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MBA104 Financial and Management Accounting Assignment for SMU

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Q1. Accounting is an art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events. Explain the accounting process and write the objectives of accounting.

 

Ans:

Accounting process

  1. Identifying the transactions and events: This is the first step of accounting process. It identifies the transaction of financial character that is required to be recorded in the books of accounts.
  1. Measuring: This denotes expressing the value of business transactions and events in terms of money.
  2. Recording: It deals with recording of identifiable and measurable transactions and events in a systematic manner in the books of original entry that are in accordance with the principles of accountancy.
  3. Classifying: It deals with periodic grouping of transactions of similar nature that appear in the books of original entry into appropriate heads by posting or transfer entries.
  4. Summarizing: It deals with summarizing or condensing transactions in a manner useful to the users. This function involves the preparation of financial statements such as income statement, balance sheet, statement of changes in financial position and cash flow statement.
  5. Analyzing: It deals with the establishment of relationship between the various items or group of items taken from income statement or balance sheet or both.
  6. Interpreting: It deals with explaining the significance of those data in a manner that the end users of the financial statement can make a meaningful judgment about the profitability and financial position of the business. The accountants should interpret the statement in a manner useful to the users, so as to enable the user to make reasoned decision out of the alternative course of action.
  7. Communicating: It deals with communicating the analyzed and interpreted data in the form of financial reports/ statements to the users of financial information eg Profit and loss account, Balance Sheet, Cash flow and Funds Flow statement, Auditors report etc.

 

Objectives of accounting

  1. a) Accounting helps in systematic recording of all business events or transactions. Written records are more preferable to memorizing (oral recording) because the latter may fade away with time.
  2. b) Accounting measure the financial performance of the enterprise. The results of operations are ascertained by preparing profit and loss account, balance sheet and cash flow statements.
  3. d) Accounting is required to fulfill the statutory requirements of various regulatory bodies such as Registrar of Companies, SEBI (Securities Exchange Board of India) income tax authorities and the Government.
  4. e) Accounting helps in internal control by holding the concerned persons responsible for any errors, lapses or under performance.

 

Q2. Journal is a book of original entry and only one journal is maintained if the business is very small in size and the transactions are limited.

Give the meaning of a subsidiary book. List and explain all the types of subsidiary books.

 

Ans:

Subsidiary books

Journal is a book of original entry and only one journal is maintained if the business is very small in size and the transactions are limited. However, if the transactions are multifarious, then subsidiary books which are known as books of original entry are prepared.  Journal is a book of original entry. Journal is basically a day book in which transactions are first entered in a systematic manner adopting the principles of debit and credit. Journal is subdivided into several books of original entry, namely purchases, sales, cash, bills receivable, bills payable, returns inwards, returns outwards books.

 

Types of subsidiary books

  • Purchases book: Purchases book is also called purchases journal. Only credit purchases of goods are recorded in this journal. ‘Goods’ mean items or commodities procured for resale. Cash purchases are recorded in cash book and credit purchases are recorded in purchases book.
  • Sales book: Sales book or sales day book contains the details of credit sales of goods made during a particular period. The total of the sales book is transferred to ledger to an account called sales account.
  • Purchase returns book: When the business person purchases the goods and finds they are damaged or not as per the specifications he /she decide to return the goods to the supplier from whom the goods were purchased.
  • Sales returns book: Sales returns book (also known as Return Inward book) is opened for the purpose of recording the return of goods sold on credit. Then a credit note is prepared to show that the customer’s/debtor’s account is credited to the extent of the value of the goods returned by them to us. Goods are received from the customers and a credit note is sent to them.
  • Bills receivable book: When a business person sells goods on credit, the proceeds is received at a later date. Suppose the business person requires cash immediately, he may opt to draw a bill of exchange against the customer.
  • Bills payable book: What is bills receivable for a drawer, is bills payable to the drawee. When a business person purchases goods on credit he need not pay for it immediately.
7.      Cash book: Cash book is an important subsidiary book and a book of original entry. It is a record of cash receipts and cash payments made during a particular period.

 

Q3. For the following balances extracted from a trial balance, prepare a trading account.

