MB0041--Financial and Management Accounting --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. Ans-

Q.2a. List the accounting standards issued by ICAI. Ans- 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 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 There are altogether 32 accounting standards issued by ASB out of which, one standard (AS8) has been withdrawn pursuant to AS26 becoming mandatory. Annexure 2 given at the end of this unit provides you the details of 32 Accounting Standards (AS). 2b. Write short notes of IFRS. Ans-- 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. Under IFRS, we need to submit a statement of financial position (Balance Sheet), Comprehensive income statement (Profit & Loss/ Income and Expenditure account), either a statement of changes in equity or statement of recognized income or expenses, cash flow statement and notes including summary of significant accounting policies.
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Q.3

Prepare a Three-column Cash Book of M/s Thuglak & Co. from The following particulars: 20X1 Jan Cash in hand Rs. 50,000, Bank Overdraft Rs. 20,000 Paid into bank Rs. 10,000 Bought goods from Hari for Rs, 200 for each Bought goods for Rs. 2,000 paid cheque for them, discount allowed 1% Sold goods to Mohan for each Rs. 1.175 Received a cheque from Shyam to whom goods were sold for Rs. 800.Discount allowed 12.5% Shyams cheque deposited into bank Purchased an old typewriter for Rs. 200 , Spent Rs. 50 on its repairs Bank notified that Shyams cheque has been returned dishonored and debited the account in respect of charges Rs. 10 Received a money order Rs. 25 from Hari Shyam settled his account by means of a cheque for Rs. 820, Rs. 20 being for interest charged. Withdrew from the bank Rs. 10,000 Discounted a B/E for Rs. 1,000 at 1% through bank 20. Honored our own acceptance by cheque Rs. 5,000 22. Withdrew fir personal use Rs. 1,000 24. Paid tread expenses Rs. 2,000 25. Withdrew from bank for private expenses Rs. 1,500 26. Purchased machinery from Rajiv for 5,000 and paid him by means of a bank draft purchased for Rs. 5,005 27. Issued cheque to Ram Saran for cash purchased of furniture Rs. 1,575 28. Received a cheque for commission Rs. 500 from R.& Co. and deposited into bank 29. Ramesh who owned us Rs. 500 became bankrupt and paid us 50 paise in the rupee 30. Received payment of a loan of Rs. 5,000 and deposited Rs. 3,000 out of into bank 31. Paid rent to landlord Mohan by cheque of Rs. 220 31. Interest allowed by bank Rs. 30 31. Half-yearly bank charges Rs. 50

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Q.4 Choose an Indian Company of your choice that has adopted Balance Score Card and detail on it Ans---

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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 1,34,400 1,30,000 Total 7,48,400 4,90,000 Income statement Sales Cost of goods sold Gross Profit Less Operating expenses: Depreciation machinery building 32,000 Other expenses Net profit from operation 2,40,000 1,34,600 1,05,200 20,000 Depreciation 40,000 92,000 13,200 4,800 18,000 2,000 16,000

Gain on sale on long-term investment Total Loss on sale of machinery Net Profit Adjustments: Machinery worth Rs.70000 was purchased and worth Rs.10000 was sold during the year [Accumulated depreciation 4|Page

on machinery is Rs.18000 after adjusting depreciation on machinery sold]. Proceeds from the sale of machinery were Rs.6000 Dividends paid during the year Rs.11600 Ans--

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Ques6-What is a cash budget? How it is useful in managerial decision making? Ans-- 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 annually. The major two components of cash budget would be forecast first the cash receipts and then second forecasting the cash disbursements Decision making is the process of evaluating two or more alternatives leading to a final choice known as alternative choice decisions. Decision making is closely associated with planning for the future and is directed towards a specific objective or goal. Decision model contains the following decision-making steps or elements: 1. Identify and define the problem 2. Identify alternative as possible solutions to the problem. 3. Eliminate alternatives that are clearly not feasible 4. Collect relevant data (costs and benefits) associated with each feasible alternative 5. Identify cost and benefits as relevant or irrelevant and eliminate irrelevant costs and benefits from consideration. 6. Identify to the extent possible, non-financial advantage and disadvantage about each feasible alternative.
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7. Total the relevant cost and benefits for each alternative 8. Select the alternative with the greatest overall benefits to make a decision 9. Implement or execute the decision 10. Evaluate the results of the decision made. Types of Costs A decision involves selecting among various choices. Non routine types of decisions are crucial and critical to the firm as it involves huge investments and involve much uncertainty. Short term decision making is based on relevant data obtained from accounting information. Relevant Cost are costs which would change as a result of the decision. Opportunity costs are monetary benefits foregone for not pursuing the alternative course. When a decision to follow one course of action is made, the opportunity to pursue some other course is foregone. Sunk costs are historical cost that cannot be recovered in a given situation. These costs are irrelevant in decision making. Avoidable costs are costs that can be avoided in future as a result of managerial choice. It is also known as discretionary costs. These costs are relevant in decision making. Incremental / Differential costs are costs that include variable costs and additional fixed costs resulting from a particular decision. They are helpful in finding out the profitability of increased output and give a better measure than the average cost.

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