Sikkim Manipal University | MBA-Spring 2010 | MB0041 Financial and Management Accounting | Sem 1
ASSIGNMENT
–
01/02NameAyaz
Anis AnsariRegistration No.511025251Learning No.511025251Learning CentreKarrox Technologies (Borivali Centre, Mumbai) Learning Centre Code03092CourseMBASubjectFinancial Code03092CourseMBASubjectFinancial and Management Accounting Set 1SemesterSemester 1Module No.MB0041Date of SubmissionMay 8, 2010Marks AwardedDirectorate of Distance Education Sikkim Manipal University II Floor, Syndicate House, Manipal – 576 104
_________________ Signature of Coordinator
__________________ Signature of Center
_________________ Signature of Evaluator
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Q. 1. What is accounting cycle? List the sequential steps involved in Accounting cycle? Ans.. Accounting cycle (Accounting Process) Ans Accounting is the process of identifying the transactions and events, measuring the transactions and events in terms of money, recording them in a systematic manner in the books of accounts, classifying or grouping them and finally summarizing the transactions in a manner useful to the users of accounting information.
List of the sequential steps involved in Accounting cycle as follows. ACCOUNTING IDENTIFICATIONMEASURINGRECORDINGCLASSIFYINGSUMMARI SIFYINGSUMMARISINGANALYSINGI SINGANALYSINGI ENCOMPASSES IDENTIFICATIONMEASURINGRECORDINGCLAS NTERPRETINGCOMMUNICATING
Identifying the transactions and events: This is the first step of accounting process. It identifies the transaction of financial character that is required to be recorded in the books of accounts. Transaction is transfer of money or goods or services from one person or account to another person or account. Events happen as a result of internal policies or external needs. Events of non financial character cannot be recorded even though such events may have an a n impact on the operational results of o f the firm. i n terms of money (in terms Measuring: This denotes expressing the value of business transactions and events in of rupees in India).
Recording: It deals with recording of identifiable and measurable transactions and events in a systematic manner in the books of original entry that are in accordance with the principles of accountancy.
Classifying: It deals with periodic grouping of transactions of similar nature that appear in the books of original entry into appropriate heads by posting or transfer entries. For Eg: All purchases of goods made for cash or on credit on different dates are brought to purchase account.
Summarizing: It deals with summarizing or condensing transactions in a manner useful to the users. This function involves the preparation of financial statements such as in come statement, balance sheet, statement of changes in financial position and cash flow statement.
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Analyzing: It deals with the establishment of relationship between the various items or group of items taken from income statement or balance sheet or both. Its purpose is to identify the financial strengths and weaknesses of the enterprise. The above six process in the present day scenario are generally performed using software packages.
Interpreting : It deals with explaining the significance of those data in a manner that the end users of the financial statement can make a meaningful judgment about the profitability and financial position of the business. The accountants should interpret the statement in a manner useful to the users, so as to enable the user to make reasoned decision out of the alternative course of action. They should explain various factors on what has happened, why it happened, and what is likely to happen under specific conditions.
Communicating : It deals with communicating the analyzed and interpreted data in the form of financial reports/ statements to the users of financial information e.g. Profit and loss account, Balance Sheet, Cash flow and Funds Flow statement, Auditors report etc.
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Q.2. A. Bring out the difference between Indian GAAP and US GAAP norms? B. What is Matching Principle? Why should a business concern follow this Principle? Ans.. A. Difference between Indian GAAP and US GAAP norms Ans
US GAAPINDIAN GAAP It is established under FASB and AICPAIt is established under ICAI Balance Sheet, Income Statement & Funds Flow Statement are mandatoryBalance Sheet and income statement are alone mandatory Any change in foreign exchange fluctuations cannot be capitalized but the difference can be shown or debited to Income statementAny difference in foreign exchange can be capitalized.
