Master of Business Administration- MBA Semester 1 MB0041 Financial and Management Accounting- 4 Credits (Book ID: B1624) Assignment

Set- 2 (60 Marks) Note: Answer all questions (with 300 to 400 words each) must be written within 6-8 pages. Each Question carries 10 marks 6 X 10=60 Q1. An accountant finds that the trial balance of his client did not tally and it showed an excess credit of Rs. 69.74. He transferred it to a suspense account and later discovered the following errors. a) Rs. 44.37 paid to Anand has been credited to his account as Rs. 34.37. b) A purchase of Rs. 145.50 has been posted as Rs. 154.50 to the purchases account. c) An expenditure of Rs. 158 on repairs has been debited to the buildings account. d) Rs. 80 was allowed by B as discount which has not been entered in the books. e) A sum of Rs. 125.05 realised on the sale of old furniture has been posted to the sales account.
Give journal entries to rectify the errors and show the suspense account as it would appear after adjustments Hint: Total of suspense a/c = 78.74 Solution: Date 1 Particulars LF Debit (Rs.) Credit (Rs.)

Anands account Dr To suspense account (Being wrong amount, wrongly credited to Anands a/c rectified) Suspense account Dr To Purchases account (Being over debit of purchase a/c rectified)

78.74

78.74

9.00 9.00

3.Repairs account

Dr

158.00 158.00

To Buildings account (Being wrong debit given to building account rectified) 4.Bs account Dr 80 To Discount received a/c 80 (Being discount received from B, omitted earlier, brought to account)

5.Sales account Dr 1250.05 To old furniture account 125.05 (Being sale of ld furniture wrongly transferred to sales account rectified) Account
Date Particular Amount Rs. Date Particular s By Anands a/c Amount Rs.

To Difference in trial balance To Purchases a/c

69.74 9.00 78.74

78.74

Account

78.74

Note: 1. The entry should have been:

Anands a/c Dr. 44.37 To Cash a/c Rs.44.37 Being cash paid to Anand accounted

When amount is paid to Anand, his account should have been debited. On the other hand, his account was credited for a wrong amount of Rs. 34.37. Hence there has been excess credit to the extent of Rs. 78.74 (44.37 + 34.37). To rectify this double error we need to debit Anands account to the extent of Rs.78.74 and credit suspense account 2..Purchases account was over debited by Rs. 9 (Rs. 154.50 Rs. 145.50). To rectify this error we need to credit purchase account to the extent of Rs.9 and debit suspense account.

3..Repairs spent on building are by mistake debited to building account. This is error of principle. Repairs account is debited and buildings account is credited to rectify the error.

4.Discount received from B has not been taken to records. This is an error of omission. Therefore, it is now brought to accounts. This has not affected the trial balance.

5.When old furniture is sold, the furniture account should have been credited. On the other hand, sales account was credited against the principle of accounting. To rectify the error, sales account is debited and old furniture account is credited.

Q2. Distinguish between management accounting and financial accounting. Ans.2.

Dimension Users Financial accounting The primary users of financial accounting information are external users like shareholders, Management accounting The primary users of management accounting are internal users like top, middle, and lower

Purpose

Need

creditors, government authorities, employees, etc. Reporting financial performance and financial position to enable the users to take financial decisions. It is a statutory requirement. What to report, how to report, how much to report, when to report, in which form to report, etc. are stipulated by Law or Standards. Accounting information is always expressed in terms of money.

level managers.

Expression of information

Reporting timing and frequency

Time perspective

Sources of principles

Financial data is presented for a definite period, say one year or a quarter. Financial accounting focuses on historical data. Financial accounting is a discipline by itself and has its own principles, policies and conventions (GAAP).

