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# Financial and Management Accounting (MB0041)

Assignment I

## MBA 1st Semester Roll No: 521103149 Divyang Panchasara

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] Answer: 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 Capital 100000 Asset Cash 100000

Transaction 2: Mobile Set is purchased for cash. This transaction can be reflected as under Capital 100000 Cash Rs. 90000 (10000010000) Mobile Set 10000

Total

100000

Total

100000

Transaction 3: Purchased of currencies for cash. This can be reflected in the statement as under. Capital 100000 Cash Rs. 40000 (9000050000) Mobile Set 10000 Stock of 50000 currencies Total 100000

Total

100000

Transaction 4: Sold currencies to Arjun on credit for Rs.40000, the cost of which is only Rs. 30000. In this transaction the affected accounts are Currencies account, Arjun account and Profit & Loss account. Since the profit belongs to the owner it is fair to add it to the owners capital. The effect of this transaction can appear on the statement as shown below: Capital Profit 100000 10000 Cash Mobile Set 40000 10000

Total

110000

## Stock of 20000 currencies(5000030000) Arjun (Debtors) 40000 Total 110000

Transaction 5: Payment of wages Rs.1000.The cash balance gets reduced in the asset side and profit gets reduced as a result of the expenditure (wages account) on the liability side. This changes the statement as shown below: Capital 100000 Cash 39000 (40000 1000) Profit 9000 Mobile Set 10000 (100001000) Stock of 20000 currencies Arjun 40000 (Debtors) Total 109000 Total 109000

According to above book keeping entry Mr. Rajesh brings Rs.100000 cash as capital into his business. And one end of 5 transection his capital is Rs 109000. so, it is clear that Firm earn profit of Rs 9000.

Q.2a. List the accounting standards issued by ICAI. [5 Marks] 2b. Write short notes of IFRS. [5 Marks] Answer: 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. ACCOUNTING STANDARDS
AS No Title Recommendary or Mandatory Mandatory from accounting period 1.4.1991 1.4.1999 1.4.2000 1.4.1995 1.1.1987 1.4.1995 1.4.1991 1.4.1991 1.4.1991 1.4.1991

AS-1 AS-2 AS-3 AS-4 AS-5 AS-6 AS-7 AS-8 AS-9 AS-10

Disclosure of Accounting Policies Valuation of Inventories Cash Flow Statement Contingencies and events occurring after the Balance Prior Period and extraordinary items and changes in Accounting Policies Depreciation Accounting Accounting for construction contracts Accounting for Research and Development Revenue Recognition Accounting for Fixed Assets

Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

AS-11 AS-12 AS-13 AS-14 AS-15 AS-16 AS-17 AS-18 AS-19 AS-20 AS-21 AS-22 AS-23

Accounting for the effects of changes in foreign Accounting for Government Accounting for Investment Accounting for Accounting for retirement benefits in the financial Borrowing Costs Segment Reporting Related party disclosure Leases Earnings Per Share Consolidated financial statement Accounting for taxes on income Accounting for investments in associates in consolidated financial statements

Mandatory Mandatory -------Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory

1.4.1995 1.4.1994 ------1.4.1995 1.4.1995 1.4.2000 1.4.2001 1.4.2001 1.4.2001 1.4.2001 1.4.2001 1.4.2001 1.4.2002

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 (IASB). 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. Under IFRS, we need to submit a statement of financial position (Balance Sheet), Comprehensive income statement (Profit & Loss/ Income and Expenditure account), either a statement of changes in equity or statement of recognized income or expenses, cash flow statement and notes including summary of significant accounting policies. An Accounting Standard is a selected set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. There are altogether 28 accounting standards issued by ASB which have to be adopted by

management of different enterprises to improve the quality of presentation of financial statements in our country.