Financial accounting, Management accounting and income tax accounting are prepared separatelyOnly financial accounting and Income tax accounting are prepared. The basic tenets is globalization of businessThe basic tenet is localization Any long term loan repayable is the current financial year is shown separatelyLong separatelyLong term loans maturing in the current financial year need not be disclosed separately In lease contract, lessee is more beneficiary because he can claim depreciation allowanceIn lease contract, lessor is eligible for depreciation allowance and not the lessee. It is more transparent transparent and accepted worldwide. More disclosure is requiredIt is comparatively less transparent. For listing the securities in other country’s stock exchange USGAAP is mandatory
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
B. Principle of Matching Cost and Revenue: Revenue earned during a period is compared with the expenditure incurred to earn that income, whether the expenditure is paid during that period or not. This is matching cost and revenue principle, which is important to find out the profit earned for that period. Here costs are reported as expenses in the accounting period in which the revenue associated with those costs is reported. Sales revenue in 2005- Rs.50 Lakhs Expenses incurred during the period – Rs.30 Lakhs It is assumed that some of these costs co sts might be payable in 2006 2 006 Yet, they are considered for the period 2005, when the sales revenue was earned While preparing the final accounts adjustments are made for outstanding expenses, prepaid expenses, outstanding income and income received in advance.
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Q.3. Prove that the accounting equation is satisfied in all the following transactions of Mr. X a) Commence business with cash Rs.50000 b) Paid rent in advance Rs.1000 Rs.1000 c) Purchased goods for cash Rs.18000 and Credit Rs.20000 d) Sold goods for cash Rs.25000 costing Rs.22000 e) Paid salary Rs.5000 and salary outstanding is Rs.3000 f) Bought moped for personal use Rs.20000 Ans.. Ans
Acco ccounting ing Equatio tionAsset sset A 50,000 = 0
=
Liab iabili ilitie ties
+
Capi apital tal
+
50,000
+
50,000
=
0
18,000 38,000 = 20 2 0,000 + New Equation 70,000
0 =
20 2 0,000
+
50,000
22,000 25,000 = New Equation
3,000 = 20 20,000
+
53,000
B
50,000 = (-) 1,000 (+) 1,000 New Equation C (-) (+)
0
50,000
+
50,000
D
(-) (+)
E (-) 5,000 = New Equation F
(-)
20,000
=
0 + 73,000
(+ (+) 3,000 68,000
0
+ =
(-) 8,000 23,000 +
+
45,000
(-) 20,000 New Equation
Financial and Management Accounting | Set 1 25,000
48,000
=
23,000
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+
Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Q.4. Following are the extracts from the Trial Balance of a firm as on 31st March 20X7 Dr.Cr.Sundry Debtors2,05,000Provision for Doubtful Debts10,000Provision for Discount on debtors 1,800Bad Debts3,000Disco Debts3,000Discount1,000Addi unt1,000Additional tional Informatio Information: n: Additional Bad Debts required Rs.4,000 Additional Discount allowed to Debtors Rs.1,000 Maintain a provision for bad debts @ 10% on debtors Maintain a provision for discount @ 2% on debtors Required: Pass the necessary journal entries and show the relevant accounts including final account. Ans. Ans. ------------A/c. DateParticularDr/CrAmountAmount 31.03.20X7Bad Debt ------------A/c. To, Sundry Debtors -------------A/c (Being Additional bad debt written off)Dr Cr4000 400031.03.20X7Discount Allowed ------------A/c. ------------A/c. To, Sundry Debtors----------------A/c Debtors----------------A/c (Being Goods Purchased from X)Dr Cr1000 100031.03.20X7Provision for Bad Debt Deb t ------------A/c. To, Bad Debt --------------------------A/c --------------------------A/c (Being bad debt written off against existing reserve)Dr Cr7000 700031.03.20X7Profit & Loss - ------------A/c. ------------A/c. To, Provision for Bad Debt ----------------A/c ----------------A/c (Being Addition to provision for bad debts, to make new provision equal to 10% of Rs.2,00,000)Dr Cr17000 1700031.03.20X7Provision for Discount on Debtors----------A/c. Debtors----------A/c. To, Discount Allowed --------------------------A/c --------------------------A/c (Being Goods Purchased from Z list price is Rs.30000 and trade discount is 10%)Dr Cr2000 200031.03.20X7Profit & Loss - ------------A/c. ------------A/c. To, Provision for Discount on on Debtors ---------------A/c ---------------A/c (Being Addition to provision for Discount, to make new provision equal to 2% of Rs.1,80,000)Dr Cr3800 3800
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Ledger Accounts in books of ……………….. as on 31st March 20X7. Dr.Sundry Dr.Sundry Debtors A/cCr.DateParticularsJFRs. A/cCr.DateParticularsJFRs.DateParticularsJF DateParticularsJFRs. Rs.31/03/20X7To Balance b/d205000.0031/03/20X7By Bad Debts A/c4000.0031/03/20X7By Discount A/c1000.00 31/03/20X7By Balance c/d200000.00205000.00205000.00 Dr.Provision for Doubtful Debts A/cCr.DateParticularsJFRs.DateParticularsJFRs. 31/03/20X7To Bad Debts A/c7000.0031/03/20X7By Balance b/d10000.00 31/03/20X7To Balance c/d20000.0031/03/20X7By Profit & Loss A/c17000.00 27000.0027000.00
Dr.Provision for Discount on Debtors A/cCr.DateParticularsJFRs.DateParticularsJFRs. 31/03/20X7To Discount A/c2000.0031/03/20X7By Balance b/d1800.00 31/03/20X7To Balance c/d3600.0031/03/20X7By Profit & Loss A/c3800.00 5600.005600.00 Dr.Bad Debts A/cCr.DateParticularsJFR A/cCr.DateParticularsJFRs.DateParticulars s.DateParticularsJFRs. JFRs.31/03/20X7To Balance b/d3000.0031/03/20X7By Provision for Doubtful Debts A/c7000.0031/03/20X7To Sundry Debtors A/c4000.00 A/c4000.00 7000.007000.00
Dr.
Discount A/c.Cr.DateParticularsJFR A/c.Cr.DateParticularsJFRs.DateParticul s.DateParticularsJFRs. arsJFRs.31/03/20X7To b Balance
/d1000.0031/03/20X7By Provision for Discount on Debtors A/c2000.0031/03/20X7To Sundry Debtors A/c1000.002000.002000.00
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Extract of Final Accounts:
Dr.Profit & Loss A/cCr.DateParticularsJFRs.DateParticularsJFRs. 31/03/20X7To Provision for Doubtful Debts
17000.00 31/03/20X7By Balance c/d20800.0031/03/20X7To Provision for Discount on Debtors
A/c3800.0020800.0020800.00
Balance Sheet (Extract) of ……….. As on 31st March 20X7
LiabilitiesRs.Rs.AssetsRs.Rs.Fixed
AssetsInvestments
Current
AssetsSundry
Debtors200000.00Less : Provision for Bad Debts20000.00Provision for Discount on Debtors 3600.00176400.00Miscellaneous ExpenditureProfit & Loss A/c20800.00 A/c20800.00
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Q.5 A. Bring out the difference between trade discount and cash discount. B. Explain the term (1) assets (2) liability, with the t he help of examples. Ans.. A. Difference between trade discount and cash discount Ans
Is Cash DiscountTrade Discount Is
a reduction granted by supplier from the invoice price in consideration of immediate or prompt paymentIs a reduction granted by supplier from the list price of goods or services on business consideration re: buying in bulk for goods and longer period when in terms of services As an incentive in credit management to encourage prompt payment Allowed to promote the salesNot shown in the supplier bill or invoiceShown by way of deduction in the invoice itself Cash discount account is opened in the ledgerTrade discount account is not opened in the ledger Allowed on payment of moneyAllowed on purchase of goods It may vary with the time period within which payment is receivedIt may vary with the quantity of goods purchased or amount of purchases made
B. Explanation of the term 1) assets 2) liability, with examples.
Assets: An asset is a resources legally owned by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. Eg: Land and buildings, plant and machinery, furniture and fixtures, cash in hand and at bank, debtors and stock etc., are regarded as assets, Assets may be fixed, current, liquid or fictitious.
