Programme:- BBA

Semester:- 2
Name:- JAIN HARDIK MAYUR
Roll Number:- 2114501175
Course Name and Code:- Financial Management
(DBB1202)
University Mail ID:- jain.2114501175@mujonline.edu.in
 Set 1

Q. 1 Explain different types of accounting concepts in details.

Answer→ Accounting concepts are the basic rules, assumptions and conditions that defines the
parameters and constraints the accounting operates.
The various types of accounting concepts are as follows:

1. Business Entity Concept:- It is the most basic concept of accounting. It assumes that the
business owners are completely separate from the business. It means that the business is a
standalone entity. The accounting books and books of owners are kept separately.
For ex- Raj owns a shop Raj electronics, so his own house, debts, etc. are different from
the business liabilities and assets and also recorded in different books of accounts.
2. Money Measurement Concept:- This concept states that only transactions with monetary
terms are measured and recorded in the books of accounts. In simple words, only financial
transactions are recorded in the books of accounts.
3. Going Concern Concept:- Going concern concept assumes that the business will be carried
out on an ongoing basis. This concept accommodates the classification of assets and
liabilities into short term and long term period. It ingrains a confidence in a company that
it will continue to exist in the future. This concept is not valid in some cases such as when
the government declares that the company is sick, when the company has financial crisis
and expected to winding up in short period, etc.
4. Accounting Period Concept:- It refers to the division of accounts records into similar
multiple measured times. Generally, the time can be a quarter, half year or a full year. The
 company discloses the information in a certain time period which is dependent on the type
of company, whether private or public. A public listed company must disclose its
performance every quarter, while the private company can disclose its financial
performance according to their own convenience.
5. Cost Concept:- This concept states that any asset that the entity records shall be recorded
at its acquisition cost value i.e. purchasing price. And depreciation should be carried out
on the price of assets every year.
6. Dual Aspect Concept:- This concept is the backbone of the accounting concepts. It states
us that every transactions has two effects, one at the credit side and one at the debit. The
firm has to record every transaction and give effect to both the debit and credit sides. It
reduces the chances of financial mishaps happening.
7. Realization Concept:- It is similar to the cost concept. This concepts states that the firm
should record an asset at cost until the value of the asset has been realized. The realized
value of the asset has been recorded by the firm only after it has sold or disposed off and
not after receiving the order.
8. Accrual Concept:- According to the Accrual concept, the income and expenses to be stated
in the same accounting in period in which they are occured and not in the period in which
the income was obtained or the expenses were paid.
9. Matching Concept:- The reporting of revenues or expenses in the same time period is called
as the Matching concept. The revenues and expenses of a firm must be recognized by the
firm in the same accounting period because if it is not recognized in the same accounting
period then it would lead to a mismatch between profits and expenses.
Q. 2 From the following details, pass the necessary closing entries.

Stock on 1-1-2003 4,000 Freight 800

Purchases 15,000 Factory rent 1,000
Bad debts 500 Office rent 2,400
Sales 30,000 General expenses 500
Returns to suppliers 2,000 Heating and lighting 700
Returns from customers 1,000 Discount allowed 300
Wages and salaries 5,000 Discount received 400
Carriage on purchases 1,000 Commission (Cr.) 500
Cartage on sales 200 Insurance 200
Depreciation on Machinery 1,000 Closing stock 6,000

Answer→
Closing Entries
Date Particulars L.F. Debit (Dr.) Credit (Cr.)

