Accounting for Managers 1

INDIAN ACADEMY SCHOOL OF MANAGEMENT STUDIESBANGALORE

ACCOUNTING FOR MANAGERSFINANCIAL ACCOUNTING

1. Journalise the following transactions in the books of Imran.2007 Rs. June 1 Started business with cash 45,000June 1 Paid into Bank 25,000June 2 Goods purchased for cash 15,000June 3 Purchase of furniture and payment by cheque 5,000June 5 Sold goods for cash 8,500June 8 Sold goods to Aravind Walia 4,000June10 Goods purchased from Amrit Lal 7,000June12 Goods returned to Amrit Lal 1,000June15 Goods returned by Aravind Walia 200June18 Cash received from Aravind Walia Rs. 3,760

and discount allowed to him 40June 21 Withdrew from bank for private use 1,000

Withdrew from bank for business use 5,000June25 Paid telephone rent for one year 400June28 Cash paid to Amrit Lal in full settlement 5,940June30 Paid for : Stationery 200

Rent 1,000 Salaries to staff 2,500

2. A book keeper, taking out a trial balance as on 30th June 2006, found that it did not agree. He proceeded to check the entries and discovered the following errors.

(a) A credit sale of Rs. 1,000 to Ajay had been correctly entered in the Sales Book but Ajay’s account had been debited with Rs. 100 only.

(b) The total of the Bills Payable Book Rs. 5,000 had been posted to the credit of Bills Receivables Account.

(c) Rs. 2,500 paid to Ram had been wrongly posted to Shyam.(d) Rs. 100 owing by a customer had been omitted from the list of sundry debtors.(e) The discount column of the Cash book representing discount allowed to the

customers has been over-added by Rs. 10.(f) Goods worth Rs. 100 taken by the proprietor omitted to be recorded in the books.(g) Depreciation on Furniture Rs. 100, had not been posted to Depreciation Account.(h) The total of the sales book had been added Rs. 1,000 short.

Which of the above errors caused the totals of the Trial Balance to disagree ?

3. Enter the following transactions in a Two Column Cash Book and post them into Ledger.2007 Rs.June 1 Cash in hand 8,900June 3 Bought Goods for cash 4,300June 5 Paid for wages 4,100June 7 Withdrew from bank for expenses 7,500June 7 Cash paid to Yusuf 1,950

Discount Allowed 50

June 10 Cash Sales 13,500June 13 Received cash from Banwari Lal 3,900June 13 Allowed him discount 100June 15 Purchased Stationery from Ram on credit 200June 16 Paid for postage stamps 150June 18 Amount introduced as Capital 5,000June 21 Received cash from Rajesh 7,840June 21 Allowed him discount 160June 24 Paid cash for traveling expenses 120June 26 Amount paid into bank 2500June 27 Cash paid to A.S. Mukerjee 975

Discount allowed by him 25June 28 Credit purchases from 3,800June 30 Cash Purchases 1,500June 30 Paid salaries 2,800June 30 Deposited into bank all the cash in excess of 2,000

4. From the following transactions of M/S J. Choudary, write up his cash book in Triple Column, bringing down the balance as on May 31, 2007.

2007 Rs. May 1 Balance at Bank 1,500May 2 Drew from bank for Office use 500May 3 Bought Office Furniture for cash 320May 8 Paid wages in cash 150May 14 Drew from bank for office use 250May 16 Sold goods for cash 220May 19 Received a cheque from Batiwala and Co in settlement of their account of

Rs. 750 less 5% discount and paid the same direct into the Bank. May 23 Bought Goods for cash 450May 25 Drew cheque for self 400May 31 Paid Agarwala’s Account Rs. 400 by cheque less 2 ½ %.

5. Prepare Petty Cash Book on imprest system from the following particulars and post it to the ledger.

2007 Rs.June 1 Received for petty cash payments 5,000June 2 Paid for postage 400June 5 Paid for stationery 250June 8 Paid for advertisement 500June 12 Paid for wages 200June 16 Paid for carriage 150June 20 Paid for conveyance 220June 25 Paid for traveling expenses 800June 27 Paid for postages 500June 28 Wages to office cleaner 100June 30 Paid for telegrams 200June 30 Sent registered notice to Land lord 30


FINANCIAL ACCOUNTINGFINAL ACCOUNTS

1. The following is the Trial Balance of Mr. Adamji as on 31st March 2007.

Particulars Amount (Rs.)

Particulars Amount (Rs)

Cash in Hand 540 Salaries 15,000Cash at Bank 2,630 Sundry Expenses 3,000Purchases 40,675 Insurance 600Returns in-ward 680 Drawings 5,245Wages 10,480 Debtors 14,500Fuel and Power 4,730 Sales 98,780Carriage outward 3,200 Returns outward 500Carriage inward 2,040 Adamji’s Capital 71,000Opening Stock 5,760 Creditors 6,300Premises 30,000 Machinery 20,000Land 10,000 Patents 7,500

Taking into consideration the following adjustments, prepare Trading and Profit and Loss account and a Balance Sheet as on 31st March 2007.1. Closing Stock as on 31st March 2007 Rs. 5,8002. Depreciate Machinery and patents by 10% and 20% respectively.3. Salaries due for the month of December Rs. 1,500.4. The insurance policy expired on 30th September 2007.5. Rs. 2,000 spent on erection of a Shed was included in wages account.6. Provide 5% for Doubtful Debts.7. A fire occurred on 25th March 2007, in the godown and stock of the value of 1,000 was destroyed. It was fully

insured and the insurance company admitted the claim in full. 8. Rs. 2000 is admitted to be transferred to Reserve Fund out of profits, if any.

2. From the following Ledger balances extracted at the close of Trading at the year ended 31st March 20078, prepare Trading Account, Profit and Loss account and Balance Sheet, after giving the effect to the under mentioned adjustments. Particulars Amoun

t (Rs.)Particulars Amoun

t (Rs.)Capital on 1-4-2006 50,000 Advertisement 5,500Stock on 1-4-2006 8,000 Apprenticeship

premium1,200

Business Premises 55,000 Interest on Smith’s Loan

300

Furniture and Fixtures

2,500 Proprietor’s withdrawals

3,000

Purchases 20,000 Office expenses 8,050Sales 80,000 Bills Receivables 3,500Returns Inwards 1,500 Bills Payables 2,500Returns Outwards 400 Sundry Debtors 20,000Wages 6,900 Sundry Creditors 15,800Packing machinery 4,500 Smith’s Loan (Dr)

10% on 1-4-20065,000

Investment 3,000 Cash in hand 250Cash at Bank 3,500

Adjustments are to be made for the current period are as follows:1. Stock in hand on 31st March 2007 Rs. 7,0002. Apprenticeship premium is for three years, paid in advance on 1st April 20063. Interest on capital is allowed at 5% for the year.4. Interest on drawings to be charged to him as ascertained for the year Rs. 80.5. Rs. 5,000 out of the Advertisement expenses are to be carried forward.6. Stock valued at Rs. 3,000 destroyed by fire on 25th March 2007, but the insurance Company has admitted a claim of Rs. 2,000 only and paid it in April, 2007.7. The Manager is entitled to a commission of 10% of the Net Profit calculated after charging such commission.8. Included in sales is an amount of Rs. 10,000 representing goods on “sale or return”, the customer still having the

right to return the goods. The goods were invoiced charging a profit of 20% on sales.9. The stock included the materials worth Rs. 1,000 for which bills had not jbeen received and therefore, not yet accounted for.

3. On 31st March, 2007, the following trial balance was prepared from the books of Crown.

Particulars Debit (Rs.) Credit (Rs.)Sundry Debtors 30,600Sundry Creditors 10,000Bills Receivables 5,000Plant and Machinery 75,000Purchases 1,90,000Capital Account 70,000Free Hold Premises 50,000Salaries 21,000Wages 24,400Postage and Stationery 1,750Carriage inwards 1,750Carriage outwards 1,000Bad debts 950Bad Debts Provision 350Office General Charges 1,500Cash at Bank 5,300Cash in Hand 800Bills Payable 7,000Reserve 20,000Sales 3,31,700Closing Stock 30,000

The following adjustments were required.