Fixed assets are those which are held for use in the production or supply of goods and services. Ex: plant and machinery, which is used fairly for long period.
Current assets are those which are held or receivable within a year or within the operating cycle of the business. They are intended to be converted into cash within a short period of time. Ex: Stock in trade, debtors, bills receivable, cash at bank etc.,
Liquid assets are those which can be easily converted into cash and for instance, cash in hand, cash at bank, marketable investments etc.,
Fictitious assets are in the form of such expenses which could not be written off during the period of their incidence. For example, promotional expenses of a company which could not be treated as expenditure in the year of incidence are shown as fictitious asset.
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Liability: It is a financial obligation of an enterprise arising from past event the settlement of which is expected to result in an outflow of resources embodying economic benefit. E. g. Loans payable, salaries payable, term loans.
Current liability : is that obligation which has to be satisfied within a year. For example, payment to be made sundry creditors for the goods supplied by them on credit; bills payable accepted by the businessman; overdraft raised by the businessman in a bank etc.
Equity : Equity is the residual interest in the asset of the enterprise after deducting all its liabilities. The equity of a company is called shareholders’ equity. Its components include share capital, share premium and retained earnings
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Q. 6. A fresh MBA student joined as trainee was asked to prepare Trial balance. He was unable to submit a correct trial balance. You, as a senior accountant find out the errors and rectify them. After redrafting the trial balance prepare trading and Profit and loss account. ParticularDebitCreditCap ParticularDeb itCreditCapital7670Cash ital7670Cash in Hand30Purc Hand30Purchase8990Sales11060Cash hase8990Sales11060Cash at Bank885Fixtures and Fittings225Freehold
premises1500Lighting
and
Inward30Salaries1075Creditors1890Debtors5700Stock
Heating65Bills at
1st
April
Receivable825Return 20073000Printing225Bills
Payable1875Rates, taxes and insurance190Discount Received445Discount Allowed20021,17521,705 Adjustments:Stock on hand on 31st March 2008 was valued at Rs.1800 Depreciate fixtures and fittings by Rs.25 Rs.35 was due and unpaid in respect of salaries Rates and insurance had been paid in advance to the extent of Rs.40
Ans.. Continued on next page… Ans
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Trail Balance of-----------------as of-----------------as on 31st March 2008
ParticularDebitCreditCapital7670Cash in Hand30Purchase8990Sales11060Cash at Bank885Fixtures and Fittings225Freehold
premises1500Lighting
and
Inward30Salaries1075Creditors1890Debtors5700Stock
Heating65Bills at
1 st
April
Receivable825Return 20073000Printing225Bills
Payable1875Rates, taxes and insurance190Discount Received445Discount Allowed200 22,94022,940
Trading
AccountsParticularAmountAmountParticularAmountAmount To,
Opening
Sales11060To, Purchase8990By, Closing Stock1800To, Return Inward30To, Inward30To, Lighting &
Stock3000By,
Heating65 To,
Gross Profit c/d7751286012860
Financial and Management Accounting | Set 1
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Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem 1
Profit & Loss AccountsParticularAmountAmountParticularAmountAmount To, Salary1075 By Gross Profit b/d775Add:- Outstanding Salary35 1110By 111 0By,, Discou Discount nt Receiv Received4 ed445 45 To To,, Painti Painting2 ng225 25 To, Rate, Taxes & Insurance190 Less:- Rate & Insurance paid in Advance40150To, Discount Allowed200To, Depreciate fixtures & fittings25 By, Net
Loss49017101710
Financial and Management Accounting | Set 1
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