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Short Answer Questions: Accounting Is Defined As An Art of Recording, Classifying and Summarizing
Short Answer Questions: Accounting Is Defined As An Art of Recording, Classifying and Summarizing
8.
7500*3
5
Contribution: Sales Variable Exp. =15000-7500 =7500
P/v Ratio = C/S = 7500/4500 = 5/3
MOS = Actual Sales Sales at BEP
= 4500 units
ANGLE OF INCIDENCE: this is an angle formed between the cost line and
revenue line where they intersect each other.. It indicate rate of profit earned
by the business.
56.Write a short note on profit center.
Profit Centre is that department where the manager is held responsible for
both costs (inputs) and revenues (outputs) and thus for profit. Despite the
name, a profit centre can exist in nonprofits organizations.
A centre, whose performance is measured in terms of both - the expense it
incurs and revenue it earns, is termed as a profit centre.
57.Name any four non operating items.
a. Depreciation.
b. Goodwill written off.
c. Loss on sale of Machinery.
d. Preliminary expenses written off.
e. Gain on Sale of Assets.
58. What is Human Resource Accounting?
Human Resource Accounting is the process of identifying and measuring data
about human resources and communicating this information to interested
parties. HRA, thus, not only involves measurement of all the costs/
investments associated with the recruitment, placement, training and
development of employees, but also the quantification of the economic value
of the people in an organization.
59. What is Benchmarking?
Benchmarking is the continual search for the most effective method of
accomplishing a task by comparing existing methods and performance levels
with those of organization or with subunits within the same organization.
These practices are referred to best practices. Benchmarking is also called
Competitive Benchmarking.
60. What is Reengineering?
It is the contrast to the concept of Kaizen Costing, which involves small &
incremental steps toward gradual improvement but Reengineering involves a
giant leap. It is the complete redesign of a process with an emphasis on
finding creative new ways to accomplish an objective. It is starting from
scratch to redesign a business process.
61. Given the following details, Determine the Margin of Safety
sales.
Profit earned Rs. 24000, Selling price per unit Rs.10; Marginal cost
per unit Rs.7.
MOS = Profit/P/v Ratio
P/V Ratio = Contribution/Sales
MOS = 24000*10/3 = 80000 units.
62. What is Semi variable cost?
10-7/10 = 3/10
It is a cost that comprises both fixed and variable elements. For example a
telephone cost consists of a fixed rental charge and variable cost associated
with calls made.
63. Define Financial Audit.
It is the audit of financial statements and aims to know whether financial
statements are prepared according to Accounting Principles and Conventions.
Whether financial statements present a true & fair view of business results.
64.From the information given below, calculate Stock Turnover Ratio.
Opening stock Rs.29000; Closing stock Rs.31000, sales Rs.
300000;
Gross profit 25% on cost
S.T.R. = Cost of goods sold / Average Stock.
Average Stock = (Opening stock + Closing Stock)/2
G.P. is 25 % on Cost = 20 % on Sales
(Remember Note)
G.P. = 300000 * 20 % = 60000
Cost of Goods Sold = Sales G.P. = 240000
S.T.R. = 240000/30000 = 8 times.
65. Define Cost Audit.
ICMA defines it as the verification of cost accounts and a check on the
adherence to cost accounting plan. Cost Audit is verifying correctness of cost
accounts, cost reports, cost data and costing methods.
66. Write short notes on :
a. Journal
b. Ledger
A journal is defined as a book containing a chronological record of
transactions. It is the book in which transactions are recorded first of all
under double entry system.
Ledger is book which contains various accounts. Ledger is set of accounts. It
contains all accounts whether Real, Nominal or personal. It is in Two forms.
a. Bound Ledger
b. Loose Leaf Ledger
67. Define Management Audit.
It is detailed & critical review of all aspects of management including all facets
of operations, internal controls, policies & plans within an organization also
known as Operational Audit.
68.What is an Entity?
An accounting entity is an organization that stands apart from other
organizations and individuals as a separate economic unit.
Owner is distinct from entity
Separate legal Entity
69.What is an account? State the name of different types of account.