1. Crown gets salary of 12,000 per annum.2. Allow 10% interest on capital.3. Bad Debts provision is to be adjusted to 2 ½ % on

Sundry Debtors4. 10% of the net profit is to credited to the reserve5. It was discovered in April, 2006 that stock sheets as on

31st March 2006 were overcast by Rs. 1,000. However no entry was passed in April, 2006.

6. Depreciation on plant and machinery @ 10% per annum and free hold premises @ 2% per annum.

You are asked to prepare the trading and profit and loss account of the firm for the year ended 31st March, 2007 ad a balance sheet as on that date.


FINANCIAL ACCOUNTING

DEPRECIATION ACCOUNTING

1. ABC Limited purchased a small plant for Rs. 45,000 on 1st April 2004.. On 1st October 2004, additional plant was purchased costing Rs. 22,500. On 1st October 2005, plant purchased on 1st April 2004 having become obsolete, was sold for Rs. 18,000. On 1st October 2006, fresh plant was purchased for Rs. 54,000 and the plant on 1st October 2004, was sold for Rs. 18,900. Depreciation is provided at 10% per annum on straight line method for every year on 31st March, 2007.

2. A manufacturing concern whose books are closed on 31st March purchased Machinery for Rs. 1,50,000 on 1st April 2003. Additional machinery was acquired for Rs. 40,000 on 30th September 2004, and for Rs. 25,000 on 1st April 2006. Certain machinery which was purchased for Rs. 40,000 on 30th September 2004, was sold for Rs. 34,000 on 30th September 2006. Give the machinery account for the year ended 31st March 2007, by taking into account depreciation at 10% per annum on the Written Down Value Method.

3. A firm purchases a 5 year’s lease for Rs. 40,000 on 1st January. It decides to write off depreciation on the Annuity method, presuming the rate of interest to be 5% per annum. The annuity table show that a sum of Rs. 9,239 should be written off every year. Show the Lease Account for five years. Calculations are to be made to the nearest rupee.

4. A company purchased a 3 years’ lease on January 1, 2004 for Rs. 25,000 . It is decided to provide for the lease at the end of 3 years , by setting up a depreciation fund. It is expected that the investments will fetch interest at 5%. Sinking Fund tables show that to provide the requisite sum at 5% at the end of 3 years a, an investment of rs. 7,932 is required for every year. Investments are made to the nearest rupee. On 31st December 2006, the investments were sold for Rs. 15,250. On 1st January 2007, the same lease was renewed for a further period of 3 years by payment of Rs. 30,000. Show the journal entries and give Lease Account, Depreciation Fund Account, Depreciation Fund Investment account and the new Lease Account. Calculations are to be made to the nearest rupee.

5. On 1st January 2003, a lease of premises is purchased for four years for Rs. 50,000 and it is decided to make provision for the replacement of the lease by means of an insurance policy purchased for an annual premium of Rs. 12,000. Show the necessary ledger accounts for four years assuming that the renewal of the lease costs Rs. 50,000 on 1st January 2007.

6. The Plant and Machinery Account of a Company had a debit balance of Rs. 1,47,390 on 1st January 2006. The Company was incorporated in 2003 and has been following the practice of charging full year’s depreciation every year on diminishing balance system @ 15%. In 2006, it was however decided to change the method from Reducing system to Straight Line method with retrospective effect from 2003 and to give effect of the change while preparing the Final Accounts for the year ended 31st December 2006, the rate of depreciation remaining the same as before. In 2006, new machineries were purchased at a cost of Rs. 50,000. All the other machineries were required in 2003. Show the Plant and Machinery Account from 2003 to 2006.

INVENTORY VALUATION

1. XY Limited has purchased and issued the materials ‘M’ in the following order. DateDec 2006

Particulars Units Unit Cost (Rs.)

1 Purchase 300 34 Purchase 600 46 Issue 40010 Purchase 600 415 Issue 1,00020 Purchase 400 523 Issue 200

Apply Weighted Average Cost method, FIFO and LIFO.

2. Calculate the cost of goods sold and the value of ending inventory from the following data, by using (a) FIFO method, (b) LIFO method and (c) Weighted Average Cost method.

Month Date Particulars Units Price per unit (Rs.)Jan 1 Opening Stock 1,500 20Feb 10 Purchases 750 25March 15 Purchases 600 22March 25 Sales 1,800April 10 Sales 750May 15 Purchases 600 25June 10 Sales 750


FINANCIAL ACCOUNTING

ANALYSIS OF FINANCIAL STATEMENTS

1. Following are the Balance Sheets of Delhi Metal Works Limited as on 31st March 2006 and 2007. You are required to (a) prepare a Comparative Balance Sheet showing increase or decrease in amounts of each item and the percentage change thereof, and (b) also prepare Common Size Statement and (c) give a brief report of the inferences you draw.

BALANCE SHEETSLiabilities 31st March

200631st March 2007

Assets 31st March 2006

31st March 2007

Equity Share Capital 1,600 2,400 Current Assets:Capital Reserve 240 440 Debtors 836 760General Reserve 888 836 Cash 472 40Sinking Fund 160 200 Stock 640 520Debentures 800 1300 Investments 1,080 680Current Liabilites: Fixed Assets:Sundry Creditors 1.020 468 Furniture 36 72Others 28 40 Building 1,240 3,144

Land 80 120Other Assets 224 296

Total 4,736 5,684 Total 4,736 5,684

2. From the following information, interpret the results of operations of a manufacturing concern using the trend ratios.

Particulars 2007 2006 2005 2004Net Sales 13,000 12,000 9,500 10,000Cost of goods sold 7,280 6,960 5,890 6,000Gross Profit 5,720 5,040 3,610 4,000Selling Expenses 1,200 1,100 970 1,000Net Operating Profit 4,520 3,940 2,640 3,000

3. Calculate the Trend ratios from the following figures of X Limited, taking 2003 as the base and comment thereon. (Amount in Lakhs of Rs.)

Particulars 2003 2004 2005 2006 2007Sales 1,881 2,340 2,655 3,021 3,768Stock 709 781 816 944 1,154Profit before tax 321 435 458 527 672

4. Presented below are the Revenue and Expenditure data for the XYZ Company.Particulars 2007 (Rs.) 2006 (Rs.)Sales 8,16,000 6,56,500Sales returns and allowances 16,000 6,500Cost of goods sold 4,00,000 3,12,000Selling Expenses 2,00,000 1,30,000General Expenses 1,20,000 78,000Miscellaneous Income 6,400 6,500Income Tax 32,000 67,600

You are required to comparative statement for the year 2007 and 2006 for the company. Also comment on the relationships revealed in the comparative income statement.


MANAGEMENT ACCOUNTING

RATIO ANALYSIS

1. The following is the Revenue statement of Hind Traders Limited for the year ended 31st March 2007. Particulars Amount (Rs.)Sales 5,00,000

Less : Cost of Goods sold 3,00,000Gross Profit 2,00,000

Less : Operating expenses 1,20,000Operating Profit 80,000

Add : Non- operating income 12,00092,000

Less : Non – operating expenses 4,000Net Profit 88,000

Less : Tax at 50% 44,000Net Profit after tax 44,000

Calculate (i) Gross Profit Ratio; (ii) Operating Ratio; (iii) Operating Profit Ratio; and (iv) Net Profit Rato.

2. The Balance Sheet of a Well Established Company is as follows:Liabilities Rs. Assets Rs.Equity Share Capital (Rs. 10 per share) 6,00,00010% Long term debt 8,00,000 Net Fixed Assets 15,00,000Retained Earnings 2,00,000Current Liabilities 4,00,000 Current Assets 5,00,000Total 20,00,000 Total 20,00,000

The company’s total assets turnover ratio is 3. Its operating costs are Rs. 10,00,000 and its variable operating cost ratio is 40%. The income tax rate is 50%. Calculate the following for the company. (i) EBIT; (ii) EBT; (iii) PAT ; (iv) EPS.