Q.3 Prepare a Three-column Cash Book of M/s Thuglak & Co. from The following particulars: [10 Marks]

20X1 Jan

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 1% 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. Shyams cheque deposited into bank 8. Purchased an old typewriter for Rs. 200 , Spent Rs. 50 on its repairs 9. Bank notified that Shyams 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. 1,575 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 To balance b/d To balance b/d(OD) To capital To sales To sales To M.O To Shyam To honored To commission To Ramesh To Loan To Interest Discount Cash 50000 Bank 20000 10000 1175 800 25 820 5000 500 250 250 2000 3000 30 Payment By Purchase By Purchase By Purchase By Cheque ret By Drawings By Disc B/E By Drawing By Trend Exp By Pvt Exp By Purchase By Purchase By Rent By Bank charges By balance c/d Discount 20 250 100 810 10000 1000 1000 2000 1500 5005 1575 220 50 120 48250 52275 19740 41325 Cash 200 Bank 2000

100

Total

350

52275

41325

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

In India few noted organizations have adopted Balanced Score Card successfully. The commercial vehicles business unit (CVBU) of Tata Motors was among the first Asian organizations to be inducted into the prestigious Balanced Scorecard Hall of Fame, in recognition of its exemplary success with the model. The company is one of the world's top 10 truck manufacturers and the CVBU began deployment of Balanced Scorecard in 2000, in an attempt to remedy years of poor financial performance. The focus was on achieving a turnaround, and then progressing to sustainable growth. Within 2 years of

implementation, the company began to show tangible improvement in performance including a 40% growth in revenue. The implementation of the Balanced Scorecard has enabled them to focus on different elements of operational performance. Defining, cascading and communicating strategies across the organization have brought about transparency and alignment. The scorecard incorporates SQDCM (Safety, Quality, Delivery, Cost and Morale) and VMCDR (Volume, Market Share, Customer Satisfaction, Dealer Satisfaction and Receivables).

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 Cash 1,26,000 42,400 Short-term investment Debtors 60,000 Stock 38,000 Long term 28,000 Investment Machinery 2,00,000 Building 2,40,000 Land 14,000 Total 7,48,400 Liabilities and Equity 1,10,000 Accumulated depreciation Creditors 40,000 Bills Payable 20,000 Secured loans 2,00,000 Share capital 2,20,000 Share premium 24,000 Reserves and 1,34,400 surplus Total 7,48,400 Income statement Sales 2,40,000 2007 1,14,000 20,000 50,000 28,000 44,000 1,40,000 80,000 14,000 4,90,000 60,000 30,000 10,000 1,00,000 1,60,000 Nil 1,30,000 4,90,000

## Cost of goods sold Gross Profit

1,34,600 1,05,200

Less Operating expenses: 92,000 Depreciation machinery 20,000 Depreciation building 32,000 Other expenses 40,000 Net profit from operation 13,200 Gain on sale on long-term investment Total Loss on sale of machinery Net Profit 4,800 18,000 2,000 16,000

Adjustments: 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] Answer: a) a statement of source and uses of working capital (funds) Adjusted Profit and Loss Account: To By Depreciation machinery & 92000 Sales of goods 105200 building Net profit from operation 13200 Gain on sale on long-term 4800 investment Loss on sale of machinery 2000 sale of machinery 6000 Dividends paid 11600 Funds generated from 2800 Operation (balancing figure) 118800 118800 b) Schedule of changes in Working Capital: Particulars Assets Cash Short-term investment Debtors Stock Previous Year 2007 1,14,000 20,000 50,000 28,000 Current Year 2008 1,26,000 42,400 60,000 38,000 Increase 12000 22400 10000 10000 Decrease

Long term Investment Machinery Building Land Total Liabilities and Equity Accumulated depreciation Creditors Bills Payable Secured loans Share capital Share premium Reserves and surplus Total

44,000 1,40,000 80,000 14,000 4,90,000 60,000 30,000 10,000 1,00,000 1,60,000 Nil 1,30,000 4,90,000

28,000 2,00,000 2,40,000 14,000 7,48,400 1,10,000 40,000 20,000 2,00,000 2,20,000 24,000 1,34,400 7,48,400

60000 160000 0 258400 50000 10000 10000 100000 60000 24000 4400 258400

16000

Q.6 what is a cash budget? How it is useful in managerial decision making? [10 Marks] Answer: 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 Management. 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 2. Cash sales 3. Collection from debtors to whom sales are affected on credit basis 4. College from Bills received 5. Interest and advances and loans granted

6. Dividends received from investments 7. Sale proceeds from capital assets 8. Proceeds from issue of shares and debentures 9. Other sources. After determining the various sources, the quantum of receipt should be estimated. Past analysis will help to identify the problem areas for effecting collection of cash.