An account is standardized format used to maintain the separate recorded
and to accumulate date for each of the individual items in order to facilitate
the preparation of periodic financial statements and to provide a continuous
check on the accuracy of the recording transaction.
Types of Accounts
1. Personal Accounts
2. Real Accounts
3. Nominal Accounts
70.How does an asset differ from Liabilities?
Assets:
It is something a company owns which has future economic value.
Land, Building, equipments, Goodwill are examples of assets.
Liabilities:
It is something a company owes.
Money
Service
Product
71.How does an expense differ from revenues?
Revenues:
They are amounts received or to be received from customers for sales of
products or services.
Sales, Performance of services, Rent, Interest
Expenses:
They are amounts that have been paid or will be paid later for costs that
have been incurred to earn revenue.
Salaries and wages, utilities, Supplies used, Advertising.
72.What do you mean by Owners Equity?
It is whats left of the assets after liabilities have been deducted.
The same as net assets
The owners claim on the entitys assets
73. Differentiate Operating Ratio & Operating Profit Ratio.
Operating Ratio establishes the relationship between the cost of goods sold
plus other operating expenses to net sales.
Operating ratio = Cost of Goods Sold + Operating Expenses * 100
Net Sales
Operating Profit Ratio express relationship between operating profits and net
sales. It is computed as:
Operating Profit Ratio = (Operating Profit / Net Sales) *100
74.What are the sources of Funds?
a. Issue of Share Capital
b. Issue of Debentures for cash or any other asset.
c. Sale of long term investment.
d. Receipts of dividend income, rent income, interest.
75.A firm has opening and closing debtors of Rs.40,000 and Rs.
75,000 respectively and credit sales of Rs. 3,45,000. Calculate the
debtors turnover ratio.
Debtors turnover ratio = credit sales/average debtors
1. Re-orient culture and attitudes. The first and most challenging step is reorient thinking toward market-driven pricing and prioritized customer needs
rather than just technical requirements as a basis for product development.
This is a fundamental change from the attitude in most organizations where
cost is the result of the design rather than the influencer of the design and
that pricing is derived from building up an estimate of the cost of
manufacturing a product.
2. Establish a market-driven target price. A target price needs to be
established based upon market factors such as the company position in the
market place (market share), business and market penetration strategy,
competition and competitive price response, targeted market niche or price
point, and elasticity of demand. If the company is responding to a request for
proposal/quotation, the target price is based on analysis of the price to win
considering customer affordability and competitive analysis.
3. Determine the target cost. Once the target price is established, a
worksheet (see example below) is used to calculate the target cost by
subtracting the standard profit margin, non-recurring development costs, and
any uncontrollable corporate allocations. The target cost is allocated down to
lower level assemblies of subsystems in a manner consistent with the
structure of teams or individual designer responsibilities.
Target Cost calculation work sheet
Manufacturers suggested retail price
495
(148.50)
(15)
(66.30)
(35)
230.20
(45%)
(103.59)
126.61
=
-
4. Balance target cost with requirements. Before the target cost is finalized,
it must be considered in conjunction with product requirements. The greatest
opportunity to control a product's costs is through proper setting of
requirements or specifications. This requires a careful understanding of the
voice of the customer, use of conjoint analysis to understand the value that
customers place on particular product capabilities, and use of techniques such
as quality function deployment to help make these tradeoff's among various
product requirements including target cost.
5. Establish a target costing process and a team-based organization. A
well-defined process is required that integrates activities and tasks to support
target costing. This process needs to be based on early and proactive
consideration of target costs and incorporate tools and methodologies
3. What ratios would you calculate to assess the liquidity position and
solvency position of a firm?
Working capital: Current assets-Current liabilities.
Current ratio: current assets/current liabilities
Acid Test ratio or Quick ratio: Quick assets/Current liabilities
=Current
assets-Inventory-Prepaid
Expenses/Current Liabilities
Cash Ratio: Cash+ Marketable securities+ Net receivable and debtors/ Current
Liabilities.
6. To assure fiscal protection for the assets of the business through adequate
internal control and proper insurance coverage.