3. The following figures are available for XYZ Company Limited for the year ended 31st March 2007.Net Profit before interest and tax Rs. 2,75,000; Net Profit after tax Rs. 2,20,000; Net Profit after interest and tax Rs. 1,10,000; Preference Dividend Rs. 35,000; Capital employed Rs. 11,00,000; Total assets Rs. 12,65,000; Net Worth or Equity Shareholders’ Fund Rs. 7,50,000. Calculate (i) Return on capital employed; (ii) Return on Total assets; (iii) Return on Equity Shareholders’ Fund.

4. Alpha Manufacturing company has drawn up the following Trading and Profit & Loss Account for the year ended 31st March 2007.

TRADING AND PROFIT AND LOSS ACCOUNTPARTICULARS Rs. PARTICULARS Rs.To Opening Stock 26,000 By Sales 1,60,000To Purchases 80,000 By Closing Stock 38,000To Manufacturing Expenses 16,000To Gross Profit 52,000Total 1,98,000 Total 1,98,000To Selling and Distribution Expenses

4,000 By Gross Profit 52,000

To Administrative Expenses 22,800 By Compensation for Acquisition of Land

4,800

To General Expenses 1,200To value of Furniture lost by fire

800

To Net Profit 28,000Total 56,800 Total 56,800

You are required to calculate (i) Gross Profit Ratio; (ii) Net Profit Ratio; (iii) Operating Ratio and (iv) Operating Profit Ratio.

5. Make an assessment of the comparative positions of firms A, B and C, after calculating relevant ratios on the basis of the following information for a year having assuming 360 days.

Particulars Firm A Firm B Firm CSales 66,00,000 83,25,000 89,60,000Cost of Goods Sold 60,00,000 75,00,000 80,00,000Expenses of Management 5,00,000 7,50,000 10,00,000

6. The following figures relate to the trading activities of a concern for the year ended 31st March 2007.

Sales Rs. 10,00,000; Purchases Rs. 7,00,000; Opening Stock Rs. 1,10,000; Closing Stock Rs. 1,40,000; Sales Returns Rs.40,000; Selling and Distribution Expenses Rs. 30,000; Administrative Expenses Rs. 38,000; Depreciation Rs. 10,000; Other Charges Rs. 20,000; Provision for taxation Rs. 70,000; Non- operating Income Rs. 18,000; Non- operating expenses Rs. 3,000; You are required to rearrange the figures in a form suitable for analysis.

7. The following Balance Sheet is given of XYZ Limited for the year ended 31st March 2007.

BALANCE SHEETLiabilities Rs. Assets Rs.Issued Capital - 2,000 equity shares of Rs. 100 each

2,00,000 Land and Buildings 1,50,000

Reserves 90,000 Plant and Machinery 80,000Profit and Loss Account 60,000 Stock in trade 1,49,000Bills Payables 40,000 Sundry Debtors 41,000Other current liabilities 90,000 Cash and Bank Balance 30,000

Bills Receivables 30,000Total 4,80,000 Total 4,80,000

Calculate (i) Sales to capital employed; (ii) Sales to Fixed Assets; (iii) Sales to working capital; (iv) Sales to Total assets; (v) Stock Turnover ratio; (vi) Receivables Turnover Ratio; (vii) Creditors Turnover Ratio; with reference to the following additional information.

(i) Sales (Credit) Rs. 8,50,000; (ii) Cost of Goods sold Rs. 5,10,000; (iii) Average Inventory Rs. 1,24,250; (iv) Average Accounts Receivables Rs. 85,000; (v) Average Accounts Payables Rs. 80,000 and (vi) Credit Purchases Rs. 5,45,250.

8. From the following balance sheet of Rim Zim Limited as on 31st March 2007, calculate (i) Current Ratio; (ii) Quick Ratio; (iii) Absolute Liquidity Ratio; (iv) Ratio of Inventory to Working Capital; (v) Ratio of current assets to Fixed Assets; (vi) Debt to Equity Ratio; (vii) Proprietary Ratio; (viii) Capital Gearing Ratio and (ix) Fixed Asset Ratio.

BALANCE SHEETLIABILITIES Rs. ASSETS Rs.Equity Share Capital 10,00,000 Good will (at cost) 5,00,0006% Preference Share Capital 5,00,000 Plant and Machinery 6,00,000General Reserve 1,00,000 Land and Buildings 7,00,000Profit and Loss account 4,00,000 Furnitures and Fixtures 1,00,000Provision for tax 1,76,000 Stock-in-trade 6,00,000Bills Payables 1,24,000 Bills Receivable 30,000Bank Overdraft 20,000 Debtors 1,50,000Creditors 80,000 Bank 2,00,00012% Debentures 5,00,000 Marketable securities 20,000Total 29,00,000 Total 29,00,000

9.The following figures are available in respect of a company for the year ending 31st March 2007. Sales Rs. 1,00,000; Cost of Goods Sold Rs. 60,00,000; Operating Expenses Rs. 24,00,000; Non Operating Expenses Rs. 80,000; Tax 50%. Calculate (a) Gross Profit Ratio; (b) Operating Ratio; (c) Operating Profit Ratio; (d) Net Profit Ratio.

10. From the following information, make out a statement of Proprietor’s Funds with as many details as possible. Current Ratio 2.5Liquid Ratio 1.5Proprietary Ratio (Fixed Assets / Proprietors’ Funds) 0.75Working Capital Rs. 60,000Reserves and Surplus Rs. 40,000Bank Overdraft Rs. 10,000There is no long term loan or fictitious assets

11. From the following information relating to Moon Limited, prepare a Balance Sheet as on 31st December 2006.

Current Ratio 2.5Liquid Ratio 1.5Net Working Capital Rs. 3,00,000Cost of Sales / Closing Stock 8 timesGP Ratio 20%Average Debt Collection Period 1.5 monthsFixed Assets / Shareholders’ Networth 0.75Reserves and Surplus / Share Capital 0.50

12. From the following information, prepare a summarized balance sheet as on 31st March 2007.

Stock Velocity 6Fixed Assets Turnover Ratio 4Capital Turnover Ratio 2Gross Profit 20%Debt Collection Period 2 monthsCreditors payment period 73 daysGross Profit Rs. 60,000Closing Stock Rs. 5000 in excess of Opening StockAll the workings should form a part of your answer.

13. With the help of the following information, prepare a Trading account, Profit and Loss Account and Balance Sheet of X Limited.

(a) Gross Profit Ratio = 25%(b) Net Profit / Sales = 20%(c) Sales / Inventory Ratio = 10(d) Fixed Assets / Total Current Assets = 5 / 7(e) Current Ratio = 1(f) Fixed Assets / Share Capital = 5/4(g) Fixed Assets = Rs. 10,00,000(h) Closing Stock = Rs.1,00,000


MANAGEMENT ACCOUNTINGFUND FLOW AND CASH FLOW STATEMENT

1. The following are the Balance Sheets of Paliwal Exports Limited for the years 2006 and 2007.

BALANCE SHEETSLiabilities 2006 (Rs.) 2007 (Rs.) Assets 2006 (Rs.) 2007 (Rs.)Creditors for Goods 1,60,000 2,50,000 Current Assets:Creditors for expenses 10,000 12,000 Stock 2,00,000 2,70,000Bills Payables 1,00,000 1,10,000 Sundry Debtors 2,25,000 2,45,000Share Capital 5,50,000 6,20,000 Cash 40,000 65,000Securities premium 50,000 80,000 Prepaid Expenses 25,000 22,000Profit and Loss account

1,00,000 2,00,000 Non- Current Assets:

Debentures 3,00,000 2,00,000 Plant and Machinery

7,00,000 8,80,000

General Reserves 2,00,000 2,60,000 Goodwill 1,00,000 70,000Investments 1,80,000 1,80,000

Total 14,70,000 17,32,000 Total 14,70,000 17,32,000You are required to prepare Funds Flow Statement.

2. From the following balances extracted from RC Company Limited as on 31st December 2005 and 2006, you are required to prepare Schedule of Changes in Working Capital and Funds Flow Statement.

BALANCE SHEETSLiabilities 2005

(Rs.)2006 (Rs.)

Assets 2005 (Rs.)

2006 (Rs.)

