Directorate of Online Education

NAME SHAHITHA A
ROLL NO 2114505983
PROGRAM MASTER OF BUSINESS
ADMINISTRATION (MBA)
SEMESTER FIRST
CODE DMBA104
COURSE NAME FINANCIAL AND MANAGEMENT
ACCOUNTING

SET 1

Q.NO : 1 ,Discuss 5 accounting concepts with suitable example of each concept.

Concepts of Accounting:
 Separate entity concept
 Going concern concept
 Money measured concept
 Accounting period concept
 Accrual concept

Separate entity concept:

This creates a business, do the entity is from its proprietor or owner.
On creating a business, do the accounting for that entity’s operations.
Do not mix up personal activity with that of the business unit.
Only events related to the entity should be recorded in its books.
Example:
 Rakesh dawns Rs 6000 from his boutique’s bank account to buy a gift for his wife.
The amount will be recorded in the boutique book not as gift expenses but as a withdrawal
of the capital by Rakesh.

Going concern concept:

An entity is a going concern with an indefinite life, not likely to close down in the
foreseeable future.
This can sometimes make a difference in the valuation of the fixed assets.
Example:
For instance, a company has land acquired 20 years ago for Rs 50,000 on which it builds its
factory. But the land value is now Rs 10 lakhs.
Company balance sheet to be taken Rs 50,000 since the entity is going concerned and is not
likely to sell the land on which the factory is installed.

Money measurement concept:

This should value and record only what can be measured in terms of money.
This concept is concerned with the problem of measuring the value of a transaction that is
already expressed in terms of money or easily measured in terms of money.
Example:
There are several features of an entity like customer goodwill, brand image, research
potential, etc. That cannot be accurately quantified.

Accounting period concept:

Even though an entity keeps working, its accounting and financial reporting have to be
done for specific time periods.
The indefinite life of the business is split into regular intervals. These regular time intervals
are called accounting periods.

Accrual concept:
The accrual concept prescribes two rules:
(i) Recognize an income when it is earned. That is when you are given a value that
deserves a reward, regardless of when it is received.
(ii) Recognize an expense when it is incurred. That is when you have got the full benefit
from the spending, regardless of when it is paid.
Example:
On 20th February, 2020, interest received from the fixed deposit was Rs 50000. the interest
amount was credited to the bank account in May 2021. According to the accrual concept the
income from interest is Rs 50000 through it is received after 20th February.

Q.NO : 2, Prepare trading account of XYZ for the year ending 31 March 2019 from the
following information:
Given Data:
Purchase : 13,00,000
Sales : 15,00,000
Stock (April 1, 2018) : 40,000
Wages : 30,000
Carriage inwards : 14,000
Return onwards : 3,000
Return inwards : 2,500
Freight : 15,000
Additional information: Stock on 31 march 2019 was Rs 1,70,000
Solution:
Trading Account
Particulars Rs Particulars Rs
To open stock 40,000 By sales 15,00,000 14,97,500
(01/04/2006)
Sales return (2500)

To purchase
12,97,000
13,00,000Purchase
return (3000)

By closing stock 1,70,000

(31/03/2007)

To wages 30,000
To carriage inward 14,000
To freight 15,000

To gross profit 2,71,500

16,67,500 16,67,500

Q.NO :3, Distinguish management accounting and financial accounting.

Management accounting aims to prepare and rereporthe financial data to the

management on a regular basis which has the responsibility of taking appropriate decisions,
planning, performance evaluation, control, management cost, cost determination, etc. For both
financial accounting and management accounting, the financial data are the same.
Financial accounting is prepared and communicated financial statements to outsiders
such s, bankers, government, customers, etc.
 Dimension Management accounting Financial accounting

Users  The primary users of  The primary users of

financial accounting management accounting are an
information are an internal user like a top, middle
external users like and lower-level management.
shareholders, creditors,
government authority,
employees etc
Purpose  Reporting financial  TO help the management in
position and planning, decision making,
performance to enable monitoring, and controlling.
the users to take
financial decisions.

Need  It is optional. What to  It is a statutory requirement.

report, how to report, What to report, how to report,
when to report, in which how much to report, etc are
format to report, etc. are stipulated by laws of standards.
decided by the
management as per the
needs of the company or
management.
Expression of  Management  Accounting information is
information accounting may adopt always expressed in terms of
any measurement unit money.
like labor hours,
machine hours, or
product units for the
purpose analysis.
Reporting time  Reports are prepared on  Financial data is presented for
and frequency a continuous basis, a definite period, say one year
monthly, weekly, or or a quarter.
even daily.

time  Management  Financial accounting focuses

Perspective accounting is oriented on historical data.
towards the future.

Source of  Management  Financial accounting is a

principles accounting makes use of discipline by itself and has its
other disciplines like own principles, policies, and
economics, conventions.
management,
information system,
operation, research, etc.
 Reporting  Responsibility centers  Overall organization.
entities within the organization.