7. To continuously appraise economic and social forces and government influences
and interpretation their effect upon business.
8. Providing help in the design of an information system.
9. Helps in budget preparation.
10.Coordinating budget making and report preparation activities.
11.Preparing the performance report, control report, special managerial report and
division making.
12 Interpretating accounting data based on the particular requirements of the
managers in a gives situations.
9. What is meant by Fund Flow Statement? How it is prepared?
Fund Flow Statement is a financial statement which reveals the methods by which
the business has been financed and how it has use its funds between opening and
closing balance sheet dates. Thus a fund flow statement is a report on movement
funds explaining where from works capital originated and where into the same goes
during an accounting period.
Preparation of Fund Flow Statement:
The fund flow statement requires preparation of two statements:
1. Statement changes in working capital
2. Funds from Operation
3. Fund Flow Statement
Schedule of changes in working capital:
Many business enterprises prefer to prepare schedule of changes in working capital,
while preparing a funds flow statement, on a working capital basis. This schedule in
changes in working capital provides information concerning the changes in each
individual current assets and current liabilities accounts. This schedule is a part of
fund flow statement and increase in working capital indicated by schedule changes in
working capital will be equal to the amount of changes in working capital as found by
fund flow statement. The format of schedule of changes in Working capital is as
follows:
Schedule of changes in Working Capital
Items
As on current
year
As
on
previous year
Increase
Decrease
A. Current Assets:
Cash
Ba n k
debtors
Stock
Prepaid
expenses
Total CA
B. Current liabilities:
Bank overdraft
Creditors
Outstanding exp.
Total CL
Net increase/
Decrease in WC
Rs
Particulars
By balance b/d
To transfer
reserve
to
General
To depreciation
Rs.
Sources of fund
Rs
Application of funds
Rs
3. CVP analysis may be used in setting selling prices, selecting the product mix to
sell, choosing among alternatives marketing strategies and analysis the effects of
cost increase or decrease on the profitability of the business enterprise.
Limitations:
There are certain limitations faced by CVP analysis. These are:
1. The function of profit projection is virtually important to financial analyst, but it is
not without it shortcomings. Clear assignment of costs to either a fixed or variable
category is not always possible. The interpretations of several analysts probably
differ.
2. Direct labour is usually classified as a variable cost. Any change in production
volume will have a direct effect on labour in the same direction. If management
decides on a temporary shutdown of operations, the effect on the variability of
labour cost may not correspond directly. If for example the company wishes to retain
it highly experienced and skilled personnel during the shutdown period so as not to
lose them, the fluctuating nature of direct labour changed.
3. Another major weakness of cost volume profit analysis as a planning or controlling
device occurs in a manufacturing business. The assumption by the analyst the sales
and production volumes will always be the same may be valid in theory but not in
fact.
4. Analysis covering an extended period o time required a common denominator for
all component periods so that data examined will be equivalent. Where costs and
prices have changed drastically, adjustments based on current costs and prices
produce a more uniform result.
Liabilities
Balance Sheet
As at.
Amt(Rs)
Assets
Amt(Rs)
Current liabilities
Bank overdraft
Outstanding expenses
Bills payable
Sundry creditors
Income
received
in
advance
Fixed
non-current
liabilities
Loan
Capital
Opening balance
Add: Net profit
(Less loss)
Less: Drawings
--------------------------------------------------------
Current Assets
Cash in hand
Cash at bank
Prepaid expenses
Sundry debtors
Accrued income
Bills receivable
Stock(closing)
Non-current
Assets[Fixed
Assets]
Investments
Furniture,
Fittings,
Loose tools
Plant and Machinery
Building
Land
Goodwill
-------------------------------------------------------------------------------
working capital will be equal to the amount of changes in working capital as found by
fund flow statement.
5. Fund Flow and Cash Flow Analysis:
Fund Flow Statement is a financial statement which reveals the methods by which
the business has been financed and how it has use its funds between opening and
closing balance sheet dates. Thus a fund flow statement is a report on movement
funds explaining where from works capital originated and where into the same goes
during an accounting period.
