ASSIGNMENT

Name S.AMEER ABBAS

Roll No. 520955311

Course MBA-Semester-1
Financial and
Subject
Accounting
Management
Subject Code MB0025-Set-1
1.Explain any two concepts of accounting with examples.
Ans.

Types of Accounting concepts

Concepts are the basic assumptions or conditions upon which the science of
accounting is based. There are five basic concept of accounting, namely –
business entity concept, which is also termed as separate entity concept,
going concern concept, money measurement concept, periodicity concept
and accrual concept.

Two concepts are discussed below:

Going concern concept

The fundamental assumption is that the business entity will continue
fairly for a long time to come. There is no reason why an enterprise should
be promoted for a short period only to liquidate the business in the
foreseeable future. This assumption is called “ going concern concept”. For
this reason accountants value fixed assets on historical cost method. Had the
business been set up to last for a short period, fixed assets should have been
valued at a market price. Besides, going concern concept provides for
amortization of the cost of fixed assets over the life time of the assents. For
example, an entrepreneur purchases a plant for Rs. One crore and it has a
life of 10 years. During this period, he sets aside every year certain funds
from the income of the business so that it would help him for replacement of
the asset at the end of 10 years. This process of amortization presupposes
that the enterprise will continue to do business fairly for long time.
Going concern is a term which means that an entity will continue to
operate in the near future which is generally more than next 12 months, so
long as it generates or obtains enough resources to operate. If the auditee is
not a going concern, it means that it is either dissolved, bankrupt, shutdown,
etc. Auditors are required to consider the going concern of an auditee before
issuing a report. If the auditee is a going concern, the auditor does not
modify his/her report in any way. However, if the auditor considers that the
auditee is not a going concern, or will not be a going concern in the near
future, then the auditor is required to include an explanatory paragraph
before the opinion paragraph which is commonly referred to as the going
concern disclosure. Such an opinion is called an "unqualified modified
opinion".
Money Measurement Concept
All transactions of a business are recorded in terms of money. An
event or a transaction that can not be expressed in money terms, can not
find place in the book of account. The honesty of the employees, dynamism
of the selling agents, promptness and integrity of the cashier, even though
influence the business results, can not be brought to the book of accounts.
Besides it makes no sense if a business has 10 tons of raw material, five
vehicles, one premises and a few items of furniture, unless all these assents
are expressed in terms of some monetary value. If it is said that the value of
these assents is Rs. Two crores, it makes a lot of sense. Money is the
common denominator in which the business transactions should be
expressed.

The money measurement concept underlines the fact that in

accounting, every recorded event or transaction is measured in terms of
money. Using this principle, a fact or a happening which cannot be expressed
in terms of money is not recorded in the accounting books. The unit of
measure in accounting shall be the base money unit of the most relevant
currency.

This principle also assumes the unit of measure is stable; that is,
changes in its general purchasing power are not considered sufficiently
important to require adjustments to the basic financial statements.

2.Prove that accounting equation is satisfied in all the following transactions of

Mr.X

1. Commenced business with cash – Rs.80,000

2. Purchased goods for cash – Rs.40,000 and on credit Rs.30,000

3. Sold goods for cash – Rs.40,000 costing Rs.25,000

4. Paid salary – Rs.2,000 and salary outstanding Rs.1,000

5. Bought scooter for personal use for cash at Rs.20,000

Ans.

The accounting equation is,

Equity [Working Capital] = Liabilities + Assets

i. Commenced business with cash – Rs 80,000

In the first transaction, the business receives a capital of Rs. 80,000 cash
and so capital account and cash accounts are affected.
Capital is a liability and cash is an asset to the business.
This is shown in the transaction number 1, in the table.
Capital: Rs.80,000(Liability) = Cash: Rs.80,000(Asset)

ii. Purchased goods for cash –Rs 40,000 and on credit Rs. 30,000

In this transaction, cash account, goods account and liabilities account gets
affected.
Cash account reduces by Rs. 40,000
Goods account increases by Rs. 40,000
Liabilities account increases by Rs. 30,000
This is shown in the transaction number 2, in the table.

iii. Sold goods for cash –Rs. 40,000 costing Rs. 25,000

In this transaction, goods account, cash account and profit account gets
affected.
Cash account increases by Rs. 40,000
Goods account reduces by Rs. 25,000
Profit account being owner’s account, it gets credited with Rs 15,000
This is shown in the transaction number 3, in the table.

iv. Paid salary – Rs. 2,000 and salary outstanding Rs. 1,000
In this transaction, cash and salary accounts are affected.
Cash account reduces by Rs. 2,000 and salary account gets credited by Rs.
2,000
Outstanding salary is Rs. 1,000 which is not paid yet, hence non of the
accounts gets affected.
This is shown in the transaction number 4, in the table.

v. Brought scooter for personal use for cash at Rs. 20,000

The scooter is for personal use, the liability of the business on owner’s capital
decreases.
Cash account and capital account decreases by Rs. 20,000
This is shown in the transaction number 5, in the table.

