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First semester M.B.A.

Degree Examination, Feb 2002 Accounting For Managers

MBA 104(NS)

1. (a) What do you understand by Accounting? In what way it is useful in the management of a business? (b) Briefly describe the different accounting concepts? (c) Enter the following transactions in the books of the Rathan Steels Company Limited. 2000 Jan 1 Assets: Leasehold premises, Rs. 2,80,000; Machinery, Rs.3.50.000, Stock Rs.5,19,000 Cash at Bank Rs.76,200; Cash in hand Rs.8.600 due from Mohan and Co. 14,600; due from Metha and Co. Rs. 25,000, Furniture Rs.30,000 Jan1 Liabilities: Loan @ 15% Rs. 1,75,000; due to Rajashekar and Co. Rs. 75,000 Jan 3 Drawn from Bank ( for wages to be paid the Following day)Rs. 4,750 Jan 5 Jan 6 wages paid 20,050 Bought of William and Co. 1000 Kg of Steels @ Rs. 145 per kg; 150 kg from Chatargee and Co., @ Rs. 135/- per kg; Charges Rs.415 Jan 9 Jan 9 Paid customs duty by cheque Rs. 75,600 Bought of Right brothers and Co., advertisement papers Rs. 16,800. Jan 15 Jan 17 Received for boiler parts sold Rs. 8,900 Paid for advertisements, Rs. 10.000; repairs Rs.5,600 repairs to machinary Rs. 6,800; paid ground rent Rs. 15,600 Jan 20 Jan 22 Jan 25 Drawn from bank for private use Rs. 16,800 Salary unpaid Rs. 28,000 Sold to Rateesh & Co. 100 Kg @ Rs. 200 per/kg;

Hanumesh & Co. 150Kg @ Rs. 225/kg Jan 30 Paid by cheque on 13% loan interest for the month of April 1999

2. (a) What are the effects of financial transactions on accounting equations? (b) What are the books of original entry? Explain the various subsidiary books with their specimen? (c) From the following transactions of M/s Gowrishankar, writeup his three column cash book bringing down the balance as on December 31st 2001 Nov 1 Nov 5 Nov 7 Nov 10 Nov 14 Nov 17 Nov 25 Balance at Bank Rs. 41,500 Drew from bank for office use Rs. 12,600 Bought office furniture for cash Rs. 9,500 Paid wages in cash Rs. 1,800 Drew from bank for office use Rs. 2.800 Sold Goods for cash Rs. 25,300 Received a cheque from Vasan and Co., in settlement of their account of Rs. 1,800 less 15 per cent discount and paid the same direct into the bank. Dec 1 Dec 3 Dec 27 Bought goods for cash Rs. 16,000/Drew cheque for self Rs. 2,200 Paid Hameed account Rs. 1800 less 5 per cent discount.

3. (a) What type of errors could cause a trail balance not to balance? (b) On July 1 1997 Ranga Rao and Co., purchased second hand machines for Rs. 1.20.000 and spent Rs. 50.000 on installing. On Jan 1 1998 the firm purchased new machinery worth Rs. 75.000. On June 30, 1999 the machinery purchased on Jan 1st 1998 was sold

for Rs. 30.QOO. On July 1st 1999 fresh machinery was purchased on installment basis, payment for this machinery was to be made as follows: July 1. 1999 Rs. 20,000. Jan 30, 20,000, Rs. 40,000, June 30, 2001 Rs. 8,000. Payment in 2000, and 2001 include interest Rs. 3000 and 2,500 Rs. respectively. The Co., write off depreciation 10% p.a on original cost. The accounts are closed every year at March. Show the machinery a/c for 3 years.

(c) The following are the details of receipts and issues of materials in a factory during Jan 2001 2001 Jan 1 3 4 8 13 14 16 20 24 25 Opening balance 500 kg @ Rs. 30 Issue 70 kgs Issue 100 kg Issue 80 kg Received from vendor 200 kg @ Rs. 28 Refund of surplus from a work order 15kg @ Rs. 25 Issue 180 kg Received from vendor 240 kg @ Rs. 26 Issues 304 kg Received from vendor 320 kg @ Rs. 25 Issue 112 kg 27 Refund of surplus from a work order 12 k (Issued on 16th Jan) 28 Received from vendor 100 kg @ Rs. 24.