ParticularsAmount in Rs.
Stock on 1-1-200470700
Returns inwards3000
Returns outwards3000
Purchases102000
Debtors56000
Creditors45000
Carriage inwards5000
Carriage outwards4000
Import duty on materials received from abroad6000
Clearing charges7000
Rent of business shop12000
Royalty paid to extract materials10000
Fire insurance on stock2000
Wages paid to workers8000
Office salaries10000
Cash discount1000
Gas, electricity, and water4000
Sales250000

 

Ans:

    Dr  TRADING ACCOUNT FOR THE YEAR ENDING   – – –  –    Cr

 

Particulars RsParticulars Rs
To stock on 1-1-200470700 
To Purchases   102000

(-) Returns

Outwards          3000

 

 

99000

By sales                 250000

(-) Returns

Inwards                   3000

 

 

247000

To Carriage inwards5000By Closing stock56000
To import duty6000
To Clearing charges7000
To Royalty10000
To Fire Insurance2000
To Wages8000
To Gas, electricity, water4000
To Gross Profit 91300
                     Total 303000                       Total 303000

  

Q4. Write short notes on :

a) Cost Management System(CMS)

b) Value added

 

Q5. Ajay industries manufactures a product X. On 1st January, 2007, there were 5000 units of finished product in stock.

Work-in-progress                              Rs.57,400

Raw materials                                    Rs.1,16,200

The information available from cost records for the year ended 31st December, 2007 is as follows:

Direct material9,06,900
Direct labour3 ,26,400
Freight on R M purchased55,700
Indirect labour1,21,600
Other factory overhead3,17,300
Stock of raw materials on 31st Dec 200796,400
Work-in-progress on 31st Dec 200778,200
Sales (1,50,000 units)30,00,000
Indirect materials2,13,900

There are 15000 units of finished stock in hand on 31st December 2007. Prepare a statement of cost and profit assuming that opening stock of finished goods is to be valued at the same cost per unit as the finished stock at the end of the period.

 

Q6. Assume a company is considering dropping product B from its line because accounting statement shows that product B is being sold at a loss.

ProductIncome Statement
ABCTotal
Sales revenue50,0007,50012,50070,000
Cost of sales:
D. material7,5001,0001,50010,000
D. labour15,0002,0002,50019,500
Indirect manufacturing cost (50% of Direct labour)7,5001,0001,2509,750
Total30,0004,0005,25039,250
Gross margin on sales20,0003,5007,25030,750
Selling and Admn12,5004,5004,00021,000
Net income7,500(1,000)3,2509,750

Additional information:

a) Factory overhead cost is made up of fixed cost of Rs. 5850 and variable cost of Rs. 3900.

b) Variable cost by products are: A – Rs. 3000, B – Rs. 400, and C – Rs. 500.

c) Fixed costs and expense will not be changed if product B is eliminated.

d) Variable selling and administrative expenses to the extent of Rs. 11000 can be traced to the product: A – Rs.7,500, B – Rs.1500, and C – Rs. 2000.

e) Fixed selling and administration expense are Rs. 10000.

 

Q7. Inventory in a business is valued at the end of an accounting period, at either cost or market price, whichever is lower. This is accepted convention or a practice in accounting. Give a small introduction on accounting conventions and elucidate all the eight accounting conventions.

 

Q8. Write down a table with the accounts involved / the nature of account/its affects/ debit or credit. Please have the transactions given below and prepare the table as per the instructions given above for each transaction.

1.1.2011 Sunitha started his business with cash Rs. 5,00,000

2.1.2011 Borrowed from Malathi Rs. 5,00,000

2.1.2011 Purchased furniture Rs. 1,00,000

4.1.2011 Purchased furniture from Meenal on credit Rs. 1,50,000

5.1.2011 Purchased goods for cash Rs. 50,000

6.1.2011 Purchased goods from Ram on credit Rs. 2,50,000

8.1.2011 Sold goods for cash Rs. 1,25,000

8.1.2011 Sold goods to Shyam on credit Rs. 55,000

9.1.2011 Received cash from Shyam Rs. 25,000

10.1.2011 Paid cash to Ram Rs. 90,000

 

Q9. From the given trial balance, draft an Adjusted Trial Balance.

Trial Balance as on 31.03.2013

Debit balancesRs.Credit balancesRs.
Furniture and Fittings15000Bank Over Draft16000
Buildings500000Capital Account400000
Sales Returns1000Purchase Returns4000
Bad Debts2000Sundry Creditors35000
Sundry Debtors25000Commission5000
Purchases90000Sales235000
Advertising20000
Cash10000
Taxes and Insurance5000
General Expenses7000
Salaries20000
TOTAL695000TOTAL695000

Adjustments:

  1. Charge depreciation at 10% on Buildings and Furniture and fittings.
  2. Write off further bad debts 1000
  3. Taxes and Insurance prepaid 2000
  4. Outstanding salaries 5000
  5. Commission received in advance1000

 

Q10. Draw the Balance Sheet for the following information provided by Sandeep Ltd.

