IBS559 AFM (A) / 0706

Semester I Mid Semester Examinations Class of 2008 IBS559 Accounting for Managers Part A
Q. Which of the following is not deferred revenue expenditure? a. b. c. d. e. Q. Preliminary expenses Commission on underwriting of shares Discount on issue of shares/debentures Legal expenses incurred in defending a suit for breach of contract to supply goods Promotional expenses to introduce a new product

From the following errors, which will not cause a mismatch in the total of a trial balance? a. b. c. d. e. Wrong totaling a subsidiary book Partial omission of an entry Omitting to include an accounts balance in the trial balance Debit entries wrongly recorded as credit entries of vice versa Errors of principle

Q.

Which is the correct, if cash sales of Rs.2000 is omitted to be recorded in cash sales account? a. b. c. d. e. Debit amount in trial balance has been increased by Rs.2000 Debit amount in trial balance has been increased by Rs.4000 Credit amount in trial balance has been increased by Rs.2000 Credit amount in trial balance has been increased by Rs.4000 Credit amount in trial balance has been increased by Rs.1000

Q.

What would be the correct entries, if goods in stock worth of Rs.1000 are destroyed by fire and the general insurance Co. is accepted the claim for Rs.800? a. b. c. d. e. Rs.800 will be credited to general insurance Co. Rs.800 will be debited to general insurance Co., Rs.200 will be debited to profit and loss account and Rs.1000 will be credited to trading account. Rs.1000 will be subtracted from closing stock in trading account Rs.1000 will be debited to trading account, Rs.800 will be credited to general insurance Co. and Rs.200 will be credited to profit and loss account. Rs.1000 will be added with closing stock in the trading account

Q.

Which of the following errors is an error of principle? a. b. c. d. e. Purchase amount of Rs.17,283 has been recorded as Rs.17,382 Salary paid Rs.20,000 has not been recorded in salary account The machinery account has been debited by Rs.10,000 which has been incurred for repairs and maintenance of the machine Sales of Rs.1,00,000 has been credited into purchase account Rs.50,000 received from Mr. MN has been credited in Mr. NM account

IBS559 AFM (A) / 0706 Q. As per Trial Balance (TB), sundry debtors are Rs.45,000 and sales are Rs.50,000. Goods sent on approval basis to Mr. X of Rs.5000 which is due and the cost price of the same is Rs.4000. What will be the correct entry/ entries at the time of preparing final account, if the value of the closing stock is Rs.55,000? a. b. c. d. e. Q. Value of the closing stock will be Rs.60,000 Value of the closing stock will be Rs.59,000 Debtors will be Rs.40,000 Closing stock will be Rs.59,000, debtors will be Rs.40,000 and sales will be Rs.45,000 Closing stock will be Rs.60,000, debtors will be Rs.41,000 and sales will be Rs.46,000

Which is the correct as per the double entry concept? a. b. c. d. e. Liabilities = capital + assets Assets + liabilities = capital Capital = assets liabilities Assets = capital liabilities Capital = liabilities assets

Q.

As per duality concept or accounting equivalence concept, which of the following is correct? a. b. c. d. e. All increase in liabilities and increase in assets represent sources of funds All decrease in liabilities and decrease in assets represent sources of funds All increase in liabilities and decrease in assets represent sources of funds All increase in liabilities and increase in assets represent uses of funds All decrease in liabilities and decrease in assets represent uses of funds

Q.

Goods returned from Mr. Ram worth of Rs.5000. Which will be the correct entry? a. Sales return account To Mr. Ram account b. c. d. e. Mr. Ram account To sales account Sales account To Mr. Ram account Mr. Ram account To cash account Mr. Ram account To purchase return account Dr. Rs.5000 Rs.5000 Dr. Rs.5000 Rs.5000 Dr. Rs.5000 Rs.5000 Dr. Rs.5000 Rs.5000 Dr. Rs.5000 Rs.5000

IBS559 AFM (A) / 0706 Q. What will be effect on the net income for the current year, if the opening stock is understated by Rs.10,000 and the closing stock is overstated by Rs.5000? a. b. c. d. e. Q. Rs.15,000 overstated Rs.15,000 understated Rs.5,000 overstated Rs.5,000 understated Rs.10,000 overstated

The basic objective of preparing Profit and Loss Account is: a. b. c. d. e. To know the financial position of the organization on a particular period To know the financial results of the organization for a particular period To know the financial results of the organization on a particular date To calculate the cost of goods sold during a particular period To know the financial position of the organization on a particular date

Q.

