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Spring 2011(Feb-July)

Master of Business Administration - MBA Semester 1

Subject Code – MB0041

Subject Name – Financial and Management Accounting

4 Credits

(Book ID: B1130)

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Assure you have just started a Mobile store. You sell mobile sets and
currencies of Airtel, Vodaphone, Reliance and BSNL. Take five transactions and
prepare a position statement after every transaction. Did you firm earn profit or
incurred loss at the end? Make a small comment on your financial position at the
end. [10 Marks]

We shall consider five transactions and show how they are accounted for in the books
of the business.

1. Mr. Rajesh brings Rs.100000 cash as capital into his business.

2. He purchases Mobile Set to his shop Rs.10000
3. He buys currencies for cash Rs.50000
4. He sells currencies worth Rs.30000 for Rs.40000 on credit to Arjun
5. He pays wages to servants Rs.1000

Transaction 1: The business receives capital in cash. Capital is a liability and cash is
an asset to the business.

Liability Asset
Capital 100000 Cash 100000

Transaction 2: Mobile Set is purchased for cash. This transaction can be reflected as
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Q.2a. List the accounting standards issued by ICAI. [5 Marks]

2b. Write short notes of IFRS. [5 Marks]

To bring uniformity in terminology, accounting concepts, conventions, and assumptions,
the Institute of Chartered Accountants of India (ICAI) established Accounting Standards
Board (ASB) in 1977. An Accounting Standard is a selected set of accounting policies or
broad guidelines.

Example: While depreciating an asset the practice of adopting straight line method or
diminishing balance method or any other method is a convention regarding the
principles and methods to be chosen out of several alternatives. There are altogether 32
accounting standards issued by ASB out of which, one standard (AS8) has been
withdrawn pursuant to AS26 becoming mandatory.

b) International Financial Reporting System:

IFRS are standards, interpretations and framework for the preparation and presentation
of financial statements. IFRS was framed by International Accounting Standards Board
The objective of financial statement is to provide information about the financial position,
performance and changes in the financial position of an entity. It should also provide the
current financial status of the entity to all the users of financial information. IFRS follows
accrual basis of accounting and the financial statements are prepared on the basis that
an entity will continue for the foreseeable future. IFRS helps entities access global
capital market with ease.

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Q.3 Prepare a Three-column Cash Book of M/s Thuglak & Co. from The following
particulars: [10 Marks]
20X1 1. Cash in hand Rs. 50,000, Bank Overdraft Rs. 20,000
2. Paid into bank Rs. 10,000
3. Bought goods from Hari for Rs, 200 for each
4. Bought goods for Rs. 2,000 paid cheque for them, discount allowed
5. Sold goods to Mohan for each Rs. 1.175
6. Received a cheque from Shyam to whom goods were sold for Rs.
800.Discount allowed 12.5%
7. Shyam’s cheque deposited into bank
8. Purchased an old typewriter for Rs. 200 , Spent Rs. 50 on its
9. Bank notified that Shyam’s cheque has been returned dishonored
and debited the account in respect of charges Rs. 10
10. Received a money order Rs. 25 from Hari
11. Shyam settled his account by means of a cheque for Rs. 820, Rs.
20 being for interest charged.
12. Withdrew from the bank Rs. 10,000
18. Discounted a B/E for Rs. 1,000 at 1% through bank
20. Honored our own acceptance by cheque Rs. 5,000
22. Withdrew fir personal use Rs. 1,000
24. Paid tread expenses Rs. 2,000
25. Withdrew from bank for private expenses Rs. 1,500
26. Purchased machinery from Rajiv for 5,000 and paid him by means
of a bank draft purchased for Rs. 5,005
27. Issued cheque to Ram Saran for cash purchased of furniture Rs.
28. Received a cheque for commission Rs. 500 from R.& Co. and
deposited into bank
29. Ramesh who owned us Rs. 500 became bankrupt and paid us 50
paise in the rupee
30. Received payment of a loan of Rs. 5,000 and deposited Rs. 3,000
out of into bank
31. Paid rent to landlord “Mohan” by cheque of Rs. 220
31. Interest allowed by bank Rs. 30
31. Half-yearly bank charges Rs. 50