Purchase Return account dr. 2000

To Purchase account 2000
(Being the purchase return account closed by transfer
to purchase account)
Sales account dr. 1000
To Sales Return account 1000
(Being the sales return account closed by transfer to the
sales account)
Trading account dr. 25500
To Opening account 4000
To Purchase account 13000
To Carriage on purchases account 1000
To Freight account 800
To Wages and salaries account 5000
To Factory rent account 1000
To Heating and lighting account 700
(Being all the above items closed by transfer to Trading
account)
Sales account dr. 29000
To Trading account 29000
(Being the sales account closed by transfer to the
trading account)
Trading account dr. 9500
To Profit and loss account 9500
(Being the gross profit transferred from the trading
account to the profit and loss account)
Profit and loss account dr. 5100
To Rent account 2400
To General expenses account 500
To Insurance account 200
To Depreciation account 1000
To Cartage on sales account 200
To Bad debts account 500
To discount allowed account 300
(Being the above items closed by transfer to Profit and
loss account)
Discount received account dr. 400
Commission received account dr. 500
To Profit and loss account 900
(Being both the items closed by transfer to profit and
loss account)
Profit and loss account dr. 5300
To Capital account 5300
(Being net profit transferred to capital account)
Q. 3 Define Bank Reconciliation Statement. Discuss various reasons for difference in balance of
cash book and passbook.
Answer→ A statement or report made by the business to match the bank transactions recorded in
the books of accounts with the bank statement is called as the Bank Reconciliation Statement. This
statement helps in checking that the entries we recorded in the books of accounts are correct and
on that basis ensures the accuracy of bank balance.
There can be various different reasons for difference in the balance of cashbook and passbook,
some of them are as follows:
1. Checks issued to suppliers but not yet presented for payment by them:-Whenever any check
is issued for the payment, then the entry in the cash book has done immediately. But the
bank make that entry only after the check is presented to them for payment. So in this case,
there maybe have a gap of some days between the entries in the passbook and the cashbook.
2. Cheque paid into the bank but not cleared yet:- Whenever we sent a check into the bank,
we do entry in our cash book immediately. But the bank credit our account only after they
received the payment from the concerned bank. So there will be a gap of some days
between the cheque paid and the credit given by the bank in the passbook.
3. Amount deposited in the bank directly:- Sometimes our customer pays/deposits the
remaining balance directly into our company’s bank account and the bank pass the
necessary entry immediately into the passbook. But we will know about it only after
receiving the statement of bank. So there is a possibility of difference in dates of cashbook
and passbook.
4. Cheques received by the firm and entered in the cash book but not presented in bank yet:-
Sometimes it happens that the firm receives the cheque from its customer and necessary
entry has made in the cashbook. But the firm forget to deposit that cheque in the bank
account, so no entries are made in the passbook.
5. Cheques issued and entries made in cashbook but dishonoured by the bank:- Whenever any
cheque is issued, the firm will make an entry at credit side of cashbook immediately, but
at the time of its payment in bank, sometimes it gets dishonoured due to some technical
issues. So no entry has made in passbook.
6. Bank Service Charges:- Bank gives us various services and they charge for it in the form
of fees, commission, etc. The bank make their entry immediately after taking the charges
but we come to know about it after receiving the bank statement.
7. Income received by bank:- It happens that the dividend a firm received on shares or interest
received on the debentures are directly deposited in bank and they pass their entries but the
firm get to know about it after receiving the statement. So there is a possibility of mismatch
in dates.
8. Payment done by bank on behalf of the firm:- Sometimes the electricity bill, rent, taxes,
etc. are paid by the bank on behalf of customer and made the entries in the passbook but
the firm will pass entries after it collects the statement.
9. Dishonour of cheques/bills discounted:- When a firm deposits a cheque or bills receivable
discounted in bank and it gets dishonored, then the bank debits the firm’s account but the
firm will passes the entries when he will come to know about it.
 Set 2

Q. 4 Describe in detail different types of shares.

Answer→ A unit of equity ownership in a company is called as a Share. Share is also called as
Stock.
There are generally two types of Shares : (1) Preference Shares, (2) Equity Shares

1. Preference Share:- The share which enables the shareholders to receive the dividend
declared by the company before the equity shareholders are called as Preference Shares.
As the name suggests, this shares also gets first preference in repayment of capital at the
time of winding up of the company rather than equity shareholders. The capital raised by
those shares is called as Preference Share Capital. They are also called as owners of the
company but they don’t enjoy voting rights like equity shareholders.
Preference shares are also subdivided as follows-
❖ Cumulative Preference shares-: Those shares which enjoy dividend either when
company is not making profits are called as Cumulative preference shares. The
dividend will be counted in arrears and it will be paid on cumulative basis when
company makes profit in future.
❖ Non-cumulative Preference shares-: It is totally opposite of the cumulative
preference shares. Those shares only gets dividend when company makes profit and
not gets dividend when company suffers loss. The dividend of this shareholders
will not be counted as arrears and will not be paid by the company in future on
cumulative basis. Those shareholders gets dividend only when company generates
profit in a particular year.
 ❖ Participating Preference shares-: These shareholders enjoys a fixed rate of dividend
and they also enjoys profit of the company at the time of winding up, after the
dividend is paid to the equity shareholders.
❖ Non-participating Shares-: Non-participating shares gets a fixed rate of dividend
but they not enjoys surplus profit of the company at the time of its liquidation like
the Participating shareholders.
❖ Redeemable Preference shares-: The shares which can be redeemed by the issuing
company itself at a fixed rate and date are called as Redeemable Preference shares.
At the time of redemption of the share, this shareholder will receive the face value
of the share, the redemption premium, dividend which is in arrears and the dividend
of the current year. Those shares helps the issuing company in providing a cushion
in the times of inflation.
❖ Irredeemable Preference shares-: Irredeemable preference shares are those shares
which can be redeemed only at the time of liquidation of the company.
❖ Convertible Preference shares-: The shares which allows to convert their preference
shares into the equity shares at a fixed rate as mentioned in the memorandum of
company are called as Convertible Preference shares.
❖ Non-convertible preference shares-: These shareholders cannot convert their
preference shares into equity shares.
2. Equity Shares:- Equity shares are generally called as ordinary shares. Those shareholders
receives dividend only after it is paid to the preference shareholders. And also at the time
of winding up of the company, first the payment is given to the creditors of the company,
then the capital of preference shareholder is returned and then the remaining amount is
distributed between the equity shareholders. The equity shareholders enjoys the voting
rights.
Q. 5 Define debentures and summarize the classification of debentures.
Answer→ A long term loan raised by the corporate or government company for capital
requirements from the public is known as Debentures. Debenture holder is a creditor of the
company. Debenture holders gets interest on their investment.
The classification of debentures are as follows:

1. On the basis of security:-

I. Secured Debentures-: This type of debentures are secured and carry charges on
some assets of the issuing company. If the company fails to repay its debts then the
assets of the company will be sold to pay to the secured debenture holders. There
are two types of secured debenture holders which are as follows-
a. First mortgage debentures: The holders which have the first right on the assets
charged are called as first mortgage debenture holders.
b. Second mortgage debentures: The holders which have the second right on the
assets charged are called as Second mortgage debenture holders.
II. Simple/unsecured Debentures-: The debentures which are not secured with assets
charged or interest are known as unsecured/simple debentures.
2. On the basis of redemption:-
I. Redeemable Debentures-: These debentures are redeemed on a fixed period as
mentioned in the debenture certificate. The amount of the debentures is paid to the
debenture holders on or before expiry of its fixed period.
II. Irredeemable Debentures-: This are those debentures which cannot be redeemed.
We can only get the amount of debentures back at the time of winding up of the
company.
3. On the basis of records:-
I. Registered Debentures-: The debenture holders whose name and address is
registered with the company are called as registered debentures. Only the debenture
 holders whose name is registered with the company can gets the amount payable.
This shares are cannot be transferred easily.
II. Bearer/unregistered Debentures-: The name and address of these debenture holders
is not registered with the company and so they are called as unregistered or bearer
debentures. This debentures are easily transferable to the new debenture holder.
4. On the basis of convertibility:-
I. Convertible debentures-: The debentures which can be change to equity shares after
a certain period of time as mentioned in the certificate is called as convertible
debentures. This debentures are either convertible entirely or partly.
II. Non-convertible debentures-: The debentures which cannot be convertible into
shares are called as non convertible debentures. Their debt remains as debt for the
whole period and they cannot convert it into company shares.
5. On the basis of priority:-
I. First Debentures-: The debenture holders which have given the first priority at the
time of redemption are called as First debentures.
II. Second Debentures-: The debenture holders which have given the priority after the
first debenture holders at the time of redemption are called as Second debentures.
So the above are some of the types and sub-types of debentures.
Q. 6 Discuss different methods used for calculation of depreciation in detail.
Answer→ A continuing, permanent and gradual decrease in the book value of fixed assets is called
as Depreciation. There are four methods which are commonly used to calculate depreciation which
are as follows:
1. Straight Line Method (SLM):- This is the most simple, common and easy to use method in
calculating the depreciation. It is also called as Original cost method or fixed installment
method. In this method the depreciation is calculated by deducting the salvage value from
the acquisition price of asset and the amount will divided by the number of years the asset
was used or it can be used. And the same amount of depreciation will be charge every year
on that asset. The formula of Straight line method is –

Acquisition cost of asset – Salvage Value

Annual Depreciation = ----------------------------------------------------------------
Estimated Life in years
For ex- The acquisition cost of a machine is Rs. 500000 and its estimated life period is 10
years and salvage value is nil then the depreciation will be calculated as
500000 – 0
Annual Depreciation = ------------------
10
= Rs. 50000
So the depreciation on that machine will be calculate at Rs. 50000 every year.
2. Written Down Value Method (WDVM):- This method is also called as Diminishing
balance method or reducing balance method. In this method the depreciation is calculated
at fixed percentage on the reducing value of an asset. The salvage value is not considered
in the Written down value method.
For ex- The equipment is cost at Rs. 100000 and 10% depreciation will be calculated every
year.
Depreciation of first year = 100000 * 10% = 10000
Depreciation of second year = (100000-10000) * 10% = 9000
And so on.
3. Annuity Method:- The annuity method calculates the depreciation on the asset by
calculating its rate of return. In this method the asset is considered as an investment and
receives interest at a particular rate. The annuity table which contains the percentage for
calculation of depreciation and years is given in the question and it is used in calculating
the depreciation of an asset. The total depreciation amount will be recorded at the credit
side of asset account and at debit side in depreciation account and the interest will recorded
at debit side of asset account and at credit side of interest account.
4. Depreciation Fund Method:- This method is also called as Sinking fund method. In this
method of calculating depreciation, an enough amount is accumulated at the end to replace
the asset at the end of its useful life. In this method the depreciation amount is charged to
a new depreciation fund / sinking fund account which is generally invested in governments
securities and bonds and the interest received from those bonds and securities are used to
 replace the assets. The depreciation fund / sinking fund account will appear on the liability
side of balance sheet. This method is little similar to the Annuity method.
So the above are some of the major methods to calculate depreciation.

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