Liabilities and owner's

Assets equity
Transaction Cash Goods Salar Mr.X's
Number a/c a/c y a/c Liabilities Capital
1 80000 80000
-
70,000 30000
2 40000
 -
40000 15000
3 25000
4 -2000 2000
-
-20000
5 20000
58000 45000 2000 30000 75000
105000 105000

3.Show the rectification entries for the following

a. The Sales account is undercast by Rs.15,000

b. Goods returned by the customer Mr.X of Rs.5650 has been

posted in the Return Inward Account as Rs.5560 and in Mr.X a/c
as Rs.6,550.

c. Salary paid Rs.6,000 has been posted to Rent account

d. Cash received from Ram posted to Shyam account Rs.7,000

e. Cash received from Jadu Rs.8,640 has been posted to the debit of
Madhu’s a/c

Ans.

The below table shows the rectification of entries

Particulars Debit [Rs.] Credit [Rs.]

Suspense account Dr 15,000

To Sales account 15,000

 Suspense account Dr 90

To Return account 90

Mr. X’s account Dr 900

To Suspense account 900

Salary account Dr 6000

To rent account 6000

Shyam account Dr 7000

To Ram account 7000

Jadu account Dr 8640

To Madhu account 8640

4.The following balances are extracted from the books of Kiran Trading Co
on 31st March 2000. You are required to prepare trading and profit and loss
account and a balance sheet as on that date:
Opening Stock 5,000
Commission received 2,000
B/R 22,500
Return Outward 2,500
Purchases 1,95,000
Trade Expenses 1,000
Wages 14,000
Office furniture 5,000
Insurance 5,500
Cash in hand 2,500
Sundry Debtors 1,50,000
Cash at bank 23,750
Carriage Inwards 4,000
Rent and Taxes 5,500
Commission Paid 4,000
Carriage Outward 7,250
Interest on Capital 3,500
Sales 2,50,000
Stationery 2,250
Bills Payable 15,000
Return Inwards 6,500
Creditors 98,250
Capital 89,500
The closing stock was valued at Rs.1,25,000
Ans.
 Trading account of M/s Kiran Trading Co

Trading Account

Dr Cr

Opening stock 5,000 Sales - Return Inward 243,500

Purchases - Return Outward 192,500 Closing Stock 125,000

Carriage Inwards 4,000

Wages 14,000

Gross Profit 153,000

368,500 368,500

Profit and Loss Account of M/s Kiran Trading Co

Profit and Loss Account

Dr Cr

Rent and Taxes 5,500 by Trading a/c Gross Profit 153,000

Insurance 5,500 Comission Received 2,000

Trade Expenses 1,000

Commission Paid 4,000

Interest on Capital 3,500

Staionary 2,250

Carriage Outward 7,250

Net Profit 126,000

155,000 155,000
 Balance Sheet Account of M/s Kiran Trading Co

Balance Sheet

Capital and Liabilities Assets

Bills Payable 15,000 Sundry Debtors 150,000

Capital 89,500 Office Furniture 5,000

Creditors 98,250 Cash in Hand 2,500

Net Profit from P & L Account 126,000 Cash in Bank 23,750

B/R 22,500

Closing Stock 125,000

328,750 328,750

5.Write short notes on:

a. Outstanding Expenses

b. Prepaid Expenses

Ans

Outstanding expenses

Expenses due but not yet paid are known as outstanding expenses.
Wages, salaries, rent, commission etc payable in the current month are paid
in the following month. so they all come under nominal accounts which is
"debit all expenses and losses and credit all gains". Since they r unpaid
hence they must be credited....
If final accounts are prepared for year ending 31st December, then the
expenses payable for December will be paid in January of next year. The
extent to which the amount belongs to the current year but payable in the
next year is called outstanding expenses. To record that aspect, the journal
entry drawn in the Journal proper is:
Concerned Expenses account Dr
To outstanding Expenses account.
Outstanding expenses account indicates liability for the current ear and it will
appear in the balance sheet.
Example: Advertisement expenses for year 31-12-2003 outstanding is Rs.
5000. The journal entry is
Advertisement expenses account Dr 5000
To Outstanding expenses account 5000
Prepaid Expenses
Expenses paid in advance are regarded as prepaid expenses. Prepaid
expenses form an asset and therefore prepaid expenses account is debited.