Receipts Discount Cash Bank Payment Discount Cash Bank

To balance b/d 50000 By Purchase 200
To balance 20000 By Purchase 20 2000
To capital 10000 By Purchase 250
To sales 1175 By Cheque ret 100 810
To sales 100 800 By Drawings 10000

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Q.4 Choose an Indian Company of your choice that has adopted Balance Score
Card and detail on it. [10 Marks]

The Balanced Score Card is a framework for integrating measures derived from
strategy. While retaining financial measures of past performance, the Balanced Score
Card introduces the drivers of future financial performance. (Figure 1) The drivers
(customer, internal business process, learning & growth perspectives) are derived from
the organization's strategy translated into objectives and measures.

The Balanced Score Card is more than a measurement system it can be used as an
organizing framework for their management processes. The real power of the Balanced
Score Card is when it is transformed from a measurement system to a management
system. It fills the void that exists in most management systems - the lack of a
systematic process to implement and obtain feedback about strategy
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Q.5 From the following data of Jagdish Company prepare (a) a statement of source and
uses of working capital (funds) (b) a schedule of changes in working capital

Assets 2008 2007

Cash 1,26,000 1,14,000
Short-term 42,400 20,000
Debtors 60,000 50,000
Stock 38,000 28,000
Long term 28,000 44,000
Machinery 2,00,000 1,40,000
Building 2,40,000 80,000
Land 14,000 14,000
Total 7,48,400 4,90,000
Liabilities and Equity
Accumulated 1,10,000 60,000
Creditors 40,000 30,000
Bills Payable 20,000 10,000
Secured loans 2,00,000 1,00,000
Share capital 2,20,000 1,60,000
Share premium 24,000 Nil
Reserves and 1,34,400 1,30,000
Total 7,48,400 4,90,000

Income statement
Sales 2,40,000
Cost of goods sold 1,34,600
Gross Profit 1,05,200
Less Operating expenses: 92,000
Depreciation – machinery
Depreciation – building
Other expenses 40,000
Net profit from operation 13,200
Gain on sale on long-term 4,800
Total 18,000
Loss on sale of machinery 2,000
Net Profit 16,000

1) Machinery worth Rs.70000 was purchased and worth Rs.10000 was sold during the
year [Accumulated depreciation on machinery is Rs.18000 after adjusting depreciation
on machinery sold]. Proceeds from the sale of machinery were Rs.6000
2) Dividends paid during the year Rs.11600 [ 10 Marks]

a) a statement of source and uses of working capital (funds) Adjusted Profit and Loss
To By
Depreciation – machinery & 92000 Sales of goods 105200

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Dividends paid 11600 for complete Answer visit 2800
118800 118800

b) Schedule of changes in Working Capital:

Particulars Previous Current Increase Decrease

Year 2007 Year 2008
Cash 1,14,000 1,26,000 12000
Short-term 20,000 42,400
investment 22400
Debtors 50,000 60,000 10000
Stock 28,000 38,000 10000
Long term Investment 44,000 28,000 - 16000
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Liabilities and Equity

Accumulated 60,000 1,10,000
depreciation 50000
Creditors 30,000 40,000 10000
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Reserves and surplus 1,30,000 1,34,400 4400

Total 4,90,000 7,48,400 258400

Q.6 what is a cash budget? How it is useful in managerial decision making? [10


A proper control over cash is very essential. Cash is an important component in any
activity. The control becomes inescapable. If cash is not properly managed or if it is
mismanaged, the ultimate result would be disastrous. In many times and in many
business situations, business failures are noticed due to the lacunae found in the cash
management. Hence cash budgeting occupies a pivotal place in the study of Financial

Cash budgeting is the process of forecasting the expected receipts known as cash
inflows, and expected payments known as cash outflows to meet the future obligations.
The written statement of receipts and payments is known as the cash budget. It is a
crystal ball which enables one to observe the future movements in cash position. It is a
mere forecast of cash position of an undertaking for a definite period of time. The period
may be daily, weekly, monthly, quarterly, semi-annually, or annually. The major two
components of cash budget would be forecast first the cash receipts and then second
forecasting the cash disbursements.

The receipts of cash are formatted as follows:

1. Opening balance of cash in hand and cash at bank

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