SVKM’S NMIMS

SCHOOL OF BUSINESS MANAGEMENT

Term End Examination
(Academic Year 2021-22)

Program: MBA Year: 1 Trim: 1

Subject: Financial Accounting Date: 08 September 2021

Marks: 40 Time: 11:00 am to 1:00 pm

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NMIMS - FA - Term End Question Paper No. 1 – 2021

Answer all questions.
Q. No. 1 (2 + 2 = 4 Marks)

The following details are available about a company’s opening Inventory, purchases and sales of its
products. Find out the closing inventory value under (1) FIFO and (2) LIFO methods.

Feb 1 Opening Inventory 20 units @ Rs 140

4 Purchases 50 units @ Rs 142
7 Sales 30 units
10 Purchases 60 units @ Rs 145
14 Sales 20 units
20 Purchases 30 units @ Rs 147
26 Sales 40 units
29 Purchases 80 units @ Rs 148

Q. No. 2 (8 + 2 = 10 Marks)

ABC Limited bought a machine for making one of its products for Rs 8,00,000. The machine was
expected to be useful for five years and an estimated residual value of Rs 40,000. The machine is
expected to produce 50,000 units. It produced 15,000 units in year one, 12,000 units in year two,
3,000 units in year three, 16,000 units in year four and 4,000 units in year five.

Calculate the depreciation expense for each year under each of the following methods: (a) Straight
line (b) written down value (c) sum of years digits (d) production units.

Also comment on the yearly depreciation expenses and carrying amount.

Q. No. 3 (12 Marks)

On April 1, 2003, a new stationery business was formed by Mr Ravi. His accountant prepared the
statement of cash flows for the first year as given below.

Statement of Cash flows for the period ended 30th Nov, 2003 (in Rs.)
Cash receipts
Sale of Inventories 28,960
Sale of Investments 6,400
 Sale of shares to raise capital 35,200
Depreciation 5,600
Long term credit for the purchase of van 2,400
Interest on Investments 640
Total receipts 79,200
Cash payments
Purchase of fixtures and office equipment 27,200
Purchase of inventories 20,240
Operating expenses 12,800
Purchase of investments 6,800
Long term credit taken 2,400
Repayment of loans 800
Interest on bills payable 240
Total payments 79,200
Net increase in cash 8,720

Mr Ravi thinks that he had a successful year with cash increasing by Rs 8,720. You notice that the
statement of cash flows has some errors. Do you agree with Mr Ravi’s assessment about the
company.

Q. No. 4 (10 Marks)

The following information for Royal Furniture, a retail furniture and design firm is given:

Royal Furniture, Balance Sheets, December 31,

2012 2011
Assets
Current assets:
Cash Rs. 42,000 Rs.54,000
Accounts receivable 580,000 445,000
Inventory 5,010,000 4,950,000
Prepaid expenses 84,000 79,000
Total current assets 5,716,000 5,528,000
Building and equipment 1,097,000 1,095,000
Total assets Rs.6,813,000 Rs.6,623,000

Liabilities and stockholders’ equity

Liabilities
Current liabilities:
Accounts payable Rs. 605,000 Rs. 628,000
Bank loan payable 679,000 625,000
Other accrued payables 215,000 315,000
Total current liabilities 1,499,000 1,568,000
Long-term debt 1,729,000 1,797,000
Total liabilities 3,228,000 3,359,000
Stockholders’ equity:
Common stock 1,307,000 1,307,000
Retained earnings 2,278,000 1,957,000
 Total stockholders’ equity 3,585,000 3,264,000
Total liabilities and
stockholders’ equity Rs.6,813,000 Rs.6,623,000

There were 100,000 shares of common stock outstanding at the end of both 2011 and 2012.

2012 2011

The price per share at the end of year Rs.134 Rs.110

Net income for the year Rs.815,000 Rs.639,000

Cost of goods sold for the year Rs.2,900,000 Rs.2,700,000

Net sales for the year Rs.5,568,000 Rs.5,253,000

Royal Furniture intends to apply for a loan. If you are the Chief Manager of the Bank,
will you give loan to Royal Furniture. Justify

Q. No. 5 (4 Marks)

Choice of accounting policies will not have any effect on company’s earnings quality. Your views.