Share Capital 1,00,000 1,10,000 Buildings 40,000 38,000General Reserve 14,000 18,000 Plant and Machinery 37,000 36,000Profit and Loss account 16,000 13,000 Investments (LT) 10,000 21,000Sundry Creditors 8,000 5,400 Stock 30,000 23,400Bills Payables 1,200 800 Bills Receivables 2,000 3,200Provision for tax 16,000 18,000 Debtors 18,000 19,000Provision for Doubtful Debts

400 600 Cash at Bank 6,600 15,200

Preliminary Expenses 12,000 10,0001,55,000 1,65,800 1,55,600 1,65,800

3. From the following information, calculate (i) Net profit before taxation and ordinary items and (ii) cash from operating activities.

PARTICULARS Rs. PARTICULARS Rs.Profit and Loss account (on 1-1-2006)

5,50,000 Prepaid expenses (on 1-1-2006) 8,000

Profit and Loss account (on 31-12-2006)

8,00,000 Accrued income (on 31-12-2006)

10,000

Amount transferred to General Reserve account

50,000 Income of 2006 received in advance in 2005

5,000

Dividend paid 2,00,000 Profit on sale of machinery 2,000Income tax provision made 1,50,000 Loss on sale of furniture 1,000Discount on shares written off 10,000 Income on investments 4,000Outstanding expenses (on 31-12-2006)

25,000 Depreciation provided 50,000

Tax paid 23,000

4. The net profit of a company before tax is Rs. 25,000 as on 31st March 2007 after considering the following.

Particulars Rs.Depreciation in fixed assets 50,000Goodwill written off 15,000Loss on sale of machinery 12,000Tax paid 83,000

The current assets and current liabilities of the company in the beginning and at the end of the year were as follows:

Particulars 31-12-2006 (Rs.) 31-3-2007 (Rs.)Accounts Receivables 50,000 31,000Accounts payables 20,000 25,000Debtors 60,000 75,000Stock in hand 30,000 28,000Outstanding expenses 15,000 10,000

Calculate cash flow from operating activities by direct method.


COST ACCOUNTING1. The following extract of costing information relates to commodity ‘A’ for the half

year ending 30th September 2007.PARTICULARS Rs. PARTICULARS Rs.Purchases of Raw materials 1,20,000 Stock (30th September 2007) :Works Overheads 48,000 Raw materials 22,240Direct Wages 1,00,000 Finished Products (2000 tons) 32,000Carriages on Purchases 1,440 Work in progress (1st Apr‘07) 16,000Stock (1st April 2007) : Work in Progress (30/9/2007) 3,00,000 Raw materials 20,000 Sales (Finished Products) 3,00,000 Finished goods (1000 tons) 16,000

Selling and Distribution overheads are Re. 1 per ton sold. 16,000 tons of commodity were produced during the period. You are required to ascertain (i) Cost of output for the period (ii) cost of raw materials used (iii) Net Profit for the period (iv) Cost of sales (v) Net Profit per ton of the commodity.

2. Calculate Prime Cost, Factory Cost, Cost of Production, Cost of Sales and Profit from the following particulars.

PARTICULARS Rs. PARTICULARS Rs.Direct Materials 1,00,000 Depreciation on Factory plant 500Direct Wages 30,000 Depreciation on Office premises 1,250Wages of foreman 2,500 Consumable stores 2,500Electric Power 500 Manager’s salary 5,000Factory Lighting 1,500 Director’s fees 1,250Office Lighting 500 Office Stationery 500Store Keeper’s wages 1,000 Telephone charges 125Oil and water 500 Postage and Telegrams 250Factory Rent 5,000 Salesman’s salaries 1,250Office Rent 2,500 Travelling Expenses 500Repairs and Renewals for factory 3,500 Advertisement 1,250Repairs and Renewals for Office 500 Warehouse charges 500Transfer to reserves 1,000 Sales 1,89,500Discount on shares written off 500 Carriage outward 375Dividend 2,000 Income Tax 10,000

3. The following data relate to XYZ Company. Normal capacity 40,000 units per monthVariable cost per unit Rs. 6Actual production 44,000 unitsSales 40,000 units @ Rs. 15 per unitFixed manufacturing overheads Rs. 1,00,000 per month or Rs. 2.50 per unit at normal capacity. Other Fixed Expenses Rs. 2,40,000 per month.Prepare Income Statement under Absorption Costing.

4. Your company has a production capacity of 2,00,000 units per year. Normal production capacity utilization is reckoned as 90%. Standard variable production costs are Rs. 11 per unit. The Fixed Factory Costs are Rs. 3,60,000 per year. Variable selling costs are Rs. 3 per unit and Fixed selling costs are Rs. 2,70,000 per year. The unit selling price is Rs. 20. In the year just ended on 30th June 2007, the production was 1,60,000 units and sales were 1,50,000 units. The closing inventory on 30th June 2007 was 20,000 units. The actual variable production costs for the year were Rs. 35,000 higher than the standard. Calculate the profit for the year (a) by Absorption Costing method (b) by Marginal Costing Method. Explain the difference in the profits.

5. From the following particulars, calculate (i) Contribution; (ii) P/V ratio (iii) Break even point in units and in rupees. (iv) What will be the selling price per unit if the break even point is brought down to 25,000 units ?Fixed Expenses Rs. 1,50,000Variable Cost per unit Rs. 10Selling price per unit Rs. 15

6. From the following data, calculate (i) Break even point expressed in amount of sales in rupees (ii) Number of units that must be sold to earn a profit of Rs. 1,20,000 per year. (iii) How many units are to be sold to earn a net income of 15% of sales ? Selling price per unit Rs. 40Variable Manufacturing cost per unit Rs. 22Variable Selling Cost per unit Rs. 3Fixed Factory Overheads Rs. 1,60,000Fixed Selling Cost Rs. 20,000

7. Sale of a product amounts to 1,000 units per annum at Rs. 500 per unit. Fixed Overheads are Rs. 1,00,000 per annum and variable cost Rs. 300 per unit. There is a proposal to reduce the price by 20%. Calculate present and future P/V ratio and break even point (in units). How many units must be sold to maintain total profits ?

8. A Company has fixed expenses of Rs. 90,000 with sales at Rs. 3,00,000 and a profit of Rs. 60,000 during the first half year. If in the next half year, the company suffered a loss of Rs. 30,000, calculate (a) P/V ratio, Break even point and margin of safety for the first half year (b) Expected sales volume for the next half year assuming that selling price and fixed expenses remain unchanged (c) The break even point and margin of safety for the whole year.

9. Assuming that the cost structure and selling prices remain the same in Periods I and II, find out the following.

(a) Profit Volume Ratio(b) Fixed Cost(c) Break Even Point for sales(d) Profit when sales are Rs. 1,00,000 (e) Sales required to earn a profit of Rs. 20,000; and (f) Margin of safety at a profit of Rs. 15,000; (g) Variable cost in period II

Period SALES (Rs.) PROFIT (Rs.)I 1,20,000 9,000II 1,40,000 13,000

10. The profit volume ratio (P/V ratio) of BB and Company dealing in precision instruments is 50% and the margin of safety is 40%. You are required to work out the break even point and the net profit if the sales volume is Rs. 50 lakhs.

11. A Company has a P/V ratio of 40%. By what percentage must sales be increased to offset (i) 10% reduction in selling price and (ii) 20% reduction in selling price.

12. Two businesses, Y Limited and Z Limited sell the same type of product in the same type of market. Their budgeted profit and loss accounts for the coming year are as follows:

PARTICULARS Y Limted (Rs.) Z Limted (Rs.)Sales 1,50,000 1,50,000Less : Variable Cost 1,20,000 1,00,000Contribution 30,000 50,000Less : Fixed Cost 15,000 35,000Budgeted Net Profit 15,000 15,000

You are required to calculate (a) break even point of each business (b) the sales volume at which each of business will earn Rs. 5,000 profit; (c) calculate at which sales volume both the firms will earn equal profits (d) state which business is likely to earn greater profit in conditions of (i) heavy demand for the product (ii) lower demand for the product and briefly give your reasons.