Reporting entity Form of reports

Overall organisation Income statement (Profit and Loss a/c) Balance sheet Cash flow statement

To help the management in planning, decision making, monitoring, and controlling. It is optional. What to report, how to report, how much to report, when to report, in which form to report, etc. are decided by the management as per the needs of the company or management. Management accounting may adopt any measurement unit like labour hours, machine hours, or product units for the purpose of analysis. Reports are prepared on a continuous basis, monthly, weekly, or even daily. Management accounting is oriented towards the future. Management accounting makes use of other disciplines like economics, management, information system, operation research, etc. Responsibility centres within the organisation MIS reports Performance reports Control reports Cost statements Variance statements Budgets Estimate statements Flowcharts

Q3. Draw the Balance Sheet for the following information provided by Sarawath Ltd.. a. Current Ratio : 2.50 b. Liquidity Ratio : 1.50 c. Net Working Capital : Rs.300000 d. Stock Turnover Ratio : 6 times e. Ratio of Gross Profit to Sales : 20% f. Fixed Asset Turnover Ratio : 2 times g. Average Debt collection period : 2 months h. Fixed Assets to Net Worth : 0.80 i. Reserve and Surplus to Capital : 0.50 Hint: B/S total 1100000

Q4. Following is the balance sheet for the period ending 31st March 2006 and 2007. If the current years net loss is Rs.38,000, calculate the cash flow from operating activities.
31st MARCH 2006 Short-term loan to employees Creditors 15,000 30,000 2007 18,000 8,000 20,000 13,000 22,000 600 500

Provision for doubtful 1,200 debts Bills payable 18,000 Stock in trade Bills receivable Prepaid expenses Outstanding expenses 15,000 10,000 800 300

Hint: Net cash lost in operating activities (69800)

(38,000)

Statement Showing Cash Flow from Operating Activities Net

Loss Add: Decrease in current assets Decrease in stock Decrease in prepaid expenses

2,000 200 200 + 4,400

Increase in current liabilities

Increase in outstanding expenses Increase in bills payable 2,000 (33,600) Less: Increase in current assets Increase in short-term loan to the employees Increase in bills receivable Decrease in creditors Decrease in provision 1,200 for doubtful debts Net cash lost in operating activities

3,000 10,000 22,000 (36,200) (69,800)

Rs.15,000 Q5. The following data are related to the manufacture of a standard product during the month of July 2009. Raw materials consumed Direct wages Machine hours worked Machine hours rate Administrative overheads Selling overheads Units produced Units Sold Rs. 9,000 900 hours Rs.5 20% of works cost Re.0.50 per unit 17,100 16,000 @ Rs.4 per unit

Prepare a cost sheet from the above to show: a. The cost per unit b. The profit per unit sold and profit for the period Hint: Profit = 24000

Q6. Write the differences between absorption costing and marginal costing.
Absorption Costing It is known as full costing. Both fixed Marginal Costing Only variable costs are included.

and variable are included to ascertain the cost. Different unit costs are obtained at different levels of output because of fixed expenses remaining the same. Difference between sales and total cost (marginal cost and fixed cost) is profit. A portion of fixed cost is carried forward to the next period because closing stock of work-in-progress and finished goods are valued at the cost of production, which is inclusive of fixed cost. The apportionment of fixed expenses on an arbitrary basis gives rise to over or under absorption of overheads.

Fixed costs are recovered from contribution. Marginal cost per unit remains same at different levels of output because variable expenses vary in the same proportion in which output varies. Difference between sales and marginal cost is contribution and difference between contribution and fixed cost is profit or loss Stock of work-in-progress and finished goods are valued at marginal cost. Fixed cost of a particular period is charged to that very period and is not carried over to the next period. Products are charged only with variable cost, hence marginal costing does not lead to over or under absorption of fixed overheads

It affects managerial decisions in certain areas. E.g., whether to accept the export order or not, whether to buy or manufacture, etc.

It is very helpful in taking managerial decisions. It considers the additional cost involved, assuming fixed expenses to remain constant.

Costs are classified according to functional basis such as production cost, office and administrative cost, and selling and distribution costs.

Costs are classified according to the behaviour of costs fixed costs and variable costs

It fails to establish relationship of cost, volume, and profit.

CVP relationship is an integral part of marginal costing.