INTERNAL ASSIGNMENT - JUNE 2022 EXAMINATION

FINANCIAL ACCOUNTING & ANALYSIS

Q1. For the following transactions, analyze the accounting transactions using the
accounting equation framework

1. Introduced Rs. 500000 through a cheque by the Owner as the Initial capital in the
business

2. Purchased goods on credit from Ms. Ritu at Rs 40000

3. Paid Rs. 10000 as salary to the employees

4. Invested Rs. 200000 in a fixed deposit account

5. Paid school fees of the kid Rs. 25000, from the business’s bank account.

Answer 1.

Introduction:

Journal entries are essential abilities to expand in an accounting career. Groups' monetary
accounts could be misguided and a giant mess if they didn't have good enough journal
entries. As a result, every time a transaction occurs inside a corporation, at least two debts
should be affected in opposing guidelines. If a firm buys an automobile, as an instance, the
car's value increases the worth of the company's assets. However, an extra account those
changes are required (i.e., the identical and contrary response). Another account that has been
impacted is the organization's cash, which has decreased due to the cash spent on buying the
car.

Concept and application:

The situation of any organization financially, big or little is determined by two fundamental
statements of financial components: assets and liabilities. The accounting equation
demonstrates the interdependence of those three essential additives. Assets consisting of land
are the corporation's treasured sources, whereas liabilities imply the organization's
commitments. The third element of the stability sheet is owners' equity, often known as
shareholders' equity. Both duties and shareholders' equity display how a business's assets are
financed. If it is financed with debt, it will appear as a liability; however, if it is financed with
equity stocks offered to buyers, it will seem in shareholders' fairness.

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The balance sheet facts the factors that contribute to the accounting equation:

• Find the company's tangible assets on the balance sheet for the term.

• Add up all the liabilities, which should be listed separately on the financial declaration.

• Find general shareholder fairness and multiply it with the aid of total liabilities.

• The discerns of duties and general equity will remain identical to the general property.

Double Entry System: The equation of accounting is a brief statement of a stability sheet's
sophisticated, enlarged, and multi-item format. The illustration corresponds to all money
applications (assets) consisting of all capital assets, with lending capital emerging in debt and
equity funding ending in shareholders' equity. If a corporation maintains reliable records,
each economic transaction might be documented in at least 2 of its accounts. For instance, if
an enterprise takes out a bank loan, the borrowed funds will appear on the financial statement
as a rise within the company's assets and the loan liabilities.

Because every transaction made by a firm affects two or more accounts, the accounting
approach is called dual accounting. While a firm buys uncooked sources and can pay coins,
its inventory (an asset) rises, but its cash capital falls (another asset). The double-entry
method assures that the accounting equation's stability is usually maintained, stating that the
left and proper aspects of the equation are constantly equal. In some other manner, All assets'
overall cost will usually represent the sum value of all responsibilities and owners' equity.

The substantial use of the gadget of double-access accounting makes the accounting and
tally-keeping operations more uniform and error-free. The accounting equation assures that
all entries inside the books and records are proven. Each duty (or cost) has a verifiable
hyperlink with its matching source; or that each piece of revenue (or asset) has a verifiable
relationship with its source.

Journal entries for the above given financial transactions would be the following:

Transactions Journal Entry Analyzation

1. Introduced Bank A/c ---- Dr 5,00,000 Increase in Asset is

Rs500,000 via a debited.
To Capital A/c 5,00,000
cheque via the
proprietor as the
preliminary (Being cheque deposited into the bank Increase in Capital is

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 capital in the towards capital by the owner) credited.
business:

2. purchased items Purchases A/c ---- Dr 40,000 Increase in Expenses is

on credit from debited.
To Ms. Ritu A/c 40,000
Ms. Ritu at Rs Increase in Liability is
40,000 credited.
(Being goods purchased on credit from
Ms. Ritu)

3. Paid Rs 10,000 as Salary A/c ---- Dr 10,000 Increase in Expenses is

revenue to the debited.
To Bank A/c 10,000
employees

(Being salary paid to the employees Decrease in Asset is

credited.
from the bank)

4. Invested Fixed Deposit A/c ---- Dr 200,000 Increase in Asset is

Rs200,000 in a debited.
To Bank A/c 200,000
fixed deposit
account
Decrease in Asset is
(Being fixed deposit created)
credited.

5. Paid school fees Drawings A/c ---- Dr 25,000 Decrease in Capital is

of the kid Rs debited.
To Bank A/c 25,000
25,000from the
business’s bank
account (Being drawings made for paying fee to Decrease in Asset is
credited.
kid’s school fees)

Conclusion:

Hence, the conclusion may be drawn from the dialogue of the accounting equation that the
company's reputable ebook, wherein all transactions are documented in chronological order,
is featured as a journal. Although many firms utilize accounting software to document journal
entries, diaries were once the maximum everyday manner of doing so.