The Indian Accounting Standard -11 (AS-11) deals with: a. b. c. d. e. Valuation of inventories Depreciation accounting The effects of changes in foreign exchange rates Accounting for Govt. Grants Accounting for Amalgamations

Q.

As per the Indian Accounting Standard -7 (AS-7), the cost that does not relate directly to a specific contract is: a. b. c. d. e. Site labour cost Cost of hiring plant and equipment Claims from third party Insurance Depreciation of plant and equipment used on the contract

Q.

As per the Indian Accounting Standard- 15 (AS-15), which of the following retirement benefits is not usually considered in the financial statement of employers? a. b. c. d. e. Provident fund Gratuity Superannuation Leave encashment benefits on retirement Ad-hoc ex-gratia payments made to employees on retirement

IBS559 AFM (A) / 0706 Q. Accounts receivable during 31.3.2006 is Rs.5, 00,000. Provision for discount on accounts receivable as on 1.4.2005 is Rs.16,000. Discount allowed during 31.3.2006 is Rs.1000 and the Co. maintains 5% provision for bad debts and 3% on provision for discounts on debtors. From the above stated information of M/s. Sudha Ltd., find out the amount to be transferred to profit and loss account as excess provision during 31.3.2006. a. b. c. d. e. Q. Rs.25,000 Rs.14,250 Rs.750 Rs.10,750 Rs.1,750

XYZ Co. Ltd proposed a dividend of 20 %. The net profit of the Co. is Rs.1,20,000. The called up equity share capital is Rs.5, 00,000 and the amount of calls in arrears is Rs.30,000. What will be the amount of dividend payable? a. b. c. d. e. Rs.1,00,000 Rs.94,000 Rs.24,000 Rs.1,06,000 Rs.1,30,000

Q.

As per the Indian Accounting Standard-14 (AS-14), the value of the goodwill is amortized normally: a. b. c. d. e. Over a period not exceeding five years Over a period not exceeding ten years Over a period not exceeding forty years Over a period not exceeding thirty years Over a period not exceeding twenty years

Q.

Stock as on 1.4.2006 is Rs.1,50,000 and as on 30.4.2006 is Rs.80,000. Accounts payable as on 1.4.2006 is Rs.50,000 and as on 30.4.2006 is Rs.60,000. As per the policy, the Co. makes all purchases on credit. During the month of April 2006 the Co. paid Rs.3,70,000 to its suppliers. The goods are sold at cost plus 20%. From the above data of J K Co. Ltd. find out the sales for the month of April 2006. a. b. c. d. e. Rs.5,50,000 Rs.5,40,000 Rs.3,70,000 Rs.80,000 Rs.4,50,000

IBS559 AFM (A) / 0706 Q. From the following information of Shyam Co. Ltd. find out the amount of gross profit for the month of March 2006. Stock as on 1.3.2006 is Rs.1, 00,000 and as on 31.3.2006 is Rs.50,000. Accounts payable as on 1.3.2006 is Rs.30,000 and as on 31.3.2006 is Rs.50,000. Purchase and sales during the month of March 2006 is Rs.3, 00,000 and Rs.4, 37,500 respectively. Find out the amount of gross profit for the month of March 2006. a. b. c. d. e. Q. Rs.87,500 Rs.1,37,500 Rs.2,80,000 Rs.3,87,500 Rs.1,17,500

Which of the following is an external user of financial statement? a. b. c. d. e. Boards of Directors Partners Suppliers Officers Managers

Q.

Which of the following is not a component of current liabilities and provision? a. b. c. d. e. Provision for gratuity Sundry creditors Loans from financial institutions Accrued expenses Payments received in advance

Q.

