Name Roll No. Course

S.AMEER ABBAS 520955311 MBA-Semester-1 Financial and Accounting Management MB0025-Set-1

Subject Subject Code

1.Explain any two concepts of accounting with examples. Ans.
Types of Accounting concepts Concepts are the basic assumptions or conditions upon which the science of accounting is based. There are five basic concept of accounting, namely – business entity concept, which is also termed as separate entity concept, going concern concept, money measurement concept, periodicity concept and accrual concept. Two concepts are discussed below: Going concern concept The fundamental assumption is that the business entity will continue fairly for a long time to come. There is no reason why an enterprise should be promoted for a short period only to liquidate the business in the

foreseeable future. This assumption is called “ going concern concept”. For this reason accountants value fixed assets on historical cost method. Had the business been set up to last for a short period, fixed assets should have been valued at a market price. Besides, going concern concept provides for amortization of the cost of fixed assets over the life time of the assents. For example, an entrepreneur purchases a plant for Rs. One crore and it has a life of 10 years. During this period, he sets aside every year certain funds from the income of the business so that it would help him for replacement of the asset at the end of 10 years. This process of amortization presupposes that the enterprise will continue to do business fairly for long time. Going concern is a term which means that an entity will continue to operate in the near future which is generally more than next 12 months, so long as it generates or obtains enough resources to operate. If the auditee is not a going concern, it means that it is either dissolved, bankrupt, shutdown, etc. Auditors are required to consider the going concern of an auditee before issuing a report. If the auditee is a going concern, the auditor does not modify his/her report in any way. However, if the auditor considers that the auditee is not a going concern, or will not be a going concern in the near future, then the auditor is required to include an explanatory paragraph before the opinion paragraph which is commonly referred to as the going concern disclosure. Such an opinion is called an "unqualified modified opinion". Money Measurement Concept All transactions of a business are recorded in terms of money. An event or a transaction that can not be expressed in money terms, can not find place in the book of account. The honesty of the employees, dynamism of the selling agents, promptness and integrity of the cashier, even though influence the business results, can not be brought to the book of accounts. Besides it makes no sense if a business has 10 tons of raw material, five vehicles, one premises and a few items of furniture, unless all these assents are expressed in terms of some monetary value. If it is said that the value of these assents is Rs. Two crores, it makes a lot of sense. Money is the

common denominator in which the business transactions should be expressed. The money measurement concept underlines the fact that in accounting, every recorded event or transaction is measured in terms of money. Using this principle, a fact or a happening which cannot be expressed in terms of money is not recorded in the accounting books. The unit of measure in accounting shall be the base money unit of the most relevant currency. This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements. 2.Prove that accounting equation is satisfied in all the following transactions of Mr.X 1. Commenced business with cash – Rs.80,000 2. Purchased goods for cash – Rs.40,000 and on credit Rs.30,000 3. Sold goods for cash – Rs.40,000 costing Rs.25,000 4. Paid salary – Rs.2,000 and salary outstanding Rs.1,000 5. Bought scooter for personal use for cash at Rs.20,000 Ans.

The accounting equation is, Equity [Working Capital] = Liabilities + Assets i. Commenced business with cash – Rs 80,000

In the first transaction, the business receives a capital of Rs. 80,000 cash and so capital account and cash accounts are affected. Capital is a liability and cash is an asset to the business. This is shown in the transaction number 1, in the table.

Capital: ii.



Cash: Rs.80,000(Asset)

Purchased goods for cash –Rs 40,000 and on credit Rs. 30,000

In this transaction, cash account, goods account and liabilities account gets affected. Cash account reduces by Rs. 40,000 Goods account increases by Rs. 40,000 Liabilities account increases by Rs. 30,000 This is shown in the transaction number 2, in the table. iii. Sold goods for cash –Rs. 40,000 costing Rs. 25,000

In this transaction, goods account, cash account and profit account gets affected. Cash account increases by Rs. 40,000 Goods account reduces by Rs. 25,000 Profit account being owner’s account, it gets credited with Rs 15,000 This is shown in the transaction number 3, in the table. iv. Paid salary – Rs. 2,000 and salary outstanding Rs. 1,000 In this transaction, cash and salary accounts are affected. Cash account reduces by Rs. 2,000 and salary account gets credited by Rs. 2,000 Outstanding salary is Rs. 1,000 which is not paid yet, hence non of the accounts gets affected. This is shown in the transaction number 4, in the table. v. Brought scooter for personal use for cash at Rs. 20,000 The scooter is for personal use, the liability of the business on owner’s capital decreases. Cash account and capital account decreases by Rs. 20,000 This is shown in the transaction number 5, in the table.