1. Current Ratio : 2.50
2. Liquidity Ratio : 1.50
3. Net Working Capital : Rs.300000
4. Stock Turnover Ratio : 6 times
5. Ratio of Gross Profit to Sales : 20%
6. Fixed Asset Turnover Ratio : 2 times
7. Average Debt collection period : 2 months
8. Fixed Assets to Net Worth : 0.80
9. Reserve and Surplus to Capital : 0.50

 

Q11. Write the main differences between cash flow analysis and fund flow analysis.

Following is the balance sheet for the period ending 31st March 2011 and 2012. If the current year’s net loss is Rs.38,000, Calculate the cash flow from operating activities.

 31st MARCH
 20112012
Short-term loan to employees15,00018,000
Creditors30,0008,000
Provision for doubtful debts1,200
Bills payable18,00020,000
Stock in trade15,00013,000
Bills receivable10,00022,000
Prepaid expenses800600
Outstanding expenses300500

 

Q12. Accounting is one of the oldest, structured management information system. Give the meaning of accounting and book keeping? Explain the objectives of accounting?

 

Q13. Explain GAAP and write down the relationship between accounting principles, accounting concepts, and accounting conventions. Explain all the five accounting concepts with an example.

 

Q14. List down the classification of accounts according to accounting equation approach. Give the meaning and examples for all the types of accounts.

 

Q15. What is cash book? Differentiate between other subsidiary books and cash book.

 

Q16. The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000.

Sundry Debtors                                                                      Rs.160000

Bad Debts written off                                                             Rs 9000

Discount allowed to Debtors                                                  Rs. 1800

Reserve for Bad and doubtful Debts 31-12-1999                  Rs. 16500

Reserve for discount on Debtors 31-12-1999                         Rs. 3200

You are required to provide the bad and doubtful debts at 5% and for discount on debtors at 2%. Show the adjustments for bad debts, bad debts reserve, discount account, and provision for discount on debtors.

Hint: RBD to be provided = 500

Reserve for discount to be provided now =1640

 

Q17. What is management accounting? Explain the roles of management accounting and write down about any 2 functions of management accounting.

 

Q18. An accountant finds that the trial balance of his client did not tally and it showed an excess credit of Rs. 69.74. He transferred it to a suspense account and later discovered the following errors.

a) Rs. 44.37 paid to Anand has been credited to his account as Rs. 34.37.

b) A purchase of Rs. 145.50 has been posted as Rs. 154.50 to the purchases account.

c) An expenditure of Rs. 158 on repairs has been debited to the buildings account.

d) Rs. 80 was allowed by B as discount which has not been entered in the books.

e) A sum of Rs. 125.05 realised on the sale of old furniture has been posted to the sales account.

Give journal entries to rectify the errors and show the suspense account as it would appear after adjustments

Hint: Total of suspense a/c = 78.74

 

Q19. Distinguish between management accounting and financial accounting.

 

Q20. Draw the Balance Sheet for the following information provided by Sarawath Ltd.

1. Current Ratio : 2.50
2. Liquidity Ratio : 1.50
3. Net Working Capital : Rs.300000
4. Stock Turnover Ratio : 6 times
5. Ratio of Gross Profit to Sales : 20%
6. Fixed Asset Turnover Ratio : 2 times
7. Average Debt collection period : 2 months
8. Fixed Assets to Net Worth : 0.80
9. Reserve and Surplus to Capital : 0.50

 Hint: B/S total 1100000

 

Q21. Following is the balance sheet for the period ending 31st March 2006 and 2007. If the current year’s net loss is Rs.38,000, calculate the cash flow from operating activities.

 31st MARCH
 20062007
Short-term loan to employees15,00018,000
Creditors30,0008,000
Provision for doubtful debts1,200
Bills payable18,00020,000
Stock in trade15,00013,000
Bills receivable10,00022,000
Prepaid expenses800600
Outstanding expenses300500

 Hint: Net cash lost in operating activities (69800)

 

Q22. The following data are related to the manufacture of a standard product during the month of July 2009.

Raw materials consumedRs.15,000
Direct wagesRs. 9,000
Machine hours worked900 hours
Machine hours rateRs.5
Administrative overheads20% of works cost
Selling overheadsRe.0.50 per unit
Units produced17,100
Units Sold16,000 @ Rs.4 per unit

 Prepare a cost sheet from the above to show:

  1. The cost per unit
  2. The profit per unit sold and profit for the period

 Hint: Profit = 24000

 

Q24. The reports prepared in financial accounting are also used in the management accounting. But there are few major differences between financial accounting and management accounting. Explain the differences between financial accounting and management accounting in various dimensions.

 

Q25. Analyze the following transaction under traditional approach.