A prepaid expense usually relates to a specific time frame, like pre-paying

rent as mentioned above. specific time frame in which to be recognized. It
might even be a partial expense which will continue to increase (whether
actually paid or not) until the time comes when it will be amortized.

For example, insurance premium is paid form April, 2004 to March, 2005 and
the amount is Rs. 3600. The financial year ends by 31st December, 2004.
Therefore the premium relating to Jan, Feb and March of 2005 Rs. 900 is said
to have been paid in advance. To record this internal adjustment, the entry is
Prepaid Expenses account Dr 900
To Insurance account 900
Note that outstanding or prepaid expenses accounts are regarded as personal
accounts.
 ASSIGNMENT

Name S.AMEER ABBAS

Roll No. 520955311

Course MBA-Semester-1
Financial and
Subject
Accounting
Management
Subject Code MB0025-Set-2
1.Budgetary Control is a technique of managerial control through budgets.
Elaborate.

Ans.

Budgetary control is an important technique of control on business

activities by management, in which business activities are operated on the
basis of pre-prepared budget and thereafter actual results are evaluated in
the light of budget estimates

Budgetary control is a strong tool of business is to maximise profits.

There are various managerial tools and techniques useful for the
management to plan and control business operations. Budget is also used for
the management to plan and control business operations and it is widely
used as a standard device of planning and control.

Budget provide as a valuable aid to management through planning,

coordination and control. It is a tool which measures the managerial
performance of an organization. It promotes good morale and generates
harmony in the organization. Also it promotes efficiency and facilities
management by exceptions. It helps in promoting a feeling of cost
consciousness among the employees in the organization.

On the other side, as a budget is based on estimates, it may or may

not be true. It is not substitute of management because, the efficiency and
utility of the budgetary system depends on the skill and experience of the
management. It cannot be executed automatically because continuous
efforts are necessary for the execution of the budget.

Budgetary control is essential for policy planning and control. It also acts as
an instrument of co-ordination. Budgetary Control can be a technique of
managerial control through budgets in the following ways:
1. To assist in policy formulation on the basis of proper and reliable data.
2. To ensure planning for future by setting up various budgets.
3. To determine short-term and long-term financial and physical targets.
4. To operate various cost centers and departments with efficiency and
economy.
5. To classify expenses according to their nature such as direct and indirect
expenses; fixed, variable and semi-variable expenses, etc.
6. To help administration as under this system, executives perform their
functions
according to pre-determined budgets.
7. To anticipate capital requirements and to make necessary arrangement for
it.
8. To make cost accounting more reliable and systematic.
9. To promote research in order to bring down cost, to increase efficiency
and to
achieve the targets of sales.
10. To develop co-ordination and co-operation among employees and
executives.
11. To eliminate wastes and increase in profitability.
12. To correct the variations from the established standards.
13. To fix the responsibility of various individuals in the organisation.

2. a. Given: Current ratio = 2.6

Liquid ratio = 1.4

Working Capital = Rs.1,10,000

Calculate (1) Current assets (2) current liabilities (3) Liquid Asset
(4) Stock

b. Calculate Gross Profit Ratio from the following figures:

Sales Rs.5,00,000

Sales return Rs.50,000

 Closing stock Rs.35,000

Opening stock Rs.70,000

Purchases Rs.3,50,000

Ans.

a.

1.Current Asset

Current Ratio = Current Assets / Current Liabilities

2.6 = CA/ 1

(in the absence of any values CL is always taken as 1)

CA =2.6

Working Capital = C.A – C.L

Working capital ratio =2.6 -1 =1.6

For 1.6 WCR=Working capital is 1,10,000

For 2.6 CAR, Current Asset is 1,10,000 x 2.6 /1.6 = 1,78,750.00

2.Current Liabilities:

Current Liability = CA-WC

 178750- 110000 = 68,750.00

3. Liquid Asset:

LA = Current liability x Liquid ratio

68750 x 1.4 = 95,858.00

4. Stock :

Liquid ratio = Current Assets-Stock / Current liabilities

Current Assets-Stock = LR x CL

178750 –S = 1.4 x68750

-S = 96250 – 178750 = -82500

Therefore, STOCK = 82,500.00

b. Gross profit ratio:

Gross profit ratio = (Gross profit/sales ) x 100

Gross profit = Sales - Cost of goods Sold

Sales = Cash sales + credit sales – Sales returns

500000 – 50000 = 450000

3. From the following Balance Sheet of William & Co Ltd., you are required to
prepare a Schedule of Changes in Working capital & Statement of Sources and
Application of funds.