13. The Cost sheet of a product is given as follows.

Particulars Rs. Rs.Direct Materials 5.00Direct Wages 3.00Factory Overheads : Fixed 0.50 Variable 0.50 1.00Administrative Expenses 0.75Selling and Distribution Expenses : Fixed 0.25 Variable 0.50 0.75TOTAL 10.50

The selling price per unit is Rs. 12. The above figures are for an output of 50,000 units, the capacity for the firm is 65,000 units. A foreign customer is desirous of buying 15,000 units at a price of Rs. 10 per unit. Advise the manufacturer whether the order should be accepted. What will be your advice if the order were from a local merchant ?

14. A manufacturing company finds that while the cost of making a component part is Rs. 10, the same is available in the market at Rs. 9 with an assurance of continuous supply. Give your suggestions whether to make or buy this part. Give also your views in case, the supplier reduces the price from Rs. 9 to Rs. 8. the cost information is as follows:

Particulars Rs.Materials 3.50Direct Labour 4.00Other Variable Expenses 1.00Fixed Expenses 1.50TOTAL 10.00



BUDGETING1. The expenses budgeted for production of 10,000 units in a Factory are furnished

below.PARTICULARS Rs. Materials 70Labour 25Variable Factory Overheads 20Fixed Factory Overheads 10Variable Expenses (Direct) 5Selling Expenses (10% Fixed) 13Distribution Expenses (20% Fixed) 7Administrative Expenses (Fixed – Rs. 50,000) 5 Total Cost of Sales per unit 155

You are required to prepare a budget for the production of 6,000 units and 8,000 units.

2. The budgeted cost of a factory specializing in the production of a single product at the optimum capacity of 6,400 units per annum amounts to Rs. 1,76,048 as detailed below.

PARTICULARS Rs. Rs.Fixed Costs 20,688Variable Costs : Power 1,440 Repairs etc., 1,700 Miscellaneous 540 Direct Materials 49,280 Direct Labour 1,02,400 1,55,360

Having regard to possible impact on sales turnover by market trends, the company decided to have a flexible budget with a production target of 3,200 and 4,800 units (the actual quantity proposed to be produced being left to a later date before commencement of the budget period. Prepare a flexible budget for the production levels at 50% and 75% capacity. Assume selling price per unit is maintained at Rs.

40 as at present, indicate the effect on the net profit. Administration, Selling and Distribution expenses continue at Rs. 3,600.

3. Prepare a cash budget for the three months ended 30th September 2007, based on the following information.

Particulars Rs.Cash at bank on 1st July 2007 25,000Monthly salaries and wages (estimated) 10,000Interest payable in August 2007 5,000

Estimated June (Rs.) July (Rs.) August (Rs.) September (Rs)Actual cash sales 1,20,000 1,40,000 1,52,000 1,21,000Credit Sales 1,00,000 80,000 1,40,000 1,20,000Purchases 1,60,000 1,70,000 2,40,000 1,80,000Other Expenses 18,000 20,000 22,000 21,000

Credit Sales are collected 50% in the month of sales and 50% in the month following. Collections from credit sales are subject to 10% discount if received in the month of sales and to 5% if received in the month following. 10% of the purchases are in cash and balance is paid in the next month.



RATIO ANALYSIS (UNIVERSITY SUMS)1. From the following information, you are required to prepare a Balance Sheet.

Current Ratio 1.75Liquid Ratio 1.25Stock Turnover Ratio 9Gross Profit Ratio 25%Debt Collection Period 1 ½ monthsReserves and Surplus to capital 0.2Turnover of fixed assets 1.2Capital Gearing ratio 0.6Fixed Assets to networth 1.25Sales for the year Rs. 12,00,000

2. A Company having a net working capital of Rs. 2,80,000 as on 31st March 2005 indicates the following financial ratios and performance figures.Current Ratio 2.4Liquidity Ratio 1.6Inventory Turnover Ratio(on cost of sales) 8Gross Profit Ratio (on sales) 20%Credit allowed (months) 1.5The company’s fixed assets is equivalent to 90% of its networth (share capital plus reserves) while reserves amounted to 40% of the share capital. Prepare the Balance Sheet of the company as on 31st March 2005 showing step by step calculations.

3. From the following information, complete the information missing in the Balance Sheet. Long term debt to networth 0.4 : 1Assets Turnover 3Average Collection Period 18 daysInventory Turnover 9Gross Profit Margin is 40%Quick Ratio 1 : 1The incomplete Balance Sheet is as follows:

LIABILITIES Rs. ASSETS Rs.Share Capital 60,000 Fixed Assets ?Retained Earnings 60,000 Inventory ?Long Term Debt ? Bills Receivables ?Bills Payables 60,000 Cash ?Total Total

4. State with the reasons in each of the following cases whether the ratio will improve or decline or will have no change.

(i) Payment of current liability(ii) Purchase of fixed assets(iii) Cash collected from debtors(iv) Bills Receivables dishonoured.

The current ratio is assumed to be 2.

5. From the following Profit and Loss account and Balance Sheet, prepare various ratios and comment on the financial status. Discuss under the following important functional grouping, the usual ratios and comment on the strength and weakness. (i) Liquidity and Solvency ratios; and (ii) Profitability test ratios.

PROFIT AND LOSS ACCOUNTPARTICULARS Rs PARTICULARS RsTo Opening Stock 45,000 By Sales 4,50,000To Purchases 28,000 By Closing Stock 45,000To wages 1,07,000To Direct Expenses 2,52,000To Gross Profit 63,000

Total 4,95,000 Total 4,95,000

To Salaries 8,000 By Gross Profit 63,000To Electricity 5,000To Miscellaneous Expenses 5,000To Depreciation 15,000To Net Profit 30,000

Total 63,000 Total 63,000BALANCE SHEET

LIABILITIES Rs. ASSETS Rs.Equity Share Capital 90,000 Fixed Assets 2,75,000Reserves and Surplus (1,95,000) 60,000 Less : Depreciation 75,000 2,00,000Secured Loans 1,05,000 Stock 45,000Creditors 45,000 Debtors 52,500

Cash 7,500

Total 3,00,000 Total 3,00,000


ACCOUNTING FOR MANAGERS

THEORY QUESTIONS (UNIVERSITY QUESTIONS)SECTION A

MODULE I

1. What do you mean by Accounting ?2. What are the branches of Accounting ?3. State the different types of Accounts.4. What do you mean by Accounting Principles and Concepts. ?5. State any four conventions of Accounting.6. What is Accrual Concept of Accounting ?7. What is Cash Accounting ?8. State the major purposes of Accounting information.9. Explain Matching Concept.10. State the meaning of realization concept.11. What is the essence of conservation convention. ?12. What is Business Entity Concept ?13. What do you mean by marshalling of balance sheet ?14. Explain adequate Disclosure.15. What is single entry and double entry system of book keeping ?16. Distinguish between Journal and Ledger.17. What are subsidiary books ?18. Give the meaning of Trial Balance.19. What are closing entry and Adjustment entry ?20. What are the objectives of GAAP ?21. What are Accounting Standards ?

MODULE II

1. What do you mean by Final Account ?

2. Distinguish between Balance Sheet and Trial Balance.3. Distinguish between Trading Account and Profit & Loss account.4. What do you mean by Intangible assets and Fictitious Assets ?5. What do you mean by Prepaid expenses and Outstanding Expenses ?6. What is Adjustment Entry and Closing Entry ?

7. What do you mean by Financial Statement analysis and its purpose ?

MODULE III

1. What is Depreciation ?2. What are the reasons or causes for Depreciation ?3. What is Economic Order Quantity analysis ?4. What is ABC analysis ?5. What is VED analysis ?6. What is Simple Average Price Method ?7. What is Weighted Average Price Method ?8. What are LIFO and FIFO methods of inventory valuation ?

MODULE IV

1. What is meant by Financial Analysis ?2. What is meant by External Analysis ?3. What is Internal Analysis ?4. What is Horizontal Analysis ?5. What is Vertical Analysis ?6. What is Comparative Statement ?7. What is Common Size Statement ?8. What is Ratio Analysis ?9. Discuss Composite Ratio.10. Distinguish between Analysis and Interpretation.11. What are the major Profitability Ratios ? 12. What are the major Solvency or Liquidity Ratios ?13. What are the major Long term solvency and Leverage Ratios ?14. What are the major Activity Ratios ?15. What are the major Balance Sheet Ratios ?16. What are the Turnover Ratios ?17. What are the major Efficiency of performance Ratios ?18. What are the major Ratios for bankers and financial institutions ?19. What is Capital Gearing Ratio ?20. What is Return on Investment ?21. What is angle of incidence ?22. What is key factor ?23. What is Fund Flow Statement ?24. What is Cash Flow Statement ?25. What is Working Capital ?