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Q2. You started learning the course of financial accounting and analysis in the MBA
Program. You learned about commonly used accounting terms. Discuss about any five
terms which are commonly used by the different users of accounting information for the
sake of understanding the financial statements Student may define and describe about
any five terms.

Answer 2.

Introduction:

Accounting is the artwork of recording a corporation's financial transactions. Accounting,

that's the segment of documenting, analyzing, and communicating financial transactions, aids
people and groups in their financial situation—summarizing, evaluating, and monitoring the
events to look at authorities, regulators, all of those entities involved in the accounting
technique. Accountants do this by having a follow-up of spending, profits, and losses using
the following accounting formulation: liability + Equity = property. Influential accountants
ensure that their corporations are privy to their prison requirements and financial performance
and that they can construct budgets and make lengthy-time period plans. Managers use
accounting data to make choices about buying and selling, investing, and pricing.

Concept and application:

Accounting is most of the maximum critical factors of practically every organization. In a

small company, it can be controlled through a cashier or accountant, while in larger
organizations; it could be treated with a substantial financial branch with loads of employees.
Accounting reports and costing machines, and managerial accounting are crucial in
supporting control in making informed enterprise selections.

Financial statements are concise and aggregated reports that element a big corporation's
operations, financial position, and cash flows over a given term. They're built on the backs of
lots of independent monetary operations. As a result, all accounting credentials are the fruits
of years of research and rigorous testing and some business and accounting revel in.

Five accounting terms that the unique users of accounting records can commonly use for the
sake of understanding the financial statements are:

1. Balance Sheet: A balance sheet reviews a statement that depicts a company's assets, debts,
and investor fairness at a given time. The monetary documentation is the basis for

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determining investor returns and reading an employer's economic structure. In a word, it
shows the property and liabilities of an employer and the quantity of cash invested via
shareholders. St Stability sheets can be mixed with other important financial accounts to
conduct a simple analysis or calculate financial ratios. It depicts an organization's financial
popularity at a specific factor in time. It cannot provide you with a feel of lengthy-term styles
on its very own. As a result, the accounting statistics need to examine the account balances
from previous quarters.

2. Accounts Payable: "Accounts payable" (AP) is a part of accounting that represents a

company's promise to reimburse lenders or vendors for a quick debt. Every other standard
definition of "AP" is the company division or unit in the rate of creating repayments in place
of the corporation to providers and different borrowers. The overall bills payable stability at a
given second in time will appear within the present-day legal responsibility column of its
balance sheet. Debts payable are debts that have to be paid in a certain sum of time if you
want to avoid default. AP shows instant debt outflows payable to suppliers on the business
level. The payable is efficiently a brief-term IOU among two businesses or entities. The
alternative associate might document the deal through a corresponding growth in its money
owed receivable.

3. Debts Receivables: The sales or cash that the company will receive from its clients who
have purchased products and services on credit score is called debts Receivable (AR). The
credit term is usually quick, starting from a few days to months or a year in rare situations.
The period receivable refers to a payment that has not yet been received. This means that the
company must have provided its customers with a credit score line. Usually, the organization
sells coins and credit for its merchandise and assistance. Bills receivables, frequently known
as receivables, are a credit that a company extends to its customers and usually contain
situations that demand bills to be made within a brief period. From short days to a full
economic or scheduled year, it might be whatever.

4. Income statement: An assertion of earnings is a monetary statement that illustrates how

lucrative your company was at some stage in a particular reporting duration. It displays your
sales after subtracting your prices and losses. The assertion of profits, along with the
statement of cash flows declaration, allows one to recognize the economic health of your
organization.

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5. Gross income: Gross income and gross margin or gross profit are synonymous. The
revenue from all sources minus the firm's value of merchandise bought equals a company's
gross income, as proven on the income statement (COGS). Gross margin is every other term
for gross income. There may also be a gross earnings margin. That's a profitability indicator.
It is greater accurately defined as a percent. After eliminating the direct costs of creating the
product or providing the provider, a company's gross revenue reflects how good deal money
it has made on its products or services.

Conclusion:

Consequently, the conclusion from above can be drawn that there are the five key accounting
phrases to recognize the economic declaration of any corporation. Many different vital
phrases desire to be understood as a way to recognize the monetary statements completely.

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Q3. From the given information

Amount in Lakhs

Cost of goods sold 580

Opening stock 40

Closing stock 70

Creditors at the beginning of the year 60

Creditors at the end of the year 100

Cash purchases 45

Original cost of equipment sold 400

Gain on the equipment sold 50

Accumulated depreciation on the equipment 80

Calculate:

a. Total purchases, credit purchases and payment to creditors (5 Marks)

Answer 3a.

