC-AC 14. SH AH x SR 15. SR - AR x AH