Issues are to be priced on the principle of Last in First Out (LIFO). The store verifier of the factory noted that on the 15th, he had found a shortage of 10kg and on 27th, another shortage of 8 kg. Write out the complete stores ledger

account in respect of the material.

4. (a) What are the three classifications of cash flows and give an example for each of them. (b) The directors of Rajeev Enterprises Ltd.. ask you to ascertain:

(a) Proprietors funds (b) Fixed assets (c) Closing debtors (d) Closing creditors (e) Closing stock From the following information: a. Inventory turnover ratio is 6 times, year end debtors are outstanding for 73 days. b. Ratio of cost of goods sold to: 1. Proprietors funds is 2:1 2. Fixed assets is 4:1 c. Ratio of gross profit to sales is 20% d. Closing stock is greater than the opening stock by Rs. 10,000. e. The gross profit for the year ended 31st March 1998 is Rs. 1,20,000. f. Reserves and surplus appearing in the balance sheet as at 31st March 1998 total RS. 40,000.

(c) Rectify the following errors: 1. An amount of Rs. 150 for a credit sale to M.R. Tanga correctly entered in the sales book has been debited to his account as Rs. 105. 2. The purchases book has been undercast by Rs. 1,100. 3. An amount of Rs. 5,500 paid by R. Ramachandran has been credited to the account of S. Sudhakar. 4. Furniture purchased for Rs. 8080 on credit has been passed through

the purchases book. 5. Goods sold to Rama Rao and Co. for Rs. 540 has been entered in the sales book as 450. 6. Goods sold to M/s Thirumala & Co., for Rs. 600 has been entered in the purchases book. Thirumala and Co., should have been debited and sales account credit with Rs. 600.

5. (a) Define Inventory? Identify the costs that should be Included as inventory costs? (b) What are prepaid expenses & unearned revenues? Explain with examples. (c) Following is the Balance Sheet of M/s Weldone Ltd. as on 31.12.1999.

Equity Share Capital


Land Buildings Plant & Machinary Furniture Debtors Stock Cash Prepaid expenses

50.000 3,00,000 3,00,000 40.000 2,00,000 1,50,000 40.000 10,000

Preference Share Capital 4,00.000 General Reserve P/L a/c 12% Debentures Trade Creditors O/S expenses Provision for Taxation Proposed Dividends Total 50,000 50.000 2,00,000 60,000 15,000 20,000 30,000

Preliminary expenses 35.000 11,25,000

11,25,000 Total

From the above particulars, you are required to calculate

(1) (2) (3) (4)

Current Ratio Debt-equity Ratio Capital-Gearing Ratio Liquidity Ratio.

6. (a) What is meant by depreciation? What are the methods of depreciation? Explain in detail. (b) From the following particulars prepare a cash flow statement for the year ending 31st March 2001, using direct method Profit and Loss Account To opening stock Purchases Gross Profit c/d 3,51,000 By Sales 18,48,000 3,49.000

12,82,000 " Closing Stock 6,00,000 21,97,000

21,97,000 By Gross Profit b/d 6,00.000

To Rent " Salaries " Advertising

1,20.000 2,41,000 30,000

" Sundry Expenses " Depreciation on Furniture " Provision for Income Tax " Net Profit c/d

13,000 27,000 98,000 98,000 6,00.000 \ By Balance b/d 20,000 75,000 21,000 1,16,000 1,16,000 Net Profit for the year b/d 6,00,000 18,000 98,000