Balance Sheet

Liabilities 2002 2003 Assets 2002 2003

Rs. Rs. Rs. Rs.
 Capital 80,000 85,000 Cash in Hand 4,000 9,000
P&L a/c 14,500 24,500 Sundry Debtors 16,500 19,500
Sundry 9,000 5,000 Stock 9,000 7,000
Creditors
Long-term - 5,000 Machinery 24,000 34,000
Loans
Building 50,000 50,000

Total 1,03,500 1,19,500 Total 1,03,500 1,19,500

4.Bring out the difference between cash flow and funds flow statement.

Ans.

The major differences between funds flow and cash flow

statement are listed below:

i. In Fund Flow Statement of changed in working capital de-linking the

current assets and current liabilities are made. But in Fund Flow
Statement no schedule is prepared.

ii. Fund Flow Statement shows the causes of the changes in net working
capital. Cash Fund Statement show the causes for the change in
cash.

iii. In Fund Flow Statement, no opening or closing balances are recorded.

But in Cash Fund Statement both are incorporated.

iv. Fund Flow Statement is not based on the ledge mode. But Cash Flow
Statement is prepared on the basis of ledge principles.

v. In Fund Flow Statement, “to” and “by” are indicated. In Cash Flow
Statement there are indicated.

vi. In Fund Flow Statement, net effect of receipts and disbursements are
recorded. In Cash Fund Statement only cash receipts and payments
are recorded.

vii. Fund Flow Statement is concerned with the total provision of funds.
Cash Flow Statement is concerned with only cash.

viii. Fund Flow Statement is flexible but Cash Flow Statement is rigid.
 Fund Flow Statement is more relevant for long range financial
strategy. Cash Flow Statement concentrates on short term aspects
mostly affecting the liquidity of the business

ix. Fund flow statement is related with accrued basis whereas Cash Flow
Statement is on cash basis. For this, it is necessary to convert the
accrued to cash basis

5.a. DELL computers sell 100 PCs at Rs.42,000. The variable expenses
amount to Rs.28,000 per PC. The total fixed expenses is
Rs.14,00,000. Prepare an income statement.
b. Calculate BEP and MOS

Sales at present are 55,000 units per annum. Selling price is Rs.6
per unit. Prime cost Rs.3 per unit. Variable overheads is Re.1 per
unit. Fixed cost Rs.80,000 per annum.

Ans.

a.Income Statement:

Solution:

No. of computers produced 100

No. of computers sold 100

Unit selling price /PC Rs.42000

Unit Variable expense per PC Rs.28,000

Sales Revenue

=100 x 42000 42,00,000

Less Variable Cost

= 100x 28000 28,00,000

Less: Fixed Expense 14,00,000

Profit or Loss Zero

b.

BEP in units = Fixed Expenses/ Unit contribution margin

Unit contribution margin = Selling price-Expense per unit

BEP = 80000 = 40000 units

6-(3+1)

BEP in rupees = BEP in units x unit selling price

= 40000 x 6 =Rs. 2,40,000

MOS:

MOS = Actual sales – BEP Sales

= 55000 x 6 – 240000

= 330000 – 240000 = Rs. 90,000

 6.What is cost variable analysis?

Ans.

Production involves cost. In order to initiate and continue the process of

production, the producer hires various factors of production. He has to make
payments to these factors for participating in the process of production. From
the point of view of producer, such payments made to the factors of
production for their participation in the process of production emerge as cost
of production. Thus, the cost of production may be defined as the aggregate
of expenditure incurred by the producer in the process of production. Cost, is
therefore, the valuation placed on the use of resources.

We have several concepts of costs such as; Fixed Cost, Variable Cost,
Total Cost Average Cost, Marginal Cost, Money Cost, Real Cost, Implicit Cost,
Explicit Cost, Private Cost, Social Cost, Historical Cost, Replacement Cost And
Opportunity Cost.

Fixed costs are those costs which remain fixed, irrespective of the
output. They have to be incurred on equipment, building etc and they are
incurred even when the output is zero. Fixed costs are also called
Supplementary costs or Overheads or Indirect costs.
Variable costs are those costs which vary with the output. For example
the cost of raw materials, electricity, gas, fuel etc. the Variable costs are also
called Prime costs, Direct costs or Operating costs.
The difference between the short-run and long run production function
is based on the distinction between fixed and variable costs. In the short-run
production function, the output is increased only by employing more units of
variable factors; other factors of production remaining fixed. In the long run
all factors are variable and thus all costs are variable.
 Cost variable analysis classification is the process of grouping costs
according to their common characteristics. A suitable classification of costs is
important, in order to identify the cost with cost centers or cost units