Which of the following will appear in Profit and Loss Appropriation Account? a. b. c. d. e. Auditors fees Directors fees General managers commission Provision for taxation for current years Proposed dividend

IBS559 AFM (A) / 0706 Q. After preparing the final accounts the accountant found that Plant purchased for Rs.1,50,000 has been passed through the purchase account. What will be the rectification entry? a. Plant account To Profit & Loss Adjustment Account b. c. d. e. Plant account To suspense account Purchase account To cash account Plant account To purchase account Plant account To cash account Q. Dr. Rs. 1,50,000 Rs. 1,50,000 Dr. Rs. 1,50,000 Rs. 1,50,000 Dr. Rs. 1,50,000 Rs. 1,50,000 Dr. Rs. 1,50,000 Rs. 1,50,000 Dr. Rs. 1,50,000 Rs. 1,50,000

From the following data of Sundaram Co. Ltd., find out the amount of profit made during the year 31.3.2006. The balance in the capital account as on 1.4.2005 is Rs.1,20,000. The promoters have introduced a further capital of Rs.2,00,000. The balance in the capital account as on 31.3.2006 is Rs.4,00,000. a. b. c. d. e. Rs.80,000 Rs.3,20,000 Rs.4,80,000 Rs.2,00,000 Rs.4,00,000

Q.

In the Balance Sheet, when assets and liabilities are arranged according to their realizability and payment preference, it is called as: a. b. c. d. e. Fixity basis Liquidity order basis Accrual basis Matching basis Cost basis

Q.

Paid up capital of XYZ Co. Ltd. is Rs.15,00,000. The Co. earned a profit of Rs.3,00,000 during the year 31.3.2006 and proposed that Rs.1,80,000 would be distributed as dividend to its shareholders. How much amount the Co. should transfer to its general reserve? a. b. c. d. e. Rs.7,500 Rs.15,000 Rs.22,500 Rs.30,000 Rs.37,500

IBS559 AFM (A) / 0706 Q. Profit and Loss Account is in the nature of a. b. c. d. e. Q. Nominal account Real account Personal account Fixed assets account Liabilities account

From the following, which is not considered as subsidiary book? a. b. c. d. e. Bills Receivable Book Bills Payable Book Journal Proper Cash Book Purchase Return Book

Q.

The net profit before remuneration is Rs.4,00,000. Calculate the maximum remuneration payable to the whole-time directors @ 10% of net profits assuming that the remuneration payable to them is to be calculated on net profits remaining after payment of commission to part time directors and the commission to part time directors @ 1% of net profits is to be calculated on net profits remaining after payment of remuneration to the whole-time directors. a. b. c. d. e. Rs.39,640 (approx.) Rs.3,883 (approx) Rs.3,604 (approx) Rs.12,066 (approx) Rs.10,725 (approx)

Q.

The Trial Balance of ABC Co. Ltd as on 31.3.2006 as follows: Dr. Rs. 14% debentures Interest debenture a. b. c. d. e. on 70,000 Cr. Rs. 20,00,000

How much amount should be charged in P& L A/c.? Rs.2,80,00 in Dr. side Rs.2,80,00 in Credit side Rs.2,10,00 in Debit side Rs.2,10,00 in Credit side Rs.70,000 in Debit side

IBS559 AFM (A) / 0706

Part B
Problems testing, Conceptual Understanding and Application Analytical Ability, Caselets, Situational Analysis
1. The total of the debit side of the Trial Balance (TB) of M/s. Shree Leathers Shoe Co. Ltd. As on 31.03.2006 is Rs.16,65,900 and that of the credit side is Rs.4,24,700. After several checking, the accountant has found out the following mistakes. Item of Account Stock as on 1.4.2005 Sales Rent, Rates and Taxes M/s. Pankaj Leather Traders (supplier of leather) M/s. Kamani Shoe Traders (customer of Shree Leathers) Purchases Interest received from Bank deposit Correct figure (as it should be in TB) Rs. 1,49,000 6,17,800 19,200 62,400 78,100 2,10,000 39,900 1,48,000 6,17,800 it was recorded on the debit side in TB 21,600 60,700 80,600 2,10,100 40,000 Actual (wrong) figure as it appeared in TB Rs.

