TEST

MANAGERIAL ACCOUNTING

Q.Prepare a statement of P & L A/C as per revised schedule III

ANS.
Vihar Co. Ltd.
Statement of Profit and Loss as on 31st March,2015

Particulars Note Amount

(I) Revenue from Operations 1 4,42,000

(II)Other Income 2 8,000

(III)Total revenue 4,50,000

(IV) Expenses:

(a)Material Consumed 90,000

(b)Purchases 2,35,000

(c)Changes in Inventories 3 7,000

(d)Employees benefit expenses 4 37,500

(e)Finance Cost 4,000

[f] Depreciation and 3,300

Amortization Exp
(g)Other Expenses 5 46,500

Total Expenses 4,23,300

(V)Profit & Loss before Tax (III- 26,700

IV)

(VI)Provision for Tax (10,000)

(VII)Profit Loss after Tax (V-VI) 16,700

Notes
1.Revenue from Operations
Sales =4,55,000
Less Sales Returns= 5,000
Less Excise Duty= 8,000
Total =4,42,000
2 .Other Income
Interest on investment= 5,000
Rent received= 3,000
=8,000
3. Changes in Inventories
Opening Stock =82,000
Less Closing Stock= (75,000)
=7,000
4. Employees benefit expenses
Salaries =7,500
Wages =30,000
=37,500

Q2.

Total Assets = Rs 15,00,000 

Current liabilities = Rs 6,00,000  
Total debts = Rs 12,00,000 
 
Debt equity ratio = Debt / Equity 
Equity = Total Assets – Total Debts  
= 15,00,000 – 12,00,000 
= 3,00,000  
 
Long term debts = Total Debts – current liabilities  
Debt equity ratio = Long term debts / Equity  
Or , 
Debts equity ratio = 6,00,000 / 3,00,000 = 2/1  
= 2:1 Answer . 

Q3. Solution
  Liabilities beginning of the year= 192000-144000=48000
 Liabilities end of the year = liabilities beginning+ increased
48000 +55000
= 108000

 Assets of the year= Assets beginning+ increase

192000+80000
2,72,000

 Equity end of the year = Assets end of the year- liabilities

2,72,000 - 103000
Rs 1,69,000

Q4.

Date Particulars L.F. Debit Credit

2018

Jan 1 Cash A/c 80.000 80.000

To Jayaseeli's
capital A/c

(Jayaseeli started
business

Jan 2 Bank A/c 40,000 40,000

To Cash A/c

(Deposited into
bank)

Jan 3 Purchases A/c 5,000 5,000

To Cash A/c

(Goods purchased
by cash)

Jan 4 Purchases A/c 10,000 10,000

To Lipton & Co.

A/c
 (Goods purchased
on credit)

Jan 5 Cash A/c 11,000 11,000

To Sales A/c

(Cash sales made)

Jan 6 Salaries A/c 5,000 5,000

To Cash A/c

(Salaries paid)

Jan 7 Lipton & Co. A/c 10,000 10,000

To Bank A/c
(Payment made
by cheque)

Jan 8 Furniture A/c 4,000 4,000

To Cash A/c

(Furniture bought
for cash)

Jan 9 Electricity 1,000 1,000

charges A/c

To Cash A/c

(Electricity paid)

Jan 10 Insurance 300 300

premium A/c

To Bank A/c

Insurance
premium on
furniture paid
Q5.

Direct Costs

Direct costs are among the most common. They are the direct cost associated with the
production of a product. Direct costs would include labour or materials. They may also
include distribution costs and other expenses, depending on the method of accounting. The
most obvious example of a direct cost would be a car manufacturing company. The two direct
costs would be the total of the wages paid to the employees used to build the car and the cost
of the individual parts themselves.

You can see how such costs are direct. The training of the employees, supervision, utilities,
and other costs are not factored in. Direct costs are the same as Cost of Goods Sold, a very
relevant metric for general accounting purposes. Cost of Goods Sold (‘COGS’) is sometimes
referred to as the Cost of Sales.

#2 – Indirect Costs

Indirect costs are a little more difficult to trace. Indirect costs often cannot be traced back to
an individual department. The workers in a car manufacturing plant might all use the internet,
water, and lighting to create a vehicle. But these costs are indirect and are used all over the
plant. Other indirect costs can include IT and office maintenance staff. They are indirect but
still highly relevant to the business and the end product.

#3 – Fixed Costs

The most obvious example of a fixed cost would be a lease. If you need to pay $3,000 a
month for the next 2 years for a property, then this is a fixed cost. The defining characteristic
of a fixed cost is that it does not change. A fixed interest rate repayment on a loan is also a
fixed cost (provided it is not tied to a variable interest rate). Regardless of how well or poorly
the business is doing, a fixed cost will always remain a fixed cost. Fixed costs are easier to
calculate as they tend to be more tangible.

#4 – Variable Costs

In direct contrast to a fixed cost, a variable cost can change depending on business
performance. The more products you produce, the more you will pay for packaging and
distribution. But remember that a variable cost is not a direct cost. Even if you pay more for
components and if you pay more for hours worked, this still goes under direct costs in most
instances.

#5 – Operating Costs

These are sometimes referred to as operating expenses. These can be either fixed or variable.
Operating costs are costs that are associated with daily business activity but are distinct from
indirect costs. Rent and utilities are typical examples of operating costs. They are essential for
business operations but are not involved in the manufacturing process directly or indirectly.

#6 – Opportunity Costs
This is usually only relevant when deciding between two or three potential business
opportunities. The opportunity cost is the cost associated when you go with one investment,
and potentially lose out on other investments. What has to be understood is that there is
always a potentially superior investment, and you need to shoot for ‘good’ as opposed to
perfect. If you are deciding to rent vs buy a new piece of equipment, then you could compute
the opportunity cost with all of the variables.

#7 – Sunk Costs

Sunk costs are costs that will not be recovered by the business. They cannot be gotten back
regardless of what happens. They are excluded from future business decisions. If you have
invested money in a business that has gone bankrupt, it is a sunk cost already (even though
you may recuperate some of the revenue through the court system).

#8 – Controllable Costs

Controllable costs are ones where a manager (or board) decides what will happen at a
particular cost. Bonuses, charitable donations, advertising, office supplies, employee events,
are all examples of controllable costs. But their value is not so easy to calculate. While they
are a cost, you cannot simply reduce them down to zero and expect to run a successful
business.

#9 The Bottom Line. Cost accounting looks to assess the different costs of a business and
how they impact operations, costs, efficiency, and profits. Individually assessing a company’s
cost structure allows management to improve the way it runs its business and therefore
improve the value of the firm.