Summer 2011- May drive

MBA- I semester MB0041- Financial & Management Accounting Assignment Set 1- (60 Marks)
Q1. Accounting Principles are the rules based on which accounting takes place and these rules are universally accepted. Explain the principles of materiality and principles of full disclosure. Explain why these two principles are contradicting each other. Your answer should be substantiated with relevant examples. Answer: Principle of materiality : While important details of financial status must be informed to all relevant parties, insignificant facts which do not influence any decisions of the investors or any interested group, need not be communicated. Such less significant facts are not regarded as material facts. What is material and what is not material depends upon the nature of information and the party to whom the information is provided. While income has to be shown for income tax purposes, the amount can be rounded off to the nearest ten and fraction does not matter. The statement of account sent to a debtor contains all the details regarding invoices raised, amount outstanding during a particular period. The information on debtors furnished to Registrar of Companies need not be in detail. Principle of Full Disclosure The business enterprise should disclose relevant information to all the parties concerned with the organization. It means that any information of substance or of

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Q2. Journalize the below transactions, prepare relevant ledger accounts and finally trial balance. (6+6+3 = 15) M/s Ventak Enterprise Pvt Ltd. 01.01.2009 01.01.2009 02.01.2009 03.01.2009 04.01.2009 05.01.2009 06.01.2009 07.01.2009 08.01.2009 09.01.2009 10.01.2009 11.01.2009 12.01.2009 13.01.2009 Answer: Journal Date Particulars 01/01/2009 Cash A/c dr Goods A/c dr Furniture A/c dr To Capital A/c (Being assets brought in as capital) LF Debit (Rs.) 2,00,000 1,00,000 50,000 Credit (Rs) Started business with cash Rs. 2,00,000 Goods Rs. 1,00,000 Furniture Rs. 50,000 Opened Current Account with Rs. 1,00,000 Placed an order with Ritik for the supply of goods of the list price of Rs. 1, 00,000.In this connection, we paid 9% of the list price as an advance by cheque. Ritik supplied goods of the list price of Rs. 1, 00,000 less 12% trade discount. Packing and delivery charges Rs. 1,000. Purchased goods from Murali of the list price of Rs. 1,00,000 less 12% trade discount and paid him by cheque under a cash discount of 5% Received an order from Shyam for supply of goods of the list price of Rs. 1, 00,000 with an advance of 10% of list price. Supplied the above goods at 10% trade discount. Packing and delivery charges Rs. 1000. Goods costing Rs. 80,000 sold to Mr X at a profit of 20% on sales less 10% trade discount and 2% cash discount Goods (cost Rs. 3,000, Sales Price Rs. 4,000) taken away by the proprietor for his personal use. Shyam became insolvent and paid 80 paise in a rupee in full and final settlement Paid Ritik 80% on account. Goods (Cost Rs. 3,000 , Sales Price Rs. 4,000) stolen Paid Life Insurance Premium Rs. 1,000. Cash embezzled by an employee Rs. 1,000.

3,50,000

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Q3. Explain any two types of errors that are disclosed by trial balance with examples and rectification entry. Note - Avoid giving examples given in the self learning material. (10 marks) Answer: Types of errors that are disclosed by trial balance: Accountants prepare trial balance to check the correctness of accounts. If total of debit balances does not agree with the total of credit balances, it is a clear-cut indication that certain errors have been committed while recording the transactions in the books of original entry or subsidiary books.

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Q4. Let us assume you have been recently appointed as Management Accountant of a small but upcoming firm. Your immediate supervisor has asked you to prepare certain financial ratios from the balance sheet of one of their clients M/s Vinod Enterprise

The director intent to transfer a sum of Rs.5000 out of the current years profit to provision for tax. The financial ratios needed are: a. Return on capital employed b. Current ratio c. Fixed assets to net worth d. Debt - Equity ratio e. Return on owners capital. (10 Marks) Answer: a.. = = =

fixed asset 87500 128000

+ investment + current asset current liability +25000 +30000+13500+7000 -30000 - 5000

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5. A friend of you has approached to help him out in setting his books of accounts in order. Unfortunately he is struck with difference in trial balance. Help him in redrafting the trial balance. (5 Marks) Answer: Errors may be detected in the process of closing books and accounts for preparation of trial balance. The errors detected in the process may be either onesided errors or two-sided errors. However, once such errors are located they must be rectified immediately. Rectification Of One-sided Errors Located Before Preparation Of Trial Balance One-sided errors are those errors which affect only one side of an account. Wrong totaling of subsidiary books, posting a wrong amount, posting on the wrong side are some of the examples of one-sided errors. Since two accounts are not involved in these errors, journal entry can not be passed for rectifying such errors. The one-sided error is rectified by making an additional posting on the affected side of the