26. What is the statement of changes in Working Capital ?27. What is Trend Analysis ?28. How do you calculate Earnings per share (EPS) ?

MODULE V1. What is Cost Accounting ?2. Explain Fixed and Variable Costs.3. Define and Distinguish the terms period cost and product cost.4. What is cost driver ?5. What is cost centre ?6. What do you mean by Notional Profit and Actual Profit ?7. What is Job Costing ?8. What is Activity Based Costing (ABC) ?9. What is Target Costing ?10. Mention the various types of variance.11. What is Standard Costing ?12. What is Material Price Variance ?13. Define Budget Manual.14. What is Absorption Costing ?15. What is Standard Costing ?16. What is Marginal Costing ?17. What is Margin of Safety ?18. Distinguish between Cost Allocation and Cost Apportionment.19. How a flexible budget differs from fixed budget ?20. What is Master Budget ?21. What is Production Budget ?22. What is Cash Budget ?23. What is Flexible Budget ?24. What is Zero Base Budgeting ?



THEORY QUESTIONS (UNIVERSITY QUESTIONS)SECTION B and C

MODULE I1. What are the objectives of Financial Accounting ?2. Explain the Accounting concepts.3. What are the conventions of Accounting ?4. What do you mean by Accounting information ? Explain the internal and external

uses of Accounting information.5. Explain GAAP in different Nations.6. What is GAAP ? Explain the needs and objectives of Accounting Standards.7. What do you mean by Human Resources Accounting ?8. What are the Accounting Standards ? What are the merits and limitations ? 9. Explain the role of Accountant in the present day economy.10. Explain the procedure of preparing the Trial Balance.11. Explain Two column and Triple column Cash Book. 12. Distinguish between Cost Accounting and Management Accounting.13. Distinguish between Financial Accounting and Management Accounting14. Distinguish between Cost Accounting and Financial Accounting15. How is the income summary of the last accounting period connected the balance

sheet of future accounting periods ? Explain briefly preferably using the balance sheet and income summary equations.

MODULE II1. Distinguish between Trial Balance and Balance Sheet.2. Give a structure of Trading Account, Profit & Loss Account and Balance Sheet.3. State the usual adjustments in Final Accounts.4. Classify the Financial Reports with examples.

MODULE III1. What are the methods of providing Depreciation ? State the relative merits and

limitations also.2. Discuss the methods of providing Inventory valuation.3. Distinguish between Straight Line Method and Diminishing Value Method.

MODULE IV1. What are the various types of Ratios ?2. What are the Comparative Statement analysis, Common Size Statement analysis

and Trend Analysis ?3. What are the major Profitability Ratios ? Explain. 4. What are the major Solvency or Liquidity Ratios ? Explain.5. What are the major Long term solvency and Leverage Ratios ? Explain.6. What are the major Activity Ratios ? Explain. 7. What are the major Balance Sheet Ratios ? Explain.8. What are the Turnover Ratios ? Explain. 9. What are the major Efficiency of performance Ratios ? Explain.10. What are the major Ratios for bankers and financial institutions ? Explain. 11. State the nature of Management Accounting.12. Mention the limitations of Value Added Statements (VAS). 13. What are the uses of Fund Flow Statement and Cash Flow Statement ?14. Distinguish between Fund Flow Statement and Cash Flow Statement.15. Explain the techniques which are used in analysis and interpretation of financial

statements of a business concern. 16. Explain Du Pont Analysis (Ratio Analysis – ROE).

MODULE V1. Distinguish between Direct Materials and Indirect Materials.2. Discuss the methods of accounting by-products.3. What are the uses of Zero Base Budgeting ?4. Distinguish between Standard Costing and Budgetary Control.5. What is Variance ? What are the causes for the material cost variance ?6. Discuss the significance of Strategic Cost Management. 7. What are the practical applications of Marginal Costing ?8. “The effect of a price increase is always to increase the P/V ratio, to bring down

the break even point and to widen the margin of safety” - Discuss.9. What are the objectives of Budgetary Control ? Explain the types of budgets

normally prepared by a big industrial concern. 10. Distinguish between Cost Control and Cost Reduction with suitable examples.11. Discuss the usefulness of Cost Classification.12. Write short notes on Life Cycle Costing.13. Explain Target Costing.14. Explain Activity Based Costing.


ACCOUNTING FOR MANAGERSMODEL UNIVERSITY QUESTION PAPER

SECTION A6 questions * 2 marks = 12 marks

1. Answer any SIX of the following.(a) What is inventory turnover ?(b) Define Corporate Governance.(c) What costs can be capitalized as fixed assets according to AS10 ?(d) What are the various disclosures reuired under AS6 ?(e) What is Du Pont analysis ?(f) What is material price variance ?(g) Differentiate between Absorption costing and Marginal costing.(h) What are operating ratios ?(i) What is Activity Based Costing ?

SECTION BAnswer any THREE questions. Each question carries 8 marks

3 questions * 8 marks = 24 marks2. Discuss the different techniques of evaluating the financial performance of an

organization.

3. What is Standard Costing ? Explain the process of setting standards and variance analysis.

4. The following information is available with respect of an asset:Cost of Machine Rs. 78,00,000Expected Useful Life (years) 5 Consideration expected on disposal Rs. 4,20,000 Estimated cost of removal of the machine for disposal Rs. 30,000Estimated realizable value Rs. 3,90,000Required :

(a) Determine the rate of depreciation as per Straight Line Method(b) Determine the annual depreciation and accumulated depreciation for all

the years as per Straight Line Method

(c) Show the disclosure of the machine in the Balance Sheet for all the years.

5. Vinak Limited produces an article by blending two basic raw materials. It operates a standard costing system and the following standards have been set for raw materials.

Materials Standard Mix Standard Price per KgA 40% Rs. 3B 60% Rs. 4

The standard loss in processing is 15%. During April 2003, the company produced 1700 Kg of finished output. The position of stock and purchases for the month of April 2003 are as under :

Materials Stock on 1-4-2003 (Kg)

Stock on 30-4-2003 (Kg)

Purchased during April 2003Kg. Cost (Rs.)

A 35 5 800 3,400B 40 50 1,200 3,000

Calculate the following variances : (a) Material Price variance (b) Material Usage Variance (c) Material Yield Variance

6. “S” Limited, a multi product company, furnishes the following data relating to the year 2006.

Particulars First Half of the year (Rs.) Second Half of the year (Rs.)

Sales 45,00,000 50,00,000Total Cost 40,00,000 43,00,000

Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two, half year periods, calculate for the year 2007: (i) the Profit Volume ratio (ii) the fixed expenses (iii) the breakeven sales (iv) the percentage of margin of safety to total sales.

SECTION CAnswer any TWO questions. Each question carries 12 marks

2 questions * 12 marks = 24 marks

7. Describe the significance of the cost-volume-profit analysis in business decision making.

8. A Company ha furnished the following ratio and information relating to the year ended 31st March 2006.Sales Rs. 60,00,000Current Ratio 2Share Capital to Reserves 7 : 3

Rate of Income tax 50%Return on networth 25%Net Profit to sales 6.25%Inventory Turnover Ratio (on cost of sales) 12Interest on debentures R.s. 60,000Sundry Debtors Rs. 2,00,000Sundry Creditors Rs. 2,00,000Required : (a) Determine the operating expenses for the year ending 31st March 2006 (b) Prepare Balance Sheet as on 31st March 2006.

9. Following are the summarized Balance sheet of Varsha Limited as on 31st December 2005 and 2006.

Liabilities 2005 (Rs.)

2006 (Rs.)

Assets 2005 (Rs.)

2006 (Rs.)