Cash Flow Statement concentrate to transactions that have a direct impact on cash.
It deals with the inflow and outflow cash between balance Sheet dates.
6. Ratio Analysis:
Financial ratios provide the analyst with a means for making meaningful comparison
of a firms financial data over tine and with other firms. Thus, financial ratios
represent an attempt to standardized financial information in order or facilitate
meaningful comparisons.
15. What do you mean by Social Accounting? What are the key principles of
Social Accounting? Explain the process involved in this.
Social Accounting:
Social accounting is a method by which a business seeks to place a value on the
impact on society of its operations. This might include the following impacts on the
environment: waste; the effect on society of the packaging it produces; and how
much fuel it uses in its company cars. It can also include the effect on the local
community who might have to live in the shadow of its premises, and how it engages
with the community, its customers and workforce.
Key principles:
1.
2.
3.
4.
5.
6.
16. What do you mean by Human Resource Accounting? State its purposes.
What is the usefulness of Human Resource Accounting?
Human Resource Accounting:
Human Resource Accounting is the process of identifying and measuring data
about human resources and communicating this information to interested parties.
HRA, thus, not only involves measurement of all the costs/ investments associated
with the recruitment, placement, training and development of employees, but also
the quantification of the economic value of the people in an organization.
HRA Needs
Knowledge / Information /Skills
Intellectual capacity
Employees Attitudes
Experience
Employee Turnover
that better business decisions can be taken. If such accounting is not done, then the
management runs the risk of taking decisions that may improve profits in the short
run but may also have severe repercussions in future.
HRA also provides the HR professionals and management with information for
managing the human resources efficiently and effectively. Such information is
essential for performing the critical HR functions of acquiring, developing, allocating,
conserving, utilizing, evaluating and rewarding in a proper way. These functions are
the key transformational processes that convert human resources from raw inputs
(in the form of individuals, groups and the total human organization) to outputs in
the form of goods and services. HRA indicates whether these processes are adding
value or enhancing unnecessary costs.
Human capital also provides expert services such as consulting, financial planning
and assurance services, which are valuable, and very much in demand. Basically
HRA can be tracked through two methodscost-based analysis and value-based
analysis. The cost-based approach focuses on the cost parameters, which may relate
to historical cost, replacement cost, or opportunity cost. The value-based approach
suggests that the value of human resources depends upon their capacity to generate
revenue.
17. Define Responsibility accounting. Discuss the advantages of responsibly
accounting. What is Balanced Score Card Approach.
Responsibility Accounting:
Eric Kohier defines Responsibility Accounting as a method of accounting in which
costs are identified with persons assumed to be capable of controlling them, rather
than with products or functions. It differs from activity accounting, in that it does not
in itself require an organizational grouping by activities and sub-activities or provides
a systematic criterion of system design.
Purpose
Social responsibility includes;
1. Financial (Profits)
2. Social (people)
3. Environmental ( Planet)
Advantages:
1. It introduces sound system of control - a system of closer control.
2. Each and every individual in the organization is assigned some responsibility and
they are accountable for their work.
3. Everybody knows what is expected of him. Nobody can shift responsibility to
anybody else if something goes wrong.
4. It is effective tool of cost control and cost reduction applied with budgetary control
and standard costing.
5. It facilitates the management to set realistic plans and budgets.
6. It is not only a control device but also facilitates decentralization of decisionmaking.
7. It measures the performance of individuals in an objective manner.
8. It fosters a sense of cost-consciousness among managers and their subordinates.
9. It helps the management to make an effective delegation of authority and
required responsibility as well.
2.
3.
4.
5.
The
The
The
The
Types
Reports
of
Standards for
Presentations
Reporting
Entity
Time
period
covered
Users
of
information
of the firm will be mixed up with the private affairs of the Proprietor or Partners or
Promoters and the true picture of the firm will not be available. Hence the business
concern (entity) is to be considered different from the owner/s also referred as
Separate entity concept.