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6. Explain the accounting treatment of bad debt and provision for doubtful debts with suitable example. (10 Marks) First let's distinguish between a bad and a doubtful debt. A debt owing to a business that is not expected to be paid is a bad debt. A doubtful debt is a debt, which the business considers may not be paid. The distinction is important because the accounting treatment differs, as shown below. Double entry: Bad and doubtful debts form part of the double entry bookkeeping system. Note that the general principles of double entry bookkeeping are not covered here but form part of the ICM Accounting unit. Accounting treatment for bad debts: If we decide that there is no probability of collecting an overdue amount, we need to reduce the balance sitting on that customer's account to zero. We do not want to show a

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Summer 2011- May drive

MBA- I semester MB0041- Financial & Management Accounting 4 Credits Book ID- ( B1130 ) Assignment Set 2- (60 Marks)
Note: Answer all the questions. 1. The Balanced Score Card is a framework for integrating measures derived from strategy. Take an Indian company which has adopted balance score card successfully and explain how it had derived benefits out of this framework. (10 Marks) Every Corporate Entity can reveal its performance through income statement and position statement. These statements have remained static over a long period of time. These can easily measure the tangible aspect of business but unable to reveal anything about the intangible aspect of the business - the solution lies in implementing the technique of Balanced Scorecard to evaluate a company's performance Balanced Scorecard---An introduction and its perspectives Kaplan and Norton observed that due to the involvement of numerable variables in the attainment of corporate goals it was becoming increasingly difficult for management to obtain a perfect balance between the operational and financial factors. In order to resolve this problem they developed the balanced scorecard approach, which supplemented traditional financial measures with criteria that measured performance from the perspective of customers, internal business processes, and learning and growth. This approach enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth. It provides a framework involving critical indicators or key business factors to balance the long- term and shortterm objectives. It links and balances financial and non-financial indicators, tangible and intangible measures, internal and external aspects, performance drivers and outcomes. It also balances the external measures like shareholders, customers and internal

measures like critical business processes, innovation, learning, and growth. It considers results from past efforts and the measures that drive future performance. Recognizing some of the weaknesses and vagueness of previous management approaches, this approach was developed in the early 1990's by Drs. Robert Kaplan (Harvard Business School and David Norton (Balanced Scorecard Collaborative).

The balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. It captures both the financial and non-financial aspects of a company's strategy and discusses the cause and effect relationship that drives business results. It is a proven tool to translate a company's strategy into action. Thousands of Organizations from Fortune 1000 have been harnessing the scorecard benefits for many years. Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation." The balanced scorecard suggests that we view the organization from four perspectives,

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2. What is DuPont analysis? Explain all the ratios involved in this analysis. Your answer should be supported with the chart. (10 Marks) DuPont Analysis: A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). It is also known as "DuPont identity". The Du Pont analysis can be depicted via the following chart:

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Q3. Prepare Funds Flow statement from the following balance sheets and additional information

Additional information 1. Provision for depreciation on P&M was RS40,000 o 31st March 1998 and Rs.45,000 on 31st March 1999 2. Machinery costing Rs.36000 (acc dep Rs12,000) was sold for Rs.20,000 3. Investment costing Rs.30000 were sold at a profit of 20% on cost 4. Tax of Rs.30000 were paid (20 marks) statement of changes in working capital 1998 current assets debtors stock BR bank total current liabilities 50000 80000 70000 40000 240000 1999 30000 90000 50000 30000 200000 ase incr decrea se 20000 10000 20000 10000

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4. The standard cost of a certain chemical mixture is: 35% Material A at Rs.25 per kg 65% Material B at Rs.36 per kg A standard loss of 5% is expected in production

During a period there is used: 125kg of Material A at Rs.27 per kg and 275kg of Material B at Rs.34 per kg The actual output was 365 kg Calculate a. Material cost variance b. Material price variance c. Material mix variance d. Material yield variance Hint: Use net standard output (deduct the loss) (20 Marks) Answer: The standard mix of product MS is as follows: Materials % of Material A 35 B 65 Actual production for a month was 365 kgs of MS. % of input. So total Material consume 385kg. Price/kg 25 36 The standard loss in production is 5

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