Being an Accountant, you are required to ascertain the correct total of the Trial Balance, showing the working notes in details for calculations. (10 marks) Suggested Answer: Particulars Total balance as per TB Opening stock undercasted (1,49,000 1,48,000) Rent , Rates and Taxes overstated (21,600 19,200) M/S. Pankaj Leather Traders (Sundry Creditors ) understated (62,400 60,700) M/s. Kamani Shoe Traders (Sundry Debtors) overstated (80,600 78,100) Purchases overstated (2,10,100 2,10,000) Sales (but recorded as debit balance) Interest received overstated (40,000 39,900) Total Therefore, the correct total of Trial Balance is Rs. 10,44,100. Debit (Rs.) 16,65,900 Add 1,000 Less 2,400 --Less 2,500 Less 100 Less 6,17,800 --10,44,100 Credit (Rs.) 4,24,700 ---Add 1,700 --Add 6,17,800 Less 100 10,44,100

IBS559 AFM (A) / 0706 2. From the following information of M/s. Mitra and Sons Ltd., prepare a Trading and Profit and Loss Account for the year ended 31.03.2006 and a Balance Sheet as on that date. Particulars M/s.Mitras capital account M/s.Mitras drawing account Sundry creditors 6% loan account (loan taken) Cash in hand Cash at bank Sundry debtors Bills receivable Provision for doubtful debt Fixtures and fittings Plant and machinery Stock as on 1.4.2005 Purchases Manufacturing wages Sales Return inwards Salaries Rent and taxes Interest paid and discount allowed Traveling expenses Repairs and renewals Insurance (including premium @ Rs. 300 per annum paid up to 30.09.2006) Bad debts Commission received The following adjustments are to taken into consideration: a. b. c. d. e. f. Cost price of the stock as on 31.03.2006 was Rs. 1,28,960, whereas the market price was Rs. 1,30,000. Manufacturing wages include Rs. 1,200 for errection of new machinery purchased last year. Depreciate Plant and Machinery by 5 % and Fixtures and Fittings by 10% per annum. Create a provision of 5% on sundry debtors Charge 5% interest on capital. Interest on loan for the last 2 months is not paid 9 Amount (Rs.) 1,19,400 10,550 59,630 20,000 3,030 18,970 62,000 9,500 2,500 8,970 28,800 89,780 2,56,590 40,970 3,56,530 2,780 11,000 5,620 5,870 1,880 3,370 400 3,620 5,640

IBS559 AFM (A) / 0706 g. h. Commission earned but not received amounts to Rs. 600. A commission of 5 % of net profits (after charging such commission) to be credited to the General Manager. (10 + 10 = 20 marks) Suggested Answer:

In the books of M/s. Mitra and Sons. Ltd. Trading and Profit and Loss Account for the year ended 31.03.2006. Dr. Particulars To opening stock Amount (Rs.) 89,780 Particulars By sales 3,56,530 Less return inward 2,780 To purchase To manufacturing expenses 40,970 Less Plant & machinery erection 1,200 To gross profit c/d (balancing figure) 96,570 4,82,710 4,82,710 2,56,590 39,770 By closing stock 1,28,960 Cr. Amount (Rs.) 3,53,750

By gross profit b/d To salaries 11,000 By commission received 5640 Add un received 600 To Rent & taxes To interest paid and discount allowed 5,870 Less interest paid 1,000 To traveling expenses To repairs and renewals To insurance 400 10 1,880 3,370 5,620 4,870

96,570

6,240

IBS559 AFM (A) / 0706 Less prepaid (300/12) x 6 150 To provision for bad debts To interest on capital (5% of 1,19,400) To depreciation on plant & machinery To depreciation on fixtures and fittings To interest on loan Paid 1,000 Add outstanding 200 To General Managers commission (5/105) x 62,033 To net profit c/d (balancing figure) 2,954 59,079 1,02,810 1,02,810 1,200 250 4,220 5,970 1,500 897