18.1.2011 Received a cheque from a customer, Sanjay at 5 p.m. Rs.20,000

19.1.2011 Paid Ramu by cheque Rs.1,50,000

20.1.2011 Paid salary Rs. 30,000

20.1.2011 Paid rent by cheque Rs. 8,000

21.1.2011 Goods withdrawn for personal use Rs. 5,000

25.1.2011 Paid an advance to suppliers of goods Rs. 1,00,000

26.1.2011 Received an advance from customers Rs. 3,00,000

31.1.2011 Paid interest on loan Rs. 5,000

31.1.2011 Paid instalment of loan Rs. 25,000

31.1.2011 Interest allowed by bank Rs. 8,000

 

Q26. The trial balance of Nilgiris Co Ltd., as taken on 31st December, 2002 did not tally and the difference was carried to suspense account. The following errors were detected subsequently.

a) Sales book total for November was under cast by Rs. 1200.

b) Purchase of new equipment costing Rs. 9475 has been posted to Purchases a/c.

c) Discount received Rs.1250 and discount allowed Rs. 850 in September 2002 have been posted to wrong sides of discount account.

d) A cheque received from Mr. Longford for Rs. 1500 for goods sold to him on credit earlier, though entered correctly in the cash book has been posted in his account as Rs. 1050.

e) Stocks worth Rs. 255 taken for use by Mr Dayananda, the Managing Director, have been entered in sales day book.

f) While carrying forward, the total in Returns Inwards Book has been taken as Rs. 674 instead of Rs. 647.

g) An amount paid to cashier, Mr. Ramachandra, Rs. 775 as salary for the month of November has been debited to his personal account as Rs. 757.

Pass journal entries and draw up the suspense account.

 

Q27. From the given trial balance draft an Adjusted Trial Balance.

Trial Balance as on 31.03.2011

Debit balancesRs.Credit balancesRs.
Furniture and Fittings10000Bank Over Draft16000
Buildings500000Capital Account400000
Sales Returns1000Purchase Returns4000
Bad Debts2000Sundry Creditors30000
Sundry Debtors25000Commission5000
Purchases90000Sales235000
Advertising20000  
Cash10000  
Taxes and Insurance5000  
General Expenses7000  
Salaries20000  
TOTAL690000TOTAL690000

 

Adjustments:

  1. Charge depreciation at 10% on Buildings and Furniture and fittings.
  2. Write off further bad debts 1000
  3. Taxes and Insurance prepaid 2000
  4. Outstanding salaries 5000
  5. Commission received in advance1000

 

Q28. Compute trend ratios and comment on the financial performance of Infosys Technologies Ltd. from the following extract of its income statements of five years

(in Rs. Crore)

Particulars2010-112009-102008-092007-082006-07
Revenue27,50122,74221,69316,69213,893
Operating Profit (PBIDT)8,9687,8617,1955,2384,391
PAT from ordinary activities6,8356,2185,9884,6593,856

 (Source: Infosys Technologies Ltd. – Annual Report)

 

Q29. Give the meaning of cash flow analysis and put down the objectives of cash flow analysis. Explain the preparation of cash flow statement.

 

Q30. Write the assumptions of marginal costing. Differentiate between absorption costing and marginal costing.

 

Q31. Analyse the following transactions according to traditional approach.

1.1.2011 Sunitha started his business with cash Rs. 5,00,000

2.1.2011 Borrowed from Malathi Rs. 5,00,000

2.1.2011 Purchased furniture Rs. 1,00,000

4.1.2011 Purchased furniture from Meenal on credit Rs. 1,50,000

5.1.2011 Purchased goods for cash Rs. 50,000

6.1.2011 Purchased goods from Ram on credit Rs. 2,50,000

8.1.2011 Sold goods for cash Rs. 1,25,000

8.1.2011 Sold goods to Shyam on credit Rs. 55,000

9.1.2011 Received cash from Shyam Rs. 25,000

10.1.2011 Paid cash to Ram Rs. 90,000

 

Q32. Assure you have just started a Mobile store. You sell mobile sets and currencies of Airtel, Vodaphone, Reliance and BSNL. Take five transactions and prepare a position statement after every transaction. Did you firm earn profit or incurred loss at the end? Make a small comment on your financial position at the end.

