Master of Business Administration Semister-1 MB0041 Financial and management Accounting 4 credits (Book ID: B1130) ASSIGNMENT Set-1

1 Q1. 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. 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 under Capital 100000 Cash Rs. (10000090000 10000) 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. (9000040000 50000) 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 100000 Cash 40000 Profit 10000 Mobile Set 10000

Total

110000

Stock of 20000 currencies(50000 -30000) 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 (40000 39000 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 transaction his capital is Rs 109000. so, it is clear that Firm earn profit of Rs 9000. Q2. a) List the accounting standards issued by ICAI. *Announcements of the Council Regarding Status of Various Documents Issued by the Institute of Chartered Accountants of India *Preface to the Statements of Accounting Standards (revised 2004) *Framework for the Preparation and Presentation of financial Statements *Accounting Standards issued by the ICAI *Indian Accounting Standards (IND ASs) *Accounting Standards notified by the Central Government under the Companies Act *Knowledge page of Accounting Standards Board b) Write short notes of IFRS. 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: 20X1 Jan1. 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 being for interest charged. 11.Shyam settled his account by means of a cheque for Rs. 820, Rs.20 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

Ans= Dr Date 2011 1-jan 2-jan 5-jan 6-jan 7-jan 10-jan 11-jan 12-jan 18-jan 28-jan 29-jan 30-jan 31-jan 31-jan In the books of M/S Tuglakh & co. Cash book Particulars L V Cash Bank Disc Date F N 2011 To balance b/d 50000 1-jan To cash C 10000 2-jan To Mohan 1175 3-jan To Shyam 700 100 4-jan To cash C 700 7-jan To hari 25 8-jan To Shyam 820 9-jan To Bank C 10000 9-jan To BillsRecievable 990 12-jan ToCommission 500 20-jan To Ramesh 250 22-jan To Loanrepayment 2000 3000 24-jan To Interest 30 25-jan 26-jan 27-jan To balance c/d 29750 31-jan 31-jan 31-jan Cr L V Cash F N C 10000 200 1980 700 250 700 10 10000 5000 1000 2000 1500 5005 1575 220 50 49750 20

Particulars By balance b/d By bank By hari By purchase By bank By typewriter By Shyam By charges By cash By Billspayable By drawings By trade exp By drawings By machinery By furniture By rent By bank charge By balance c/d

Bank 20000

Dis c

63900

46040

100

63900

46040

20

Question.4 Choose an Indian Company of your choice that has adopted Balance Score Card and detail on it. Tata motors : Tata Motors is the first Indian company to be inducted in the Balance Scorecard Hall of Fame. Joins the thirty-member elite club of organizations including Hilton Hotels, BMW Financial Services, US Army, Korea Telecom and Norwegian Air Force for achieving excellence in performance.

The commercial vehicle business unit (CVBU) of Tata Motors, India's largest automobile manufacturer, received prestigious Balanced Scorecard Collaborative, The coveted Steuben crystal 'Rising Star' trophy was presented at Balanced Scorecard Asia Pacific Summit held at Australia. Tata Motors-CVBU has been recognized for having achieved a significant turnaround in its overall performance. The implementation of the Balanced Scorecard has enabled greater 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).Ravi Kant, executive director, CVBU, Tata Motors, said, "While we were conscious of the benefits of the Balanced Scorecard when we began implementing it three years back, we are extremely pleased that it has helped us achieve significant improvements in our overall performance. I am quite positive that the BSC will play an important part in our objective to become a world-class organization. Balanced Scorecard Collaborative president Dr David P Norton said, "We created the Hall of Fame to publicly acknowledge the hard work and remarkable results of implementing the Balanced Scorecard to create the strategy-focused organization. The Balanced Scorecard Hall of Fame pays tribute to the success that each organization has attained. Tata Motors- CVBU shares the honor with the city of Brisbane and Korea Telecom (KT).The Balanced Scorecard (BSC) concept-created by Dr Robert S Kaplan and Dr David P Norton in 1992, has been implemented in thousands of corporations, organizations, and government agencies worldwide. Based on the simple premise that "measurement motivates," the BSC puts strategy at the centre of the management process, allowing organizations to implement strategies rapidly and reliably. Balanced Scorecard Collaborative, Inc. is a new kind of professional services firm dedicated to the worldwide awareness, use, enhancement, and integrity of the Balanced Scorecard as a value-added management process. Tata Motors range of commercial vehicles spans over 135 models and can haul loads ranging from 2 to 40 tones. The product portfolio also includes 12 to 60-seater buses, tippers and tractor-trailers. Tata Motors vehicles meet the stringent Euro emission norms. The company currently has an export base in most parts of South Asia, Africa, Middle East and Europe. Tata Motors recently crossed the 3-million production milestone.