In the books of M/s. Mitra and Sons. Ltd. Balance Sheet as on 31.03.2006. Liabilities Capital Add Interest Amount Rs. 1,19,400 5,970 1,25,370 59,079 Add Net profit Less drawings 1,84,449 10,550 1,73,899 6 % loan Add Interest 20,000 200 20,200 Sundry creditors 59,630 Fixtures and Fittings Less Depreciation @ 10% Sundry debtors Less provision @ 5% 8,970 897 8,073 62,000 3,100 58,900 Commission of GM 2,954 Bills receivable Cash at bank 9,500 18,970 Less depreciation @5% Amount Rs. Plant and Machinery Add erection cost Assets Amount Rs. 28,800 1,200 30,000 1,500 28,500 Amount Rs.

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IBS559 AFM (A) / 0706 Cash in hand Closing stock Un-received commission Prepaid insurance premium 2,56,683 3,030 1,28,960 600 150 2,56,683

Provision for Doubtful Debt Account Dr. Particulars To bad debt ( during the year) To balance c/d (closing balance) Amount Rs. Amount Rs. 3,620 3,100 By profit & loss account (balancing figure) 6,720 4,220 By opening balance b/d Particulars Amount Rs. Rs. 2,500 Cr. Amount

6,720

3.

From the following information of Ritu Packers Co. Ltd., prepare Profit and Loss Appropriation Account for the year ending 31.03.2004 and a Balance Sheet as on that date. Trial Balance as on 31.03.2004 Particulars Share capital subscribed Calls in - arrears Land at cost Building at cost Plant and Machinery at cost Leasehold property at cost Furniture and Fixtures at cost Opening stock Purchases 1,000 10,00,000 10,00,000 15,00,000 5,00,000 1,00,000 2,50,000 25,75,000 Debit Amount (Rs.) Credit amount (Rs.) 20,00,000

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IBS559 AFM (A) / 0706 Sales Managing directors remuneration Investment at cost (market price is Rs.1,50,000) Income received from investment 12% fully secured debentures Debentures interest Sundry debtors Sundry creditors Interim dividend paid Profit and loss account (as on 1.4.2003) General reserve (as on 1.4.2003) Share suspense account (as on 1.4.2003) Unclaimed dividend Cash and bank balance Administrative and other expenses Provision for depreciation (as on 1.4.2003): On Leasehold Property On Building On Plant and Machinery On Furniture and Fixtures 91,59,400 Additional information: 1. 2. The cost price of the closing stock is Rs.7,50,000 whereas the market price is Rs.8,30,000. No effect is given to the following Board of Directors resolutions: a. b. 3. Forfeiting 500 shares for non- payment of call Rs.100. For reissue of 500 forfeited shares as fully paid for a consideration of Rs.3,000 received and lying to share suspense account. Final dividend at Rs.2 per share including the interim dividend already declared and paid. Transfer of Rs.50,000 to general reserve Building @ 5% on written down value Plant and Machinery @ 20% Furniture and Fixtures @ 10% 2,25,000 2,00,000 5,00,000 20,000 91,59,400 7,10,600 3,02,800 1,00,000 2,00,000 10,00,000 3,000 12,000 1,20,000 8,50,000 4,45,000 50,000 1,00,000 5,400 10,00,000 35,49,000

The directors have recommended the following appropriations: a. b.

4.

Provide depreciation on fixed assets as follows: a. b. c.

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IBS559 AFM (A) / 0706 d. 5. 6. 7. Leasehold Property was purchased on 1.4.1994 for Rs.5,00,000 for a period of 20 years.