 

Q33. Prepare a Three-column Cash Book of M/s Thuglak & Co. from

The following particulars:

21st Jan1. Cash in hand Rs. 50,000, Bank Overdraft Rs. 20,000
2. Paid into bank Rs. 10,000
3. Bought goods from Hari for Rs, 200 for each
4. Bought goods for Rs. 2,000 paid cheque for them, discount allowed 1%
5. Sold goods to Mohan for each Rs. 1.175
6. Received a cheque from Shyam to whom goods were sold for Rs. 800.Discount allowed 12.5%
7. Shyam’s cheque deposited into bank
8. Purchased an old typewriter for Rs. 200 , Spent Rs. 50 on its repairs
9. Bank notified that Shyam’s cheque has been returned dishonored and debited the account in respect of charges Rs. 10
10. Received a money order Rs. 25 from Hari
11. Shyam settled his account by means of a cheque for Rs. 820, Rs. 20 being for interest charged.
12. Withdrew from the bank Rs. 10,000
18. Discounted a B/E for Rs. 1,000 at 1% through bank
20. Honored our own acceptance by cheque Rs. 5,000
22. Withdrew fir personal use Rs. 1,000
24. Paid tread expenses Rs. 2,000
25. Withdrew from bank for private expenses Rs. 1,500
26. Purchased machinery from Rajiv for 5,000 and paid him by means of a bank draft purchased for Rs. 5,005
27. Issued cheque to Ram Saran for cash purchased of furniture Rs. 1,575
28. Received a cheque for commission Rs. 500 from R.& Co. and deposited into bank
29. Ramesh who owned us Rs. 500 became bankrupt and paid us 50 paise in the rupee
30. Received payment of a loan of Rs. 5,000 and deposited Rs. 3,000 out of into bank
31. Paid rent to landlord “Mohan” by cheque of Rs. 220
31. Interest allowed by bank Rs. 30
31. Half-yearly bank charges Rs. 50

 

Q34. From the following data of Jagdish Company prepare (a) a statement of source and uses of working capital (funds) (b) a schedule of changes in working capital

Assets20082007
Cash1,26,0001,14,000
Short-term investment42,40020,000
Debtors60,00050,000
Stock38,00028,000
Long term Investment28,00044,000
Machinery2,00,0001,40,000
Building2,40,00080,000
Land14,00014,000
Total 7,48,400 4,90,000
Liabilities and Equity
Accumulated depreciation1,10,00060,000
Creditors40,00030,000
Bills Payable20,00010,000
Secured loans2,00,0001,00,000
Share capital2,20,0001,60,000
Share premium24,000Nil
Reserves and surplus1,34,4001,30,000
Total 7,48,400 4,90,000

 

Income statement

Sales2,40,000
Cost of goods sold1,34,600
Gross Profit1,05,200
Less Operating expenses:

Depreciation – machinery 20,000

Depreciation – building 32,000

Other expenses 40,000

92,000
Net profit from operation13,200
Gain on sale on long-term investment4,800
Total18,000
Loss on sale of machinery2,000
Net Profit16,000

 

Adjustments:

1) Machinery worth Rs.70000 was purchased and worth Rs.10000 was sold during the year [Accumulated depreciation on machinery is Rs.18000 after adjusting depreciation on machinery sold]. Proceeds from the sale of machinery were Rs.6000

2) Dividends paid during the year Rs.11600

 

Q35. What is DuPont analysis? Explain all the ratios involved in this analysis. Your answer should be supported with the chart.

 

Q36. Find the value of the following:

  1. If the total assets are Rs. 87,000 and the liabilities are Rs. 47,000, find out the amount of capital.
  2. If the capital of proprietor is Rs. 4,00,000 and the total assets are Rs. 6,00,000, what is the amount of liabilities to outsiders?
  3. If creditors are Rs. 56,000, bank overdraft is Rs.1,00,000, and outstanding expenses are Rs. 8,000, what is the total amount of assets?
  4. Fixed assets are Rs.70,000 and current assets are Rs.1,00,000 and the creditors are Rs.30,000. What is capital?

 

Q37. Enter the following transactions in the single column cash book of Gopichand.

March, 2003

1st. Commenced business with cash                                    20000

2nd. Bought goods for cash                                                  5000

3rd. Sold goods for cash                                                       4000

4th. Goods purchased from Ravi Kumar                           10000

10th. Paid to Ravi Kumar                                                    7000

14th. Cash sales                                                                     8000

18th. Purchased furniture for office                                   4000

22nd. Paid wages                                                                   500

25th. Paid rent                                                                       600

30th. Received commission                                                   4000

30th. Withdrew for personal purpose                                 1000

Cash balance                                                                     170000

Hint: Goods Purchased from Ravi Kumar is a credit purchase.

 

Q38. Find out the missing figures.

 Office stationery Consumables
Opening stock 5000 8000
Purchased during the year 25000 ?
Closing stock 3000 6000
Consumed for the year ? 24000

 

Q39. Explain the tools of management accounting.

 

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