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Q.2 (a) List the accounting Standards as issued by ICAI.

Accounting Standards (ASs) AS 1 Disclosure of Accounting Policies AS 2 Valuation of Inventories AS 3 Cash Flow Statements AS 4 Contingencies and Events Occurring after the Balance Sheet Date AS 5 Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies AS 6 Depreciation Accounting AS 7 Construction Contracts (revised 2002) AS 8 Accounting for Research and Development AS 9 Revenue Recognition AS 10 Accounting for Fixed Assets AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003), AS 12 Accounting for Government Grants AS 13 Accounting for Investments AS 14 Accounting for Amalgamations AS 15 Employee Benefits Limited Revision to Accounting Standard (AS) 15, Employee Benefits AS 15 (issued 1995) Accounting for Retirement Benefits in the Financial Statement of Employers AS 16 Borrowing Costs AS 17 Segment Reporting AS 18, Related Party Disclosures AS 19 Leases AS 20 Earnings Per Share AS 21 Consolidated Financial Statements AS 22 Accounting for Taxes on Income. AS 23 Accounting for Investments in Associates in Consolidated Financial Statements AS 24 Discontinuing Operations AS 25 Interim Financial Reporting AS 26 Intangible Assets AS 27 Financial Reporting of Interests in Joint Ventures AS 28 Impairment of Assets AS 29 Provisions,Contingent` Liabilities and Contingent Assets AS 30 Financial Instruments: Recognition and Measurement and Limited Revisions to AS 2, AS 11 (revised 2003), AS 21, AS 23, AS 26, AS 27, AS 28 and AS 29 AS 31, Financial Instruments: Presentation Accounting Standard (AS) 32, Financial Instruments: Disclosures, and limited revision to Accounting Standard (AS) 19, Leases

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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 Cash Short-term investment Debtors Stock 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 1,10,000 40,000 20,000 2,00,000 2,20,000 24,000 1,34,400 7,48,400 60,000 30,000 10,000 1,00,000 1,60,000 Nil 1,30,000 4,90,000 2008 1,26,000 42,400 60,000 38,000 28,000 2,00,000 2,40,000 14,000 7,48,400 2007 1,14,000 20,000 50,000 28,000 44,000 1,40,000 80,000 14,000 4,90,000

Income statement Sales Cost of goods sold Gross Profit 2,40,000 1,34,600 1,05,200

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Partriculars dividend paid Depreciation on building Depreciation on machinery loss on sale of machinery To, Balance c/d

Adjusted P/L A/c Rs Partriculars 11600 By balance b/d profit on sale of 32000 investment 20000 Fund from operation 2000 134400 200000

Rs 130000 4800 65200


Source Loan taken share issued at premium Sale of investment sale of machinery Fund from operation Sale of machinery

Fund flow statement Rs Application increase in working 100000 capital 84000 dividend paid 20800 purchase of building 6000 purchase machinery 65200 32000 308000

Rs 34400 11600 192000 70000


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Q.6 What is a cash budget? How it is useful in managerial decision making?

Cash budget is an estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities. A cash budget is extremely important, especially for small businesses, because it allows a company to determine how much credit it can extend to customers before it begins to have liquidity problems. For individuals, creating a cash budget is a good method for determining where their cash is regularly being spent. This awareness can be beneficial because knowing the value of certain expenditures can yield opportunities for additional savings by cutting unnecessary costs. For example, without setting a cash budget, spending a dollar a day on a cup of coffee seems fairly unimpressive. However, upon setting a cash budget to account for regular annual cash expenditures, this expenditure comes out to an annual total of $365, which may be better spent on other things. If you frequently visit specialty coffee shops, your annual expenditure will be substantially more. The importance of cash budget may be summarized as follow:(1) Helpful in Planning. Cash budget helps planning for the most efficient use of cash. It points out cash surplus or deficiency at selected point of time and enables arrange for the deficiency before time or to plan for investing the surplus money as profitable as possible without any threat to the liquidity. (2) Forecasting the Future needs. Cash budget forecasts the future needs of funds, its time and the amount well in advance. It, thus, helps planning for raising the funds through the most profitable sources at reasonable terms and costs. (3) Maintenance of Ample cash Balance. Cash is the basis of liquidity of the enterprise. Cash budget helps in maintaining the liquidity. It suggests adequate cash balance for expected requirements and a fair margin for the contingencies. (4) Controlling Cash Expenditure. Cash budget acts as a controlling device. The expenses of various departments in the firm can best be controlled so as not to exceed the budgeted limit. (5) Evaluation of Performance. It acts as a standard for evaluating the financial performance. (6) Testing the Influence of proposed Expansion Programme. Cash budget forecasts the inflows from a proposed expansion or investment programme and testify its impact on cash position. (7) Sound Dividend Policy. Cash budget plans for cash dividend to shareholders, consistent with the liquid position of the firm. It helps in following a sound consistent dividend policy. (8) Basis of Long-term Planning and Co-ordination. Cash budget helps in co-ordinating the various finance functions, such as sales, credit, investment, working capital etc. it is an important basis of long term financial planning and helpful in the study of long term financing with respect to probable amount, timing, forms of security and methods of repayment.