Provision for taxation to be made @ 40% of the net profit Authorized share capital of the Co. is Rs.50 lakhs divided into 5 lakh equity shares of Rs.10 each. After completion of the Profit and Loss Account for the year ended 31.3.2004 by taking into consideration the above all relevant information, the net profit has been found out Rs.4,40,160 (after deducting provision for taxation @ 40%). (2 + 10 = 12 marks)

Suggested Answer: Profit and Loss Appropriation Account for the year ended 31.3.2004 Dr. Particulars To final dividend @ Rs. 2 per share on 2,00,000 equity shares: Interim dividend paid Declared but not paid Amount Rs. Amount Rs. By balance b/d Particulars Amount Rs. Rs. 2,00,000 Cr. Amount

1,00,000 3,00,000 4,00,000 50,000 By Profit and Loss Account (profit for the current year) 4,40,160

To general reserve transferred To surplus carried to balance sheet (balancing figure)

1,90,160

6,40,160

6,40,160

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IBS559 AFM (A) / 0706 In the books of Ritu Packers Co. Ltd. Balance Sheet as on 31.3.2004 Liabilities Share capital: Authorized share capital: 5,00,000 equity share capital @ Rs. 10 each Issued and subscribed: 2,00,000 equity shares of Rs. 10 each Reserve and surplus: Capital reserve (* working note) General reserve: Balance as on 1.4.2003 + Transfer during the year Surplus from Profit and Loss Appropriation Account Secured Loans: 12% debentures Unsecured Loans, Current Liabilities and Provisions: 1. Current liabilities Sundry creditors Unclaimed dividend 2. Provisions: Provision for tax (4,40,160 x 40/60) Proposed dividend 2,93,400 3,00,000 5,93,400 - Depreciation 31.3.04 4,45,000 12,000 4,57,000 Furniture & Fixtures cost - Depreciation 1.4.03 10,00,000 50,000 10,50,000 1,90,160 Leasehold Property cost 10,00,000 - Depreciation 1.4.03 - Depreciation 31.3.04 1,00,000 20,000 80,000 8,000 72,000 2,000 Plant & Machinery cost - Depreciation 1.4.03 - Depreciation 31.3.04 20,00,000 50,00,000 Building (cost) - Depreciation 1.4.03 - Depreciation 31.3.04 10,00,000 2,00,000 8,00,000 40,000 7,60,000 15,00,000 5,00,000 10,00,000 2,00,000 5,00,000 2,25,000 2,75,000 25,000 2,50,000 8,00,000 Amount Rs. Amount Rs. Fixed Assets: Land (cost) 10,00,000 Assets Amount Rs. Amount Rs.

1,00,000

Investment: (cost) Market price 1,50,000

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IBS559 AFM (A) / 0706 Current Assets, Loans And Advances: 1. Current Assets: Stock Cash & bank balance 2. Loans & Advances Sundry debtors 52,92,560 * Working note Calls- in- arrears Account Dr. Particulars To opening balance 1.4.2003 Amount Rs. Amount Rs. 1000 By share suspense account (balancing figure) 1000 1000 Particulars Amount Rs. Rs. 1000 Cr. Amount 7,50,000 7,10,600 14,60,600

8,50,000

52,92,560

Share Suspense Account Dr. Particulars To calls in arrears To capital reserve account (balancing figure) Amount Rs. Amount Rs. 1000 2000 By reissue of forfeited 500 shares Particulars Amount Rs. Rs. 3000 Cr. Amount

1000

1000

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IBS559 AFM (A) / 0706 4. The following details are available from the books of Shrikant Co. Ltd. Particulars Accounts payable Discount received Year ending 31.3.2004 3,00,000 2,000 31.3.2005 3,50,000 5,000 31.3.2006 2,50,000 2,000

The Co. would like to maintain a reserve for discount on account payable at 3% at the beginning from 31.3.2004. Find out the amount to be transferred to Profit and Loss Account during the year 31.3.2006 and show the amount to be appeared in the Balance Sheet on the same date as accounts payable. All the calculations should be part of your answer. (8 marks) Suggested Answer:
Reserve for Discount on Accounts Payable Account Dr. Date Particulars Amount Rs. 31.3.04 To Profit and Loss Account (balancing figure) 31.3.04 11,000 By balance c/d 9,000 11,000 11,000 31.3.04 By discount received Date Particulars Cr. Amount Rs. 2,000