Introduction:

The term 'creditor' is used in accounting to describe the person who has given a product,
service, or loan and is legally entitled through one or even more debtors. The individual in
query who owes the money is called a debtor instead of a creditor. After a creditor has
supplied the goods/services, a fee is regularly expected at a later date agreed upon in advance.

Concept and application:

Buying something on credit score with the expectation of future price from a 3rd party is
referred to as credit score buy. this means one isn't purchasing it proper away, however as a
substitute while the payment arrives.

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How much inventory did an agency purchase in a given accounting period? The information
may estimate the extra money required to satisfy ongoing working capital wishes. This sum
can be calculated using the following records:

• The entire rate of the primary inventory. These statistics can be observed on the
announcement of the financials of the previous accounting period.

• The total cost of the stock after the length. This information may be stated on the
statement of the financials of the cycle of accounts for which acquisitions are constantly
tracked.

• The charge of the products bought. This fact may be visible in the income assertion
for the accounting period wherein the purchases are being assessed.

Total Purchases = (Closing Stock – Opening Stock) + Cost of goods sold

Total Purchases = (70 – 40) + 580

Total Purchases = 610

Henceforth, the processes required to calculate the number of inventory purchases is as

follows:

• Calculate the total price of beginning and ending stock and the cost of products
bought.

• Take the initial inventory and subtract it from the completing stock.

• To the disparity among the closing and beginning inventories, add the price of items
bought.

Now, let us calculate the Credit Purchases:

Total Purchases = Cash Purchases + Credit Purchases

610 = 45 + Credit Purchases

Therefore, Credit Purchases = 610 – 45

Credit Purchases = 565

To calculate the payment to lenders allow us to create creditors accounts based on the facts
given to us:

Creditors Account

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Dr. Cr.

Particulars Amount (Rs) Particulars Amount (Rs)

To Cash 525 By Balance b/d 60

(Balancing Figure)

By Purchases A/c 565

To Balance c/d 100

Therefore, the payment made to the creditors is worth Rs. 525 lakhs.

Conclusion:

For this reason, the conclusion can be drawn that the entire purchase includes both cash and
credit purchases.

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Q3. b. Define the term Net book value, Accumulated depreciation calculate the net book
value and cash proceeds from sale of investment

Ans 3b.

Introduction:

Depreciation is an accounting word that refers to assigning the price of a tangible or physical
throughout its helpful existence. Depreciation is a term used to explain how a good deal of an
asset's worth has been consumed. We shall businesses generate money from the assets they
own via paying for them over time.

Concept and application:

Net Book Value: The entire value at which a company registers an asset in its financial
statements is net ebook value. The initial fare is subtracted from any cumulative depreciation,
accumulated depletion, collected amortization, and accrued impairment to reach net book
value. It's far an accounting method for lowering the reported cost of a set asset resulting
from these losses over time. It does not always suggest that the market charge of a hard and
fast asset is the same at any given moment.

Accumulated Depreciation: Gathered depreciation is the total depreciation expenditure

given to a particular asset since it became first utilized. It's a negative shape of asset, which
implies a deficit investment account that offsets the asset account to which it's typically
linked. When an organization has information depreciation expenses, the equal quantity is
credited to the cumulative depreciation account, allowing the company to display the asset's
value and its overall depreciation. This also reflects the asset's internet book price on the
financial statement.

Calculation of the net book value and cash proceeds from sale of investment:

Given,

Original cost of equipment sold = 400

Gain on the equipment sold = 50

Accumulated depreciation on the equipment = 80

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Net Book Value = Original Purchases Cost – Accumulated Depreciation

Net Book Value = 400 – 80

Net Book Value = 320

Corporations that work with financial facts or statements have to realize the idea of internet
proceeds. Understanding the net proceeds will help an organization in making sound business
decisions. After all initial expenditures are deducted from the gross, or total, sales of a
transaction; a merchant's last earnings are referred to as net proceeds. Relying on the vendor's
advance expenses, an asset may additionally have huge or modest internet proceeds.

Cash Proceeds from Sale of Equipment = (Original Cost of the Equipment – Accumulated
Depreciation) + Gain on Sale of the Equipment

Cash Proceeds from Sale of Equipment = (400 – 80) + 50

Cash Proceeds from Sale of Equipment = 320 + 50

Cash Proceeds from Sale of Equipment = 370

Conclusion:

Hence, the conclusion drawn from the calculation is that the net book value of the gadget is
320 lakhs and the coin obtained on the sale of the system is 370 lakhs. This indicates there
are earnings of 50 lakhs on the equal.

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