Transaction Number 1 2

Cash a/c 80000 40000

Assets Goods a/c 70,000

Salar y a/c

Liabilities and owner's equity Mr.X's Liabilities Capital 80000 30000

3 4 5

40000 -2000 20000 58000

25000 2000


-20000 45000 105000 2000 30000 75000 105000


3.Show the rectification entries for the following a. The Sales account is undercast by Rs.15,000 b. Goods returned by the customer Mr.X of Rs.5650 has been posted in the Return Inward Account as Rs.5560 and in Mr.X a/c as Rs.6,550. c. Salary paid Rs.6,000 has been posted to Rent account d. Cash received from Ram posted to Shyam account Rs.7,000 e. Cash received from Jadu Rs.8,640 has been posted to the debit of Madhu’s a/c Ans.

The below table shows the rectification of entries Particulars Suspense account To Sales account Dr Debit [Rs.] 15,000 15,000 Credit [Rs.]

Suspense account To Return account Mr. X’s account


90 90


900 900 6000 6000

To Suspense account Salary account To rent account Shyam account To Ram account Jadu account To Madhu account Dr 8640 Dr 7000 Dr



4.The following balances are extracted from the books of Kiran Trading Co on 31st March 2000. You are required to prepare trading and profit and loss account and a balance sheet as on that date: Opening Stock B/R Purchases Wages Insurance Sundry Debtors Carriage Inwards Commission Paid Interest on Capital Stationery Return Inwards Commission received Return Outward Trade Expenses Office furniture Cash in hand Cash at bank Rent and Taxes Carriage Outward Sales Bills Payable Creditors Capital The closing stock was valued at Rs.1,25,000 5,000 22,500 1,95,000 14,000 5,500 1,50,000 4,000 4,000 3,500 2,250 6,500 2,000 2,500 1,000 5,000 2,500 23,750 5,500 7,250 2,50,000 15,000 98,250 89,500


Trading account of M/s Kiran Trading Co Trading Account Dr Opening stock Purchases - Return Outward Carriage Inwards Wages Gross Profit 5,000 Sales - Return Inward 192,500 Closing Stock 4,000 14,000 153,000 368,500 368,500 Cr 243,500 125,000

Profit and Loss Account of M/s Kiran Trading Co

Profit and Loss Account Dr Rent and Taxes Insurance Trade Expenses Commission Paid Interest on Capital Staionary Carriage Outward Net Profit 5,500 by Trading a/c Gross Profit 5,500 Comission Received 1,000 4,000 3,500 2,250 7,250 126,000 155,000 155,000 Cr 153,000 2,000

Balance Sheet Account of M/s Kiran Trading Co

Balance Sheet Capital and Liabilities Bills Payable Capital Creditors Net Profit from P & L Account Assets 15,000 Sundry Debtors 89,500 Office Furniture 98,250 Cash in Hand 126,000 Cash in Bank B/R Closing Stock 328,750 150,000 5,000 2,500 23,750 22,500 125,000 328,750

5.Write short notes on: a. Outstanding Expenses b. Prepaid Expenses Ans

Outstanding expenses Expenses due but not yet paid are known as outstanding expenses. Wages, salaries, rent, commission etc payable in the current month are paid in the following month. so they all come under nominal accounts which is "debit all expenses and losses and credit all gains". Since they r unpaid hence they must be credited....

If final accounts are prepared for year ending 31st December, then the expenses payable for December will be paid in January of next year. The extent to which the amount belongs to the current year but payable in the next year is called outstanding expenses. To record that aspect, the journal entry drawn in the Journal proper is: Concerned Expenses account Dr To outstanding Expenses account. Outstanding expenses account indicates liability for the current ear and it will appear in the balance sheet. Example: Advertisement expenses for year 31-12-2003 outstanding is Rs. 5000. The journal entry is Advertisement expenses account Dr 5000 To Outstanding expenses account Prepaid Expenses Expenses paid in advance are regarded as prepaid expenses. Prepaid expenses form an asset and therefore prepaid expenses account is debited. A prepaid expense usually relates to a specific time frame, like pre-paying rent as mentioned above. specific time frame in which to be recognized. It might even be a partial expense which will continue to increase (whether actually paid or not) until the time comes when it will be amortized. 5000