1.4.04 31.3.05

To balance b/d To Profit & Loss Account (additional reserve required) balancing figure

9,000 6,500

31.3.05 31.3.05

By discount received By balance c/d

5,000 10,500

15,500

15,500

1.4.05

To balance b/d

10,500

31.3.06 31.3.06

By discount received By Profit & Loss Account (offset the income taken in excess in the previous year) By balance c/d

2,000 1,000

31.3.06 10,500

7,500 10,500

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IBS559 AFM (A) / 0706

Working note: 31.3.2004: Accounts Payable Less- reserve for discounts on accounts payable @ 3% Rs. 3,00,000 9,000 ---------------Rs. 2,91,000 ========== 31.3.2005: Accounts Payable Less- reserve for discounts on accounts payable @ 3% Rs. 3,50,000 10,500 ---------------Rs. 3,39,500 =========== 31.3.2006: Accounts Payable Less- reserve for discounts on accounts payable @ 3% Rs. 2,50,000 7,500 ---------------Rs. 2,42,500 ===========

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IBS559 AFM (A) / 0706

In the books of Shrikant Co. Ltd. Balance Sheet as on 31.03.2004.

Liabilities

Amount Rs.

Amount Rs.

Assets

Amount Rs.

Amount Rs.

Accounts payable Less reserve for discount

3,00,000 9,000 2,91,000

Balance Sheet as on 31.03.2005. Accounts payable Less reserve for discount 3,50,000 10,500 3,39,500

Balance Sheet as on 31.03.2006.

Accounts payable Less reserve for discount

2,50,000 7,500 2,42,500

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IBS559 AFM (A) / 0706

Part C
Case Analysis / Applications of concepts
5. In some areas, the Indian Accounting Standards is different from the US GAAP; though accounting principles all over the world is basically similar. Discuss such important difference between the Indian Accounting Standard and the US GAAP with suitable example. (10 marks) Suggested Answer: The basic difference of the US GAAP over the Indian Accounting Standards is as below: Reporting Vs. Disclosure The Indian Accounting Standards emphasizes on reporting where as the US GAAP emphasizes more on disclosure and transparency. E.g. in India it is not necessary to disclose the portion of long-term debt which has an unexpired term to maturity of less than one year, whereas the US GAAP insists on disclosing the portion of long-term debt separately which has an unexpired term to maturity of less than one year. Form Versus Substance The Indian Accounting Standards emphasizes on form whereas the US GAAP emphasizes on the substance of the transaction. E.g. while accounting for a lease in India the depreciation benefit is available to the lessor as in the form of a lease deal is not a sale, whereas in the US GAAP a lease deal grants the depreciation benefit on the lessee as the benefits of the productive use of the asset rests with the lessee. The other major differences between the US GAAP and the Indian GAAP as below: No specific format is required for the preparation of financial statement, as long as they comply with the disclosure requirements of US accounting standards. Consolidation of group company accounts is compulsory Disclosure of EPS data is compulsory Research & Development costs are expenses as incurred Investments in own shares is permitted. It is shown as a reduction from shareholders equity. Revaluation of assets is not permitted. Depreciation is over the useful economic lives of assets. Depreciation and profit and loss is based on historical costs. Goodwill is treated as any other intangible asset, and is capitalized and amortized. The carry forward period is 40 years. Financial leases are to be capitalized Cash flow statement is compulsory Current and long term components of assets and liabilities should be disclosed separately. Current component normally refers to one year of the period of the operating cycle. The concept of pre-operative expenses does not exist.

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IBS559 AFM (A) / 0706 6. There are many users of Financial Statements and each interested party may have a different focus. Who are the users of Financial Statements and what are their focuses? (10 marks)

Suggested Answer:

Users of Financial Statements:

Internal Users

External Users

Management Group: Board of Directors Partners Managers Officers

Financing Group: Investors Lenders Suppliers

Public Group: Govt. Agencies Employees Customers Others academicians, researchers, analysts, etc.

Al these above stated parties have their different focuses. As per their requirement they use the financial statement. Students are expected to give the details of their interests.

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