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 There are altogether 32 accounting standards issued by ASB out of which, one standard (AS8) has been withdrawn pursuant to AS26 becoming mandatory.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

2. 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
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
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.