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Q.2 Explain different methods of costing. Your answer should be studded with examples (preferably firm name and product) for each method of costing Job Costing:

This is a product related classification of costing system. The cost is ascertained for each job or work order processed. This system is used where most of the manufacturing activities are planned and carried out for distinct jobs or customers. The utility of this method increases when there is great variability in nature of jobs or work orders processed.

Batch Costing : This method determines the cost associated with each batch pf products manufactured. This differs from job or work order costing in the variability of the production batches. In this case the production batches consist of mostly standard products or components. What varies is mostly the size of batches and the timing of their processing. Process Costing: In this method of costing the costs are determined for various different manufacturing activities or processes. These costs are the assigned to different products on the basis of some criteria like quantity processed or the time taken for processing. This method of costing is suitable for manufacturing units that use continuous processes or mass production techniques. This method is particularly suitable where there are many different products and process routes, where output of one process becomes input for another. Operation Costing: This method is similar to the process costing. However the products manufactured have limited variation. For example a cement plant may use this method. Multiple costing: Most of the organizations use a combination of different costing method rather than just one method. Multiple costing refers to such combinations of different methods.

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Dr Date

Partriculars To Bad debt A/c To, PBD


P/L A/c Rs Date 5000 20000 25000

Cr Partriculars LF Rs


Balance Sheet Rs


Rs 205000 5000 20000 180000

Sundry debtors LESS Bad debt LESS PBD

Q.5 A change in credit policy has caused an increase in sales, an increase in discounts taken, a decrease in the amount of bad debts, and a decrease in investment in accounts receivable. Based upon this information, the companys (select the best one and give reason) 1) Average collection period has decreased 2) Percentage discount offered has decreased 3) Accounts receivable turnover has decreased 4) Working Capital has increased.
Solution 1) Average collection period has decreased Since sales have increased, you would expect accounts receivable to increase too, if the Average collection period remained the same. But you're told that AR has decreased, so the Average collection period must have decreased, i.e. the customers are taking fewer days to pay up.

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Q.6 Identify the users of accounting information.

Accounting plays a very important role in all businesses but it is not just the business itself that finds accounting information useful. There are other stake holders who rely on accounting information to make decisions. These stakeholders include:

1. Shareholders - Shareholders use the balance sheet and profit and loss account produced by limited companies to decide if they are going to increase or decrease their holding. 2. Management - Management in every level of the business from director level to supervisor level rely on accounting information to do their job properly. They all use the same information for different purposes. For example, directors use it for strategic purposes and middle management can use it to see if they are meeting their financial targets. 3. Suppliers - Along with other data suppliers will look at a company's balance sheet and profit and loss account to see if and how much credit they are willing to give to present and potential customers. 4. Lenders - Similar to suppliers lenders also need to make sure a company is in a healthy financial situation before they start to lend money. 5. Government - Governments use the information provided by a company about its finances to levy tax on the profits. 6. Customers - Before another company becomes a customer or enters into a joint venture, they will look at the company's finances to make sure the company is not in trouble and that their supplies are not about to dry up. 7. Employees - Employees also have an interest in how well their employer is doing so use financial accounting information for this purpose.

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