Sundry Creditors 39.500 41,135 Cash at Bank 2,500 2,700Bills Payable 33,780 11,525 Debtors 87,490 73,360Bank Overdraft 59,510 NIL Stock 1,11,040 97,370Provision for taxation 40,000 50,000 Land and Buildings 1,48,500 1,44,250Reserves 50,000 50,000 Plant and

Machinery1,12,950 1,16,200

Profit and Loss Account

39,690 41,220 Good will NIL 20,000

Share Capital 2,00,000 2,60,000

Total 4,62,480 4,53,880 Total 4,62,480 4,53,880

Additional information :(a) During the year 2006, an interim dividend of Rs. 26,000 was paid.(b) The assets of another company were purchased for Rs. 60,000, payable in fully

paid shares of the company. These assets consisted of Stock Rs. 22,000, Machinery Rs. 28,000, and Good will Rs. 20,000

(c) Sundry Purchases of plant were made totaling Rs. 56,000(d) Income Tax paid during 2006 amounted Rs. 25,000.You are required to prepare Fund Flow Statement for the year 2006 and a Schedule of changes in Working Capital.

SECTION DAnswer the case study question compulsorily. This question carries 15 marks.

1 question * 15 marks = 15 marks

10. The following is the trial balance of Sanjay Industries Limited as on 31st March 2007.

PARTICULARS Rs. Rs.Opening Stock 6,75,000

Sales 30,60,000Wages 2,70,000Share Capital (Authorised Capital 2,00,000 shares of Rs. 10 each)

9,00,000

Discount 27,000Purchases 22,05,000Carriage inward 8,550Purchase Returns 90,000Patents and Trade mark 43,200Salaries 67,500Bills Receivables 45,000Sundry Expenses 63,450Bills Payables 63,000Rent 36,000Debtors and Creditors 2,47,500 1,57,500Plant and Machinery 2,61,000Furniture and Fittings 1,53,000Cash at Bank 4,15,800General Reserves 1,39,500Profit and Loss Account on 31st March 2006 54,000TOTAL 44,91,000 44,91,000 Additional information : 1. Outstanding rent amounted to Rs. 7,200, while outstanding salaries Rs. 8,100 at

the end of the year.2. Make a provision for doubtful dents amounted to Rs. 4,5903. Stock on 31st March 2007 was valued at Rs. 7,92,0004. Depreciate plant and machinery @14% and Furniture and Fittings @ 18%.5. Amortize patents and trade marks @ 5%.6. Provide for managerial remuneration @ 10% of the net profit before tax.7. Make a provision for income tax @ 35%.8. The Board of Directors propose a dividend @ 10% for the year ended 31st March

2007 after transfer to General Reserve @ 5% of the profit after tax.Required :1. Prepare the following financial statements of Sanjay Industries Limited

(a) Profit and Loss Account for the year ended 31st March 2007(b) Profit and Loss Appropriation account for the year ended 31st March 2007(c) Balance Sheet as on 31st March 2007

2. Briefly comment upon the performance of the company.


ACCOUNTING FOR MANAGERSMODEL QUESTION PAPER (Previous Batch pattern)

SECTION A6 questions * 2 marks = 12 marks

1. Answer any SIX of the following. Each question carries two marks.

(a) What is Accounting Cycle ?(b) Mention the significance of Accounting Standards.(c) State any five objectives of Book keeping.(d) What technique would you follow to detect and prevent slow and non

moving materials ?(e) Define Financial Statement Analysis.(f) Define Zero Base Budgeting.(g) What do you mean by Human Resources Accounting ?(h) What is Process Costing ?(i) What are three major cycles of the total life cycle costing approach in a

manufacturing situation ?

SECTION B2. What is “Accounting Period Assumption” ? Why is it necessary to aassume that

an economic entity will remain a Going Concern ?

3. Briefly describe the different methods of depreciation.

4. Define Financial Statement Analysis. How is it useful for Management and Creditors ?

5. From the following information, prepare Balance Sheet :(a) Current Ratio 1.75(b) Liquidity Ratio 1.25(c) Stock Turnover Ratio (Gross Sales/Closing Stock) 9(d) Debt Collection Period 1.5 months(e) Reserves and Surplus to Capital 0.2

(f) Turnover to Fixed Assets 1.2(g) Capital Gearing Ratio 0.6(h) Fixed Assets to Networth 1.25(i) Sales for the year Rs. 12,00,000

6. From the following data, calculate the following:(i) Break even points in units(ii) The number of units to be sold to earn a profit of Rs. 10,000

Direct Materials Rs. 4 per unitDirect Labour Rs. 3 per unitVariable overheads 100% of the Direct LabourSelling price Rs. 20 per unitFixed overheads Rs. 50,000

7.From the following information, determine EOQ and also determine the value per order.

(a) Per month consumption : 75 units(b) List price per unit Rs. 4(c) Trade Discount : 25% from the list price(d) Per order cost Rs. 10(e) Carrying Cost Re. 0.20 per unit(f) The usage is assumed to be uniform through out the year.

SECTION C8.Wrycooder Guitars is a manufacturer of standard type of Guitar. Its recent budgetary report for its assembly department for October 2007 is as follows.

Department : Assembly Month : October 2007 (month 7)Annual output : 24,000 Guitars This month output : 2,300 Guitars

Cost Elements Annual Budget (Rs.)

Month’s Budget (Rs.)

Actuals (Rs.) Variances (Rs.)

Labour 2,40,000 20,000 21,340 1,340 (A)Materials 4,80,000 40,000 46,500 6,500 (A)Power 12,000 1,000 1,100 100 (A)Depreciation 96,000 8,000 8,000 0Total 8,28,000 69,000 76,940 7,940 (A)

Indicate the weaknesses of the cost report presented above and explain how it could be improved.

9. From the following Balance Sheet, prepare Cash Flow Statement. Liabilities 2006

(Rs.)2007 (Rs.)

Assets 2006 (Rs.)

2007 (Rs.)

Sundry Creditors 1,10,000 1,66,000 Cash 50,000 36,000Bills Payable 40,000 32,000 Sundry Debtors 3,20,000 4,00,000Proposed Dividend 84,000 1,00,000 Stock 1,54,000 2,18,000Provision for Tax 80,000 1,00,000 Bills Receivables 40,000 60,0006% Debentures 3,00,000 2,00,000 Buildings 4,00,000 3,40,000

General Reserves 80,000 1,40,000 Machinery 1,60,000 4,00,000Profit and Loss a/c 60,000 96,000 Goodwill 2,30,000 1,80,000Capital 6,00,000 8,00,000

Total 13,54,000 16,34,000 Total 13,54,000 16,34,000Additional information :

(a) An interim dividend of Rs. 40,000 was paid in 2007(b) Depreciation of Rs. 20,000 and Rs. 40,000 have been charged to

Machinery account and Building account respectively in 2007.(c) Income Tax Rs. 70,000 was paid during the year.

10.XYZ Limited manufactures three products X, Y and Z. The following table includes information relating to the manufacture of each product.

Product Budgeted Output

Material Cost per unit

Direct Labour per unit (hours)

Machine time per unit

(hours)

Labour cost per unit

(Rs.)X 6,000 15 0.25 0.25 2Y 8,500 24 0.40 0.25 2Z 4,800 18 0.4 0.50 4

The draft productioin overhead budget for the next year contains the following departmental budgets:Machine oriented overheads Rs. 16,500Set up Costs Rs. 38,920Materials Ordering Rs. 24,630The budget absorbs these overheads into production using a budgeted machine hour rate of Rs. 18.68 per hour. This is budgeted to produce overhead costs per product as follows : X = Rs. 4.67; Y = Rs. 4.67; Z = Rs. 9.34. However, it has been proposed that the overhead budget be recalculated using activity based costing. The following information has been provided for this purpose:

Product No. of Setups No. of Material Orders

No. of Times material is handled

X 1 1 3Y 4 3 10Z 2 2 3

(a) Recalculate the production overhead budget per product using Activity based costing, tracing costs to products by cost drivers.

(b) Discuss the assertion that Activity Based Costing is likely to produce a fairer unit product cost than total Absorption Costing.

11. What is meant by the term Cost in connection with the valuation of inventories ? What are the different methods of valuing inventories ?

12. Describe the various Accounting Standards prescribed by ICAI.

SECTION D13. Prepare Trading, Profit & Loss Account and Balance Sheet for the year ended 31st

March 2007 from the following trial balance of Rama Rao.