2. Money measurement concept:
The transactions to be recorded in the books of accounts have to be expressed in
monetary terms only for the purpose of measuring and assessing the actual income
earned or loss incurred in a business. For example: the efficiency of a manager
which resulted in improvement in business cannot be recorded in the books because
it cannot be quantitatively measured. Hence only those events having money value
can be entered in the books of accounts.
3. Going Concern concept:
This assumes that the business will continue to exist forever. Any business is not
started with an intention of closing it down in the near future. This concept affirms
that it will be continuing its business without the intention or necessity of winding up
of its business and to permanently continue its business keeping in view earning
returns on the investment made.
24. In a certain period the company sold 8000 units at Rs.15 per unit and
incurred a loss of Rs.5 per unit. In another period the company sold 20000
units and incurred a profit of Rs. 4 per unit. What would be the Break Even
Point in terms of Rupees and Units.
Solution:
Period
Sales
120000
-40000
II
300000
80000
Contribution
Fixed cost
Process
Accounting
Concepts
Convention
Output
and
Business Transaction
and
events
(collection of Data)
3000
4500
Assets
Debtors
75000
Adjustments:
(i)
(ii)
(iii)
Show the Profit & loss account and Balance sheet after the above
adjustments made, relating to bad debts ; discount on debtors and
net debtors.
Solution: Trading & Profit & Loss Account
Dr.
Particulars
Cr.
Detail
Amount
Particulars
Amount
To Bad Debts
Add: Further bad debts.
Provision for doubtful debts
5 % on (75000-1000) =
3700
Reserve for discount on
debtors
2 % on 70300 (750004700)
3000
1000
3700
1406
9106
4500
4606
Balance Sheet
Liabilities
Amount(Rs.)
Assets
Debtors
Less: Further
Bad Debts
New Provision
of Debts.
Provision
of
Discount
on
Debtors.
Details
75000
1000
Amount (Rs)
3700
1406
65894
(4) Accounting ratios are not totally dependable and they must be used after
giving due weightage to general economic conditions, industry situation, position
of firms within the industry, mode of operations, size of firm, diversity of product
which can make the business enterprises completely dissimilar and thus affect
the computation of accounting ratios.
(5) The different methods of computations also influence the utility of accounting
ratio. The different concept used for determining numerator and denominator in
a particular accounting ratio will not help in drawing reliable conclusions even in
identical situations.
Accounting
1.
Actual process of
presenting the accounts
preparing
&
3. Analytical in nature
4. Recording & classifying
interpreting transactions
5. Is primary stage
6. Is to maintain primary records
5. Is secondary stage
6. Is to ascertain net results of operations
and financial position.
analyzing &
Solution
1. Price variance= Actual quantity * (Standard price Actual Price)
Material A
=2 * (Re.1- Rs. 3.50)= Rs. 5 (Adverse)
Material B
=1 * (Rs.1 Rs. 2) = Rs.
Material C
= 3* (Rs. 4 Rs.3) =Rs. 3 (Favorable)
=Rs. 2 ( Adverse)
2. Usage Variance= Standard price * (Standard quantity actual quantity)
Material A
=Re.1 * (4-2)
=Rs.2 (Favorable)
Material B
=Rs.2 * (2-1)
=Rs.2 (Favorable)
Material C
=Rs.4 * (2-3)
=Rs.4 (Adverse)
=Nil
The liquidity of a business defined as its ability to meet maturing debt obligations.
That is, does or will the firm have the resources to pay the creditors when the debt
comes due?
There are two ways to approach the liquidity question.
1. We can look at the firms assets that are relatively liquid in nature and compare
them to the amount of the debt coming due in the near term
2. We can look at how quickly the firms liquid assets are being converted into cash.
B. Financing of assets:
Two primary ratios used to answer this question are the debt ratio and times interest
earned.
e. Standard costs can be used to value stock and as a basis for setting wage
incentives schemes.
f. It operates through the management by exception principals, where only those
variances, that are outside certain tolerance limits, are investigated thereby
economizing on managerial time.
g. Standard costing simplifies bookkeeping, as information is recorded at standard,
instead of a number of historic figures.
h. Control action is immediate, for, as soon as material is issued from store in order
to make a product it can be compared with the standard material which should have
been for the actual productions.
i. Managers are made responsible for standards.