For example, insurance premium is paid form April, 2004 to March, 2005 and the amount is Rs. 3600. The financial year ends by 31st December, 2004. Therefore the premium relating to Jan, Feb and March of 2005 Rs. 900 is said to have been paid in advance. To record this internal adjustment, the entry is Prepaid Expenses account Dr 900 To Insurance account accounts. 900 Note that outstanding or prepaid expenses accounts are regarded as personal


Name Roll No. Course

S.AMEER ABBAS 520955311 MBA-Semester-1 Financial and Accounting Management MB0025-Set-2

Subject Subject Code

1.Budgetary Control is a technique of managerial control through budgets. Elaborate. Ans.
Budgetary control is an important technique of control on business activities by management, in which business activities are operated on the basis of pre-prepared budget and thereafter actual results are evaluated in the light of budget estimates Budgetary control is a strong tool of business is to maximise profits. There are various managerial tools and techniques useful for the management to plan and control business operations. Budget is also used for the management to plan and control business operations and it is widely used as a standard device of planning and control. Budget provide as a valuable aid to management through planning, coordination and control. It is a tool which measures the managerial performance of an organization. It promotes good morale and generates harmony in the organization. Also it promotes efficiency and facilities management by exceptions. It helps in promoting a feeling of cost consciousness among the employees in the organization. On the other side, as a budget is based on estimates, it may or may not be true. It is not substitute of management because, the efficiency and utility of the budgetary system depends on the skill and experience of the management. It cannot be executed automatically because continuous efforts are necessary for the execution of the budget. Budgetary control is essential for policy planning and control. It also acts as an instrument of co-ordination. Budgetary Control can be a technique of managerial control through budgets in the following ways:

1. To assist in policy formulation on the basis of proper and reliable data. 2. To ensure planning for future by setting up various budgets. 3. To determine short-term and long-term financial and physical targets. 4. To operate various cost centers and departments with efficiency and economy. 5. To classify expenses according to their nature such as direct and indirect expenses; fixed, variable and semi-variable expenses, etc. 6. To help administration as under this system, executives perform their functions according to pre-determined budgets. 7. To anticipate capital requirements and to make necessary arrangement for it. 8. To make cost accounting more reliable and systematic. 9. To promote research in order to bring down cost, to increase efficiency and to achieve the targets of sales. 10. To develop co-ordination and co-operation among employees and executives. 11. To eliminate wastes and increase in profitability. 12. To correct the variations from the established standards. 13. To fix the responsibility of various individuals in the organisation.

2. a. Given: Current ratio Liquid ratio

= 2.6 = 1.4

Working Capital = Rs.1,10,000 Calculate (1) Current assets (2) current liabilities (3) Liquid Asset (4) Stock b. Calculate Gross Profit Ratio from the following figures: Sales Sales return Rs.5,00,000 Rs.50,000

Closing stock Opening stock Purchases

Rs.35,000 Rs.70,000 Rs.3,50,000

a. 1.Current Asset

Current Ratio = Current Assets / Current Liabilities

2.6 = CA/ 1 (in the absence of any values CL is always taken as 1)

CA =2.6

Working Capital = C.A – C.L

Working capital ratio =2.6 -1 =1.6

For 1.6 WCR=Working capital is 1,10,000 For 2.6 CAR, Current Asset is 1,10,000 x 2.6 /1.6 = 1,78,750.00

2.Current Liabilities: Current Liability = CA-WC

178750- 110000 = 68,750.00

3. Liquid Asset: LA = Current liability x Liquid ratio 68750 x 1.4 = 95,858.00

4. Stock : Liquid ratio = Current Assets-Stock / Current liabilities Current Assets-Stock = LR x CL 178750 –S = 1.4 x68750 -S = 96250 – 178750 = -82500 Therefore, STOCK = 82,500.00

b. Gross profit ratio:

Gross profit ratio = (Gross profit/sales ) x 100 Gross profit = Sales - Cost of goods Sold Sales = Cash sales + credit sales – Sales returns 500000 – 50000 = 450000

3. From the following Balance Sheet of William & Co Ltd., you are required to
prepare a Schedule of Changes in Working capital & Statement of Sources and Application of funds. Balance Sheet Liabilities 2002 Rs. 2003 Rs. Assets 2002 Rs. 2003 Rs.