Debit Balances Rs. Credit Balances Rs.Drawings 45,000 Capital 1,60,000Good will 80,000 Bills payables 33,800Land and Buildings 60,000 Sundry Creditors 70,000Plant and Machinery 40,000 Purchase Returns 2,650Loose Tools 3,000 Sales 4,18,000Bills Receivables 3,000Stock on 1st April 2006 40,000Purchases 2,51,000Wages 20,000Carriage outwards 500Carriage inwards 1,000Coal 5,800Salaries 35,000Rent, Rates and Taxes 2,800Discount 1,500Cash at Bank 25,000Cash in Hand 400Sundry Debtors 45,000Repairs 1,800Printing and Stationery 500Bad Debts 1,200Advertisements 3,500Sales Returns 2,000Furniture 11,200General Expenses 5,250

Adjustments : 1. Closing Stock on 31st March 2007 was Rs. 35,0002. Depreciate Plant and Machinery, Tools and Furniture by 10% and Land and

Buildings by 5%.3. Provide Rs. 1,500 for wages4. Advertisements prepaid are Rs. 500.5. Provide 5% on Debtors against bad debts and 2% against discount.



ACCOUNTING STANDARDS (ASs) IN INDIA

AS 1 DISCLOSURE OF ACCOUNTING POLICIES :

This standard deals with the disclosure of significant accounting policies followed in preparing and presenting financial statements. The view presented in the financial statements of an enterprises of its state of affairs of the net profit or loss to be affected significantly by the accounting policies followed in the preparation of financial statements. The accounting policies followed vary from enterprise to enterprise. Disclosure of significant accounting policies followed if necessary if the view presented is to be properly appreciated.

AS 2 VALUATION OF INVENTORIES A primary issue in accounting for inventories is the determination of the value at

which inventories are carried in the financial statements until the related revenues are recognized. This statement deals with the determination of such value, includes the ascertainment of cost of inventories and any write down thereof to the net realizable

value. Here, we have to consider the cost price of inventories or market price of inventories whichever is lower.

AS 3 CASH FLOW STATEMENTS

The statement deals with the provision of information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement

which classifies cash flows during the period from operating, investing and financial activities.

AS 4 CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE :

This statement deals with the treatment in financial statements of (a) contingencies and (b) events occurring after the balance sheet date.

AS 5 NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES :

The objective of this statement is to prescribe the classification of certain items in the statement of profit and loss, so that all the enterprises prepare and present such a statement on a uniform basis. Accordingly, this statement requires the classification and disclosure of extra ordinary and prior items, and the disclosure of certain items within profit or loss from ordinary activities. It also specifies the accounting treatment for changes in accounting estimates and the disclosures to be made in the financial statements regarding changes in accounting policies.

AS 6 DEPRECIATION ACCOUNTING

This statement deals with depreciation accounting and applies to all the depreciable assets. Different accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprises.

AS 7 CONSTRUCTION CONTRACTS (REVISED 2002)

The objective of this statement is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods.

AS 8 ACCOUNTING FOR RESEARCH AND DEVELOPMENT :

This accounting standard has been withdrawn and in the place of AS 26, Intangible assets would become mandatory for the respective companies.

AS 9 REVENUE RECOGNITION :This statement deals with the bases for recognition of revenue in the statement of

profit and loss of an enterprise arising form the sale of goods, the rendering of services, and the use by others of enterprise resources yielding interest, royalties and dividends.

AS 10 ACCOUNTING FOR FIXED ASSETS :

Financial statements disclose certain information, relating to fixed assets. In many enterprises, these assets are grouped into various categories, such as land, buildings, plant and machinery, vehicles, furniture and fittings, goodwill, patents, trade marks and designs. This statement deals with accounting for such fixed assets.

AS 11 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES :

An enterprise may carry on activities involving foreign exchange in two ways. It may have transactions in foreign currencies or it may have foreign operations. In order to include foreign currency transactions and foreign operations in the financial statements of an enterprises, transactions must be expressed in the enterprise’s reporting currency and the financial statements or foreign operations must be translated into the enterprise’s reporting currency. The principal issues are to decide which exchange rate to use and how to recognize in the financial statements, the financial effect of changes in exchange rates.

AS 12 ACCOUNTING FOR GOVERNMENT GRANTS :

This statement deals with accounting for Government grants. Government grants are sometimes called by other names, such as subsidies, cash incentives, duty drawbacks etc.,

AS 13 ACCOUNTING FOR INVESTMENTS :This statement deals with accounting for investments in the financial statements

of enterprises and related disclosure requirements.

AS 14 ACCOUNTING FOR AMALGAMATIONS :

This statement deals with accounting for amalgamations and the treatment of any resultant Goodwill or reserves. This statement is directed principally to companies although some of its requirements also apply to financial statements of other enterprises.

AS 15 EMPLOYEE BENEFITS :The objective of this statement if to prescribe the accounting and disclosure for

employee benefits. The statement requires an enterprise to recognize (a) a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and (b) an expense when the enterprise consumes the economic benefits arising from service provided by an employee in exchange for employee benefits.

AS 16 BORROWING COSTS :The objective of this statement is to prescribe the accounting treatment for

borrowing costs. Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds.

AS 17 SEGMENT REPORTING :The objective of this statement is to establish principles for reporting financial

information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates.

AS 18 RELATED PARTY DISCLOSURES :The objective of this statement is to establish requirements for the disclosure of

(a) related party relationships; and (b) transactions between a reporting enterprise and its related parties.

AS 19 LEASES :The objective of this statement is to prescribe, for lessees and lessors, the

appropriate accounting policies and disclosures in relation to finance leases and operating leases.

AS 20 EARNINGS PER SHARE :The objective of this statement is to prescribe the principles for the determination

and presentation of Earnings Per Share which will improve comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprises. The focus of this statement is on the denominator of the Earnings Per Share calculation.

AS 21 CONSOLICDATED FINANCIAL STATEMENTS :

The objective of this statement is to lay down the principles and procedures for the preparation and presentation of consolidated financial statements.

AS 22 ACCOUNTING FOR TAXES ON INCOME :The objective of this statement is to prescribe accounting treatment for taxes on

income. This includes the determination of the amount of the expenses or savings related to taxes on income in respect of an accounting period and the disclosure of such an amount in the financial statements.

AS 23 ACCOUNTING FOR INVESTMENTS IN ASSOCIATES IN CONSOLIDATED FINANCIAL STATEMENTS :

The objective of this statement is to set out the principles and procedures for recognizing, in the consolidated financial statements, the effects of the investments in associates on the financial position and operating results of a group.

AS 24 DISCONTINUING OPERATIONS :The objective of this statement is to establish the principles for reporting

information about discontinuing operations, thereby enhancing the ability of the users of financial statements to make projections of an enterprise’s cash flows, earnings-generating capacity, and the financial position by segregating information about discontinuing operations from information about continuing operations.

AS 25 INTERIM FINANCIAL REPORTING :The objective of this statement is to prescribe the minimum content of the interim

financial report and to prescribe the principles for recognition and measurement in a complete or condensed financial statements for an interim period. Timely and reliable interim financial reporting improves the ability to generate earnings and cash flows, its financial conditions and liquidity.

AS 26 INTANGIBLE ASSETS :The objective of this statement is to prescribe the accounting treatment for

intangible assets that are not dealt with specifically in another Accounting Standard. This statement requires an enterprises to recognize an intangible asset if, and only if, certain criteria are met.

AS 27 FINANCIAL REPORTING OF INTERESTS IN JOINT VENTURES :

The Objective of this statement is to set out the principles and procedures for accounting for interests in joint ventures and reporting of joint ventures assets, liabilities, income and expenses in the financial statements of ventures and investors.

AS 28 IMPAIRMENT OF ASSETS : The objective of this statement is to prescribe the procedures that an enterprise

applies to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through the use or sale of the asset. If this is the case, the asset is described as impaired and this statement requires the enterprise to recognize an impairment loss.

AS 29 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS :

The objective of this statement is to ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities and that sufficient information is disclosed in the notes to the financial statements to enable the users to understand their nature, timing and amount.

Accounting for Managers 1

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