Limitations:
a. heavy load of input data is required which is expensive.
b. Standard costing is only applicable in organizations where processes or jobs are of
a repetitive nature.
c. Unless standards are set which are accurate respect to labour efficiency, quality,
and price of material, any comparison with actual will be meaningless.
d. because of uncertainty , especially that related to inflation, standards needs to be
continually updated and revised.
HRA, thus, not only involves measurement of all the costs/ investments associated
with the recruitment, placement, training and development of employees, but also
the quantification of the economic value of the people in an organization.
Objectives:
HRA serves the following purposes in an organization:
1. It furnishes cost/value information for making management decisions about
acquiring, allocating, developing, and maintaining human resources in order to attain
cost-effectiveness;
2. It allows management personnel to monitor effectively the use of human
resources;
3. It provides a sound and effective basis of human asset control, that is, whether
the asset is appreciated, depleted or conserved;
4. It helps in the development of management principles by classifying the financial
consequences of various practices.
Utility of Human Resource Accounting:
1. It through lights on the strength and weakness of the existing workforce in an
organization. This is in turn, helps the management in recruitment planning where to
hire people or not.
2. It provides valuable feedback to managers regarding the effectiveness of the
Human Resource policies and practices.
3. It helps potential investors judge a company better on the strength of the human
assets utilized therein. If two companies offer the same rate of return on capital
employed, information on human resources can help investors decide which
company to be picked up as an investment.
4. It helps management in taking appropriate decisions regarding the use of human
assets in an organization that is whether to hire new recruits or promote people
internally.
36. A factory is currently working at 50% capacity and the product cost per
unit is given below:
Material
- Rs. 100; Labour Rs. 30; factory overheads (40%
fixed) Rs. 30 ; Administrative overheads (50% fixed) Rs.20.
The product is sold at Rs.240 per unit and the factory produces
10000 units at 50% capacity level. Estimate the profit and total
cost if the factory works at 60% by preparing a flexible budget. At
60% working, raw material cost increases by 20% and selling price
falls by 10%.
Solution:
Flexible Budget
Particulars
Material
Labour
Factory Overhead (30 Rs.)
Fixed 40%
Variable 60%
12
18
120000
180000
12
18
144000
180000
100000
100000
10
10
120000
100000
Total Cost
Profit
Selling Price
1800000
600000
2400000
200
16
216
2344000
192000
2592000
180
60
240
37. A company budgets for a production of 150000 units. The variable cost per unit
is Rs.14 and fixed cost Rs. 2 per unit. The company fixes its selling price to
fetch a profit of 15% on cost.
a) Find the break-Even Point
b) Determine the P/V ratio
c) If it reduces the selling price by 5%, what is the new BEP and P/v ratio.
d) What would be the sales, at the reduced price if the desired profit is
Rs.3,96,000
Solution:
Total Cost = 14 + 2 = 16 Rs.
Profit = 15 % of 16 = 2.40 Rs.
Selling Price = Cost + Profit 16 + 2.40 = 18.40 Rs.
Contribution: Sales Variable Cost & 18.40 14 = 4.40
a. P/V Ratio = Contribution/Sales 4.40/18.40 = 24% (23.9%)
b.
(New P/V
Ratio)
38. Compute (i) Material Cost variance (ii) Material Price variance and (iii)
Material Usage variance from the following information:
Standard
Particulars
Quantity (Kg)
Actual
Rate per kg
Quantity (Kg)
Rate
per
kg
Material A
Material B
800
6.00
750
7.00
400
4.00
500
5.00
Liabilities
Share Capital
Debentures
Creditors
Profit & Loss A/C
2006
70000
12000
10360
10740
2007
74000
6000
11840
11360
105106
105207
Assets
Cash
Debtors
Stock
Goodwill
Land
2006
9000
14900
49200
10000
20000
105106
2007
7800
17700
42700
5000
30000
105207
Additional Information:
a. Dividends Paid for 4000 Rs.
b.
