Questions

Explain whether the following practices violate any accounting principles?

(a)A business records an expense for the electricity charges for the owner’s home
(b)A business buy’s a car at an auction for INR 40,000 and records it at that amount. One week
later, the price of the car is INR 50,000, and the business records the car at the new market
value.
(c) A business records a smartphone purchased for the owner’s personal use as an asset of the
business.
(250 words)

Once upon a time, Kingfisher Airlines was one of the largest aviation companies in India.
The company’s jaunty slogan “Welcome to a world without passengers” was meant to say that
the passenger is “made to feel like a guest and not just a passenger”. Unfortunately for the
company, the slogan soon acquired its literal meaning.

Kingfisher Airlines was set up in 2003 by the United Breweries Group. It started operations in
2005.Kingfisher Airlines shut down operations in 2012. It never made a profit all its life. In August
2015,United Bank of India declared Vijay Mallya, the company’s promoter and chairman, a ‘willful
defaulter’ –a term used by the Reserve Bank of India to describe a borrower who has the
capacity to repay but doesn’t, diverts funds for other purposes, siphons off funds or disposes or
removes assets furnished as security. The company owed more than 80 billion in unpaid loans to
banks in India. Besides, the airports, tax authorities and employees, among others, had claims
against the company for unpaid amounts.
Mr. Mallya left India for the United Kingdom in March 2016. Television channels and newspapers
demanded that he return to India and repay the company’s loans and other dues.

Using publicly available information, interpret the following questions:

1. Who is obliged to repay a company’s debts: the company, promoters, shareholders, or
directors?
2. Are there circumstances under which promoters or directors could be asked to repay the loans
taken by the company?
3. What options do the banks have for recovery of the loans in a case like this one?
4. What are the rights of a company’s shareholders against the promoter in a case like this one?
(300 words)
Show Accounting equation for each of following transactions:
Vijay started business with cash ₹ 20,000
He purchased goods on credit of ₹ 8000
He sold goods for cash ₹ 3000
Purchased furniture for cash ₹ 2000
Purchased goods from Mukesh for cash ₹ 300
Course Outcome Knowledge Level PO Level Marks
CO1 K2 PO1 5

CO1 K2 PO1 5
CO1 K1 PO1 5