Question.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 2008 1,26,000 42,400 60,000 38,000 2007 1,14,000 20,000 50,000 28,000

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

28,000 2,00,000 2,40,000 14,000 7,48,400

44,000 1,40,000 80,000 14,000 4,90,000

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

Income statement Sales Cost of goods sold Gross Profit Less Operating expenses: Depreciation machinery 20,000 Depreciation building 32,000 Other expenses 40,000 Net profit from operation Gain on sale on long-term investment Total Loss on sale of machinery Net Profit 2,40,000 1,34,600 1,05,200 92,000

13,200 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

Answer: Schedule of change in working capital

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-coordinating 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.

Master of Business Administration Semister-1 MB0041 Financial and management Accounting 4 credits (Book ID: B1130) ASSIGNMENT Set-2
Q.1. Selected financial information about Vijay merchant company is given below: 2010 69,000 57,000 7,200 11,400 1,500 4,000 16,000 2009 43,000 32,500 3,000 5,500 800 2,700 11,000

Sales Cost of Goods Sold Debtors Inventories Cash Other current assets Current liabilities

Compute the current ratio, quick ratio, average debt collection period and inventory turnover for 2009 and 2010. State whether there is a favorable or unfavorable change in liquidity from 2009 to 2010. At the beginning of 2009, the company had debtors of Rs..2500 and inventory of Rs.3000.

Q2 . Explain different methods of costing. Your answer should be studded with examples (preferably firm name and product) for each method of 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 vary are 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. Q3. State the importance of differentiating between the fixed costs and variable costs in managerial decision. Variable costs are costs that can be varied flexibly as conditions change. In the John Bates Clark model of the firm that we are studying, labor costs are the variable costs. Fixed costs are the costs of the investment goods used by the firm, on the idea that these reflect a long-term commitment that can be recovered only by wearing them out in the production of goods and services for sale. The idea here is that labor is a much more flexible resource than capital investment. People can change from one task to another flexibly (whether within the same firm or in a new job at another firm), while machinery tends to be designed for a very specific use. If it isn't used for that purpose, it can't produce anything at all. Thus, capital investment is much more of a commitment than hiring is. In the eighteen-hundreds, when John Bates Clark was writing, this was pretty clearly true. Over the past century, a) education and experience have become more important for labor, and have made labor more specialized, and b) increasing automatic control has made some machinery more

flexible. So the differences between capital and labor are less than they once were, but all the same, it seems labor is still relatively more flexible than capital. It is this (relative) difference in flexibility that is expressed by the simplified distinction of long and short run. Of course, productivity and costs are inversely related, so the variable costs will change as the productivity of labor changes.

Q4. Following are the extracts from the trial balance of a firm as at 31st March 2009 Name of the account Sundry debtors Bad debts Dr 2,05,000 3,000 Cr

Additional Information 1) After preparing the trial balance, it is learnt that Mr.X a debtor has become insolvent and nothing could be recovered from him and, therefore the entire amount of Rs.5,000 due from him was irrecoverable. 2) Create 10% provision for doubtful debt. Required: Pass the necessary journal entries and show the sundry debtors account, bad debts account, and provision for doubtful debts account, P&L a/c and Balance sheet as at 31st March 2009. Ans=

Sundry debtors Less :- Bad debt less :- PBD

205000 5000 20000 180000

Q5. 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) *Average collection period has decreased *Percentage discount offered has decreased *Accounts receivable turnover has decreased *Working Capital has increased 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.

Q6. 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.