Add
620
5000
4000
5000
14000
14620
Sources
Issue of Shares
Funds From Operation
Decrease in Working Capital
Amount
4000
Applications
Purchase of Land
14620
6380
Redemption
Debentures
Dividends Paid
Amount
15000
of
6000
4000
25000
25000
40. Preparing a cash budget for the months of may, June and July, 1998 on
the basis of the following information:
(1) Income and expenditure forces:
Months
Credit
Credit
Wages
Manufacturing Office
Selling
sales
purchases
Expenses
expenses expenses
March
60,000
36,000
9,000
4,000
2,000
4,000
April
62,000
38,000
8,000
3,000
1,500
5,000
May
65,000
33,000
10,000
4,500
2,500
4,500
June
58,000
35,000
8,500
3,500
2,000
3,500
July
56,000
39,000
9,500
4,000
1,000
4,500
August
60,000
34,000
8,000
3,000
1,500
4,500
(2) Cash balance on 1st may, 1998 Rs 8,000
(3) Plant costing Rs. 16,000 is due for delivery in July, payable 10% on
delivery and the balance after 3 months.
(4) Advance tax of Rs.8, 000 each is payable in march and June.
(5) Period of credit allowed (1) by suppliers two months, and (2) to
customers-one month.
(6) Lag in payment of manufacturing expenses month.
(7) Lag in payment of office and selling expenses one month.
Solution:
Particular
Opening balance
Estimated cash receipts
Debtors (credit sales)
Estimated cash payment
Creditors (credit purchases)
Wages
Manufacturing expenses
Office expenses
Selling expenses
Plant- payment on delivery
Advance tax
Cash Budget
May 1998 Rs
8,000
June 1998 Rs
13,750
July 1998 Rs
12,250
62,000
70,000
64,000
77,750
58,000
70,250
36,000
10,000
3,750
1,500
5,000
----------56,250
38,000
8,500
4,000
2,500
4,500
8,000
------------65,500
33,000
9,500
3,750
2,000
3,500
1600
------------53,350
13,750
12,250
16,900
Working Notes: (1) Opening for June has been written finding closing balance for
May, and for July after finding the closing balance for June.
(2) Since the period of credit allowed to customers is one month, the payments forcredit purchases in March shall be made in May and so on.
(3) Since the period of credit allowed by suppliers is two months, the payment: for
credit purchases in March shall be made in May and so on.
(4) One-half of the manufacturing expenses of April and one half of those of May
shall be paid in May, (1/2 of Rs. 3,000) + (1/2 of Rs 4,500) Rs. 3750 and so on.
(5) Office and selling expenses of April shall be paid in May and so on.
250
116
100
250
100
120
129
25
595
495
Fixed assets
Less:
Depreciation
Investment
Stock
Debtors
Cash /bank
Other current
Assets
Misc.
Expenditure
31.3.95
31.3.94
400
300
140
260
40
120
70
20
100
200
30
100
50
20
25
25
60
70
595
495
You are given the following information for the year 1994-95
Sales
600
PBIT
150
Interest
24
Provision for tax
60
All the figures given above are rupees in lakhs.
From the above particular calculate for the year 1994-95:
(a) Return on capital employed Ratio.
(b) Stock turnover ratio
(c) Return on net worth
(d) Current ratio
(e) Proprietary Ratio
Solution:
(a) Return on capital employed Ratio.
PBIT / Average capital employed *100
= 150 / 403 *100
= 37.22%
(b) Stock turnover ratio
Sales / average stock
600 / 110
= 5.45 times
(c) Return on net worth
PAT / Average *100
= 235 / 129
=22.53%
(d) Current Ratio
Current Assets / current liabilities
= 235 / 129
=1.82 times
(e) Proprietary Ratio
Proprietary funds / total assets Misc. expenses
= 306 / 595-60
=0.57
Working notes:
(1) Average capital employed
(Rs in lakhs )
31.3.1995
31.3.1994
Total assets (excluding Misce. Exp.)
425
Less: creditors and other current liability
25
535
129
406
250
116
366
350
400
60
306
280