Form of reports  MIS Report  Income statement

 Performs report  Balance sheet
 Control report  Cash flow statement
 Cost statement
 Variance statement
 Budget
 Estimate statement
 Flowchart

SET - 2
Q.NO: 4, The balance sheet of Punjab Auto Limited as on 31-12-2020 was as follow:

Particulars Rs Particular Rs
Equity share capital 40,000 Plant and Machinery 24,000
Capital reserve 8,000 Land and buildings 40,000
8% loan on mortgage 32,000 Furnitures and 16,000
Fixtures
creditors 16,000 Stock 12,000
Band out draft 4,000 Debtors 12,000

Taxation: Investments(short- 4,000

term)
Current 4,000
Future 4,000

Profit and loss A/C 12,000 Cash in hand 12,000

1,20,000 1,20,000
From the above, compute a) Debt-Equity Ratio b) Proprietary Ratio.
Solution:

a) Debt- Equity Ratio:

Debt -Equity Ratio =

Long Term Debt = Debentures + Long term loan

= 32,000
Share holder price = [Equity share capital + Reserves &surplus Preference share
Capital] - fictitious asset.
= 40,000 + 8,000 + 12,000
= 60,000
,
Debt – Equity Ratio =
,

= 0.53 : 1
b) Proprietary Ratio:

Proprietary Ratio =

Share holder price = [Equity share capital + Reserves &surplus Preference share
Capital] - fictitious asset.
= 40,000 + 8,000 + 12,000
= 60,000
Total Assert = Total Asset – Fictitious Asset
= 1,20,000
,
Proprietary Ratio =
, ,

= 0.5 :1

Q.NO: 5, State the purpose or objective of preparing a clash flow statement. Also give any two
example of cash flow from operating activities, investing activities and financial activities.
Objectives and purpose of the cash flow statement:

The most important objective of the cash flow statement is that help to become
aware of the gross inflow and outflow of cash and cash equivalents from the operation,
investing, and financial activities.
 It helps to determine the various causes for the change in the cash balance during an
accounting period.
 It is also prepared to determine the liquidity position of the organization. Also, prepare
to know about the requirement of cash in failure.
 It should facilitate cash management efficiently.
 It enables the assessment of net assets and other financial reports.
 It determines the overall health of a business and allows investors, creditors, and
shareholders to identify its financial reliability and efficiency for operational expenses.
 It is important to stabilize and optimize the organization’s cash flow.
 It gives proper planning and management of cash and maintains a balance between cash
flow and outflow.
 It must eliminate all effects of different methods of accounting and improve the
comparability of the operating performance of the different organizations.

Examples of cash flow from operating activities:

 Cash receipts from the sales of goods and the rendering of services, royalties, fees,
communication, and other revenue.
 Cash payment to the supplier for goods and services, and on behalf of employees.
 Cash receipts and payments relating to futures contacts, forward contacts, options
contracts, and swap contracts when the contracts are held for dealing or trading purpose.
 Cash payment or refunds of income taxes unless they can be specifically identified with
financing and investing activities.

Examples of cash flows arising from investing activities:

 Cash payment to acquire the fixed asset. These payments include those relating to
capitalized research and development cost and self-constructed fixed assets.
 Cash receipt from the disposal of shares, warrants, or debt instruments of other
enterprises and interest in the joint venture.
 Cash advance and loans made to third parties.

Example of cash flow arising from financial activities:

 Cash proceeds from issuing shares or other similar instruments.
  Cash proceeds from issuing debentures, loans, notes, bonds, and other short- or long-
term borrowings and cash payments of amounts borrowed.
 Cash flow from operating activities can be found out by
 The direct method whereby major classes of gross cash receipts and gross cash
payments are disclosed.
 The indirect method whereby net profit or loss is adjusted for the effect of transaction
of a non-cash nature, any deferrals or accruals of past or future operating cash receipts
or payment, and items of income or expense associated with investing or financing cash
flow.

Q.NO: 6, Discuss the steps involved in standard costing. Also state the difference between
standard costing and budgetary costing.

Following steps involved on the standard costing:

1. Establishment of standards.
It is the first step involved in the standard casting process. Standards have to be set
separately for each item of cost. It needs to be done very meticulously.
2. Comparison of actual cost with the predetermined standards.
It is the second step in the standard costing. It needed to be ensured that a correct
comparison is made. The actual cost must be compared with the standard cost for actual output.
3. Analysing the variances of actual cost from the standard costs.
The difference between the standard cost and the actual cost in called the variance.
The variances are to be analyzed for each item of cost separately.
4. Reporting.
The variance may be favorite or unfavorable. In either case, it should be reported to
be management for corrective actions wherever necessary.

Different between standard costing and budgetary costing.

Both standard and budgetary control are closely interrelated, aim to improve the
system of management control, achieve the same objective of maximum efficiency and cost
control by establishing predetermined standards. But some significant differences are present
in both of them.
Standard costing Budgetary costing
 The scope of standard costing is  It is an integrated plan of action and a
limited to the operating level. coordinated plan with respect to all
functions and enterprises.

 Standards are based on technical  Its targets are based on past actual
assessment. data adjusted to future trends.

 Standards are an attainable level of  Budgeted targets work as the

performance. maximum limit of expenses aspect
which should not exceed the actual
expenditure.

 Standard costing scope and utility are  Budgetary controls emphasize the
limited to the only operating level of forecasting aspect of future
the concern. operations.

 Variance analysis is an essential part  Variance analysis is not compulsory

of standard costing. Variances are in budget control through companies
analyzed and journal entries are normally do it. Even when it is done,
passed to the ledger accounts in the no accounting entry is passed in the
costing book. book for variance.

 A standard costing system cannot be  Budgetary control can be operated in

operated in parts. All items of parts. That is as per needs of the
expenditure included in the cost units management, only functional targets
are to be accounted. may be prepared.