Capital P&L a/c Sundry Creditors Long-term Loans Total

80,000 14,500 9,000 -

85,000 24,500 5,000 5,000

Cash in Hand Sundry Debtors Stock Machinery Building

4,000 16,500 9,000 24,000 50,000

9,000 19,500 7,000 34,000 50,000


1,19,500 Total

1,03,500 1,19,500

4.Bring out the difference between cash flow and funds flow statement. Ans.

The major differences between funds flow and cash flow statement are listed below: i. In Fund Flow Statement of changed in working capital de-linking the current assets and current liabilities are made. But in Fund Flow Statement no schedule is prepared.

ii. Fund Flow Statement shows the causes of the changes in net working capital. Cash Fund Statement show the causes for the change in cash. iii. In Fund Flow Statement, no opening or closing balances are recorded. But in Cash Fund Statement both are incorporated. iv. Fund Flow Statement is not based on the ledge mode. But Cash Flow Statement is prepared on the basis of ledge principles. v. In Fund Flow Statement, “to” and “by” are indicated. In Cash Flow Statement there are indicated.

vi. In Fund Flow Statement, net effect of receipts and disbursements are recorded. In Cash Fund Statement only cash receipts and payments are recorded. vii. Fund Flow Statement is concerned with the total provision of funds. Cash Flow Statement is concerned with only cash. viii. Fund Flow Statement is flexible but Cash Flow Statement is rigid.

Fund Flow Statement is more relevant for long range financial strategy. Cash Flow Statement concentrates on short term aspects mostly affecting the liquidity of the business ix. Fund flow statement is related with accrued basis whereas Cash Flow Statement is on cash basis. For this, it is necessary to convert the accrued to cash basis

5.a. DELL computers sell 100 PCs at Rs.42,000. The variable expenses amount to Rs.28,000 per PC. The total fixed expenses is Rs.14,00,000. Prepare an income statement. b. Calculate BEP and MOS Sales at present are 55,000 units per annum. Selling price is Rs.6 per unit. Prime cost Rs.3 per unit. Variable overheads is Re.1 per unit. Fixed cost Rs.80,000 per annum. Ans.

a.Income Statement:

Solution: No. of computers produced No. of computers sold Unit selling price /PC 100 100 Rs.42000

Unit Variable expense per PC Rs.28,000 Sales Revenue =100 x 42000 Less Variable Cost = 100x 28000 Less: Fixed Expense Profit or Loss 28,00,000 14,00,000 Zero 42,00,000

BEP in units = Fixed Expenses/ Unit contribution margin

Unit contribution margin = Selling price-Expense per unit

BEP = 80000 6-(3+1)

= 40000 units

BEP in rupees = BEP in units x unit selling price = 40000 x 6 =Rs. 2,40,000

MOS: MOS = Actual sales – BEP Sales = 55000 x 6 – 240000 = 330000 – 240000 = Rs. 90,000

6.What is cost variable analysis? Ans.

Production involves cost. In order to initiate and continue the process of production, the producer hires various factors of production. He has to make payments to these factors for participating in the process of production. From the point of view of producer, such payments made to the factors of production for their participation in the process of production emerge as cost of production. Thus, the cost of production may be defined as the aggregate of expenditure incurred by the producer in the process of production. Cost, is therefore, the valuation placed on the use of resources. We have several concepts of costs such as; Fixed Cost, Variable Cost, Total Cost Average Cost, Marginal Cost, Money Cost, Real Cost, Implicit Cost, Explicit Cost, Private Cost, Social Cost, Historical Cost, Replacement Cost And Opportunity Cost.

Fixed costs are those costs which remain fixed, irrespective of the output. They have to be incurred on equipment, building etc and they are incurred even when the output is zero. Fixed costs are also called Supplementary costs or Overheads or Indirect costs. Variable costs are those costs which vary with the output. For example the cost of raw materials, electricity, gas, fuel etc. the Variable costs are also called Prime costs, Direct costs or Operating costs. The difference between the short-run and long run production function is based on the distinction between fixed and variable costs. In the short-run production function, the output is increased only by employing more units of variable factors; other factors of production remaining fixed. In the long run all factors are variable and thus all costs are variable.

Cost variable analysis classification is the process of grouping costs according to their common characteristics. A suitable classification of costs is important, in order to identify the cost with cost centers or cost units

Sign up to vote on this title
UsefulNot useful