To Transfer to General Reserve " Proposed dividend balance c/d to balance sheet

Balance Sheet Liabilities Share Capital Reserves P/L a/c Trade Creditors O/S Expenses Provision for Taxation Proposed divident As On As On 31.3.2001 5,00,000 1,20,000 21,000 84,200 1,800 98,000 Stock Debtors Cash on hand Assets Furniture Less: Depn. As On 31.3.2000 3,00,000 30,000 2,70,000 3,15,000 83,000 2,000 As On 31.3.2001 2,70,000 27,000 2,43,000 3,49,000 81,000. 5,500

31.3.2000 5,00,000 10,00,000 18,000 66,300 1700 94,000



Cash @ Bank Prepaid Expenses Advanced payment of Income Tax

90,000 ----95,000 8,55,000

1,20,000 1,500 1,00,000 9,00,000



You are also informed that the year dividend for the year 1999-2000 Rs.75, 000 was paid. A tax refund of Rs.1, 000 for the accounting year 1998-99 was received. Advance payment of tax amounting to Ra.1, 00,000 was made during the year.

7. From the following Trail balance prepare Trading and P/L a/c for the year ended 31st Dec. 1999 and Balance Sheet as on that date: Dr Drawings Stock on 1.1.1999 Purchases & Purchases Returns Cash in Hand Bank Balance Freehold Premises Trade expenses Printing Professional Charges Commission Received Investments as on 1st Jan @ 10% Interest on above Sundry Debtors and Creditors 36,000 25,000 Wages Salaries Capital Income tax Discount allowed and received 1,600 6,300 4,600 14,000 1,14,000 4,000 200 29,000 10,000 46,000 1,50,000 3,400 22,660 38,600 840 1,640 280 3,300 600 Cr

Sales return and sales Bills receivable and payable Office furniture Rent & Rates Bad Debts Provisions

550 3,200 3,050 4,000

2,08,950 10,000

670 3,71,320 3,71,320

Adjustments (a) Provide for Wages Rs. 5,000. (b) Write off 5% depreciation on free hold premises and 10% on office furniture. (c) Insurance to the extent of Rs.200 relates to 2000. (d) Stock on 31.12.1999 is Rs. 52,000 (e) Charge interest on capital 5% and on drawings Rs.300 (f) Further Bad debts are Rs. 1,000 (g) Provide for doubtful debts @ 5% on sundry debtors. (h) Make provision for discount on debtors and reserve for discount on Creditors @ 2%.

8. CASE STUDY (Compulsory) Bharath Heavy Electricals Limited (BHEL) Funds Flow Analysis BHEL's annual report for 2000-2001 includes the following analysis of its sources and uses of funds in the Director's Report: Ways and Means Position: While the operations have resulted in satisfactory profits, ways and means position were put to severe pressure not only due to rising deficit but also due to drying up of inter-corporate borrowings, a major source of funds of BHEL to meet short-term financing needs. Cash collection from the customers was inadequate, both in respect of collection of outstanding dues from the customers as also in getting fresh advances from customers against new order for power generating equipment.' Funds were also required to be mobilized to finance

deferred credit sale of Rs.800 million, capital expenditure and repayment of borrowings. Despite efforts to control outflow the year end showed cash deficit. This was met through utilizing available cash surplus, borrowings the remaining from bank and domestic financial institutions. Sources and Uses of Funds: The company invested Rs. 1.045 million in capital assets and deployed Rs.2564 million as working capital. Increase of Rs. 4,264 million in customer outstandings and Rs.360 million decline in customers advances were the main reason for significant increase in working capital. In addition Rs.805 million loans were repaid during the year. These were met through internal resources of Rs.2,529 million through borrowings. Borrowings were made of Rs.150 million from EXIM Bank to finance capital schemes, Rs.680 million from IDBI to fund deferred credit sale and balance Rs. 1,055 million from banking sector by way of short term loans and cash credit, pre/post shipment credit. Questions 1. What is the liquidity position of the firm? List out the causes in the firm's working capital or cash position? 2. How much of the firms working capital needs were met by the funds generated from the current operations? 3. Did the firm use external sources of finances to meet its needs of funds? 4. What were the significant investment and financing activities of the firm

which did not involve working capital?