MB0041- Financial and Management Accounting semester - Set – 1


MB0041- Financial and Management Accounting semester - I

Assignment Set – 1


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.

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





Asset





Capital
100000

Cash


100000


Q.2.a. List the accounting standards issued by ICAI.

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 There are altogether 32 accounting standards issued by ASB out of which, one standard (AS8) has been withdrawn pursuant to AS26 becoming mandatory.


Q.2.b. Write short notes of IFRS.

Answer: 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.


Q.3 Prepare a Three-column Cash Book of M/s Thuglak & Co. from The following particulars for 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. Shyam’s cheque deposited into bank
8. Purchased an old typewriter for Rs. 200, Spent Rs. 50 on its repairs
9. Bank notified that Shyam’s cheque has been returned dishonored and debited 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
13. Discounted a B/E for Rs. 1,000 at 1% through bank
14. Honored our own acceptance by cheque Rs. 5,000
15. Withdrew fir personal use Rs. 1,000
16. Paid tread expenses Rs. 2,000
17. Withdrew from bank for private expenses Rs. 1,500
18. Purchased machinery from Rajiv for 5,000 and paid him by means of a bank draft purchased for Rs. 5,005
19. Issued cheque to Ram Saran for cash purchased of furniture Rs.1,575
20. Received a cheque for commission Rs. 500 from R.& Co. and deposited into bank
21. Ramesh who owned us Rs. 500 became bankrupt and paid us 50 paise in the rupee
22. Received payment of a loan of Rs. 5,000 and deposited Rs. 3,000out of into bank
23. Paid rent to landlord “Mohan” by cheque of Rs. 220
24. Interest allowed by bank Rs. 30
25. Half-yearly bank charges Rs. 50

Answer:

RECEIPTS
DISCOUNT
CASH
BANK
PAYMENT
DISCOUNT
CASH
BANK
To balance b/d


50000


By purchase


200
2000
To balance b/d(OD)




20000
By purchase
20




To capital




10000
By purchase


250
810
To sales




1175
By cheque ret
100


10000
To sales
100


800
By drawing

























Q.4 Choose an Indian Company of your choice that has adopted Balance Score Card and detail on it.

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, and 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









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
2007
Cash
1,26,000
1,14,000
Short-term investment
42,400
20,000
Debtors
60,000
50,000
Stock
38,000
28,000
Long term Investment
28,000
44,000
Machinery
2,00,000
1,40,000
Building
2,40,000
80,000
Land
14,000
14,000
Total
7,48,400
4,90,000
Liabilities and equity


Accumulated depreciation
1,10,000
60,000
Creditors
40,000
30,000
Bills Payable
20,000
10,000
Secured loans
2,00,000
1,00,000
Share capital
2,20,000
1,60,000
Share Premium
24,000
Nil
Reserves and surplus
1,34,000
1,30,000
Total
7,48,400
4,90,000






Income Statement
Sales
2,40,000
Cost of goods sold
1,34,600
Gross profit
1,05,200
Less operating expenses:
Depreciation – machinery 20,000
Depreciation – Building 32,000
Other expenses 40,000
92,000
Net profit from operation
13,200
Gain on sale on long – term investment
4,800
Total
18,000
Loss on sale of machinery
2,000
Net profit
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:
  1. a statement of source and uses of working capital (funds)
Adjusted Profit and Loss account
Particular
Amount
Particular
Amount
To depreciation on machine and building
92,000
Fund generated from operation
1,08,000
To dividend
11,600




To General Reserve
4,400




Total
1,08,000
Total
1,08,000



  1. Schedule of changes in Working Capital:

Particular
Year 2007
Year 2008
Increase
Decrease
Current Assets




Cash
1,14,000
1,26,000
12,000

Short-term investment
20,000
42,400
22,400

Debtors
50,000
60,000
10,000

Long term Investment
44,000
28,000

16,000
Stock
38,000
28,000

10,000
  1. Total current assets
2,66,000
2,84,400


Current Liabilities




Accumulated depreciation
60,000
1,10,000

50,000
Creditors
30,000
40,000

10,000
Bills payable
20,000
10,000
10,000

  1. Total Current Liabilities
1,10,000
1,60,000


Working Capital A-B
1,56,000
1,24,400


Decrease in working capital

31,600
31,600

Total
1,56,000
1,56,000
86,000
86,000



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

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 manually. The major two components of cash budget would be forecast first the cash receipts and then second forecasting the cash disbursements.