1. Master of Business Administration
Semester I
MB0041 – Financial and Management Accounting
Assignment
Set- 1
Q1. Distinction between book keeping and accountancy.
Ans.
Distinction between Book-keeping and Accountancy:
Accountancy is the profession and the practitioners of accountancy are called accountants. Book
keeping is the basic activity of recording. On recording the transactions and events in the books
of accounts, accounting does the role of analysis and reporting. Accountancy is the profession of
carrying the activities of book keeping and accounting. Accounting enjoys wider scope and
includes not only book keeping but also analysis, interpretation and reporting of financial
information. The later part of accounting is the core function of accounting. In the present day
environment, sophisticated software packages are available, which facilitate entry of transactions
and preparation of ledger accounts.

2. Book keeping Accountancy
It is a process of identifying, measuring, It involves summarizing the classified
recording and analyzing the transactions transaction, interpreting the analyzed results
in books of accounts. and communicating the information to the
users of financial statement.
Adopt principles of accounting Analyzing and interpreting requires skill,
for recording knowledge and experience
Book keeping is the first stage of Accountancy follows book keeping. It is the
accounting process secondary stage
The objective is to prepare final accounts The objective is to ascertain net results
and balance sheet in a systematic manner of financial operations and communicate the
at the end of accounting period results to all stakeholders in a manner they
understand
Accounts executives who perform this Accountants who perform this function need
function may not require higher level higher analytical skills to interpret the data
of knowledge. and to take appropriate decisions
The nature of job is routine and clerical The nature of job is non routine but
analytical.

3. Q2. Pass journal entries for the following transactions:
a) Madam commenced business with cash Rs. 70000
b) Purchased goods on credit 14000
c) Withdrew for private use 3000
d) Goods purchased for cash 12000
e) Paid wages 5000
Ans.
Accounting equations for the transactions
Transaction Assets = Liabilities + Owners
Equity
Cash + Good + Debtors + Furniture + Creditors+ Madan's
Capital
1 70,000 70,000
2 14,000 14,000
3 -3,000 -3,000
4 -12,000 12,000
5 -5,000 -5000
End
Equation 50,000 26,000 0 0 14,000 62,000
76,000 76,000

4. Q3. Write short notes on:
a. Outstanding Expenses
b. Prepaid Expenses
Ans.
(a) Outstanding Expenses
Expenses yet to be paid or outstanding expenses for the current period should be charged against
the current period’s income. The extent to which the amount belongs to the current year
but payable in the next year is called outstanding expenses.
Salaries outstanding (March 20XX month salary paid in April 20XX) ·
Rent outstanding
Salaries A/c Dr.
To outstanding Salaries A/c.
Being salary for the month of march 20xx due but not yet paid accounted.
(b) Prepaid Expenses
Expenses paid in advance or prepaid expenses should be not be charged against the revenues
relating to the current period but taken to the coming period. Prepaid expenses form an asset and
therefore prepaid expenses account is debited.
Salaries paid in advance·
Insurance paid in advance·
Rent paid in advance

5. Example:
Insurance premium is paid from April, 2004 to March, 2005 and the amount isRs.3600. The
accounting year of the firm ends on 31st December, 2004. Therefore the premium relating to Jan,
Feb and Mar of amounting to Rs.900 is said to have been paid in advance. To record this internal
adjustment, the entry is
Prepaid Expenses Account Dr. 900
To insurance account 900
Being insurance premium for Jan Feb and March 2005 paid in advance accounted.

6. Q4. Given variable cost Rs. 5,00,000. Fixed cost Rs. 3,00,000. Net profit Rs. 1,00,000.
Sales Rs. 10,00,000.
Find :
(a) MCSR
(b) BEP
(c) Profit when sales amounted Rs.12,00,000
(d) sales required to earn a profit of Rs.2,00,000.
Hint: Your answers should match this
(a) 600000 ; (b) 600000; (c) 600000 ; (d) 1000000
Ans.
(a) MCSR = Contribution/Sales × 100
Contribution = Sales - Variable Cost
= 10,00,000 - 5,00,000
= 5,00,000
MCSR = 5,00,000/10,00,000 × 100
= 50%
(b) BEP = Fixed Cost/ MCSR
= 3,00,000/0.5
= 6,00,000

7. (c) Profit when sales amounted Rs.12,00,000
Contribution 50%
Therefore total Contribution
12,00,000 × 50% = 6,00,000
Less: fixed cost Rs. 3,00,000
Profit= 3,00,000
(d) Sales required to earn a profit of Rs.2,00,000.
= Fixed Cost + Desired Profit/MCSR
= 3,00,000 + 2,00,000/50%
= Rs. 10,00,000

8. Q5. Explain the meaning of Depreciation.
Mention the different types of depreciation with examples
Ans.
Depreciation
Depreciation is reduction in the value of an asset due to constant use of the same, which is called
wear and tear. Fixed assets like, buildings, plant, machinery, furniture etc., are subject to
depreciation. Whenever, an asset is depreciated, its value goes down and therefore it is a loss to
the organization.
Depreciation account is debited and the concerned asset account is credited. The item
of depreciation may appear in the trial balance, which means that already the concerned asset is
reduced by the amount of depreciation. If depreciation is given as an additional adjustment, then
the depreciation amount should be charged against profit and loss account on one hand and the
concerned asset account is reduced on the other hand in the balance sheet.
There are two popular methods of depreciation:
Fixed installment method (Straight line method)
Reducing balance method (Written down value method)
In fixed installment method, depreciation is calculated on cost of the asset. The depreciation
charged remains same throughout the life of the asset. In case of reducing balance method
(Diminishing balance method), the depreciation is charged on the reducing balance of the
book value of the asset. The depreciation amount gets reduced year after year during the life of
the asset. Reducing balance method is more popular and well recognized.
Example:
The book value of the building is Rs.400000. It is depreciated at 10% on fixed installment
method. Show the journal entry and how does it appear in the balance sheet for the first and
second year under both the methods.
Depreciation account Dr. 40,000
To building account 40,000
Being depreciation amount accounted for.

9. 1. Depreciation charged for the first year under straight line and reducing balance method.
2.
Balance Sheet as on
Liabilities Assets
Building 4,00,000
Less 10% 3,60,000
Depreciation 40,000
During the first year the depreciation charged is similar under both the methods.
3. Depreciation for the second year under:
Straight line method Reducing balance method
BALANCE SHEET BALANCE SHEET
BUILDING 3,60,000 BUILDING 3,60,000
LESS 10% LESS 10%
SLM 40,000 DEPRECIATION 36,000
(10% OF 4,00,000) (10% OF 3,60,000)
3,20,000 3,24,000

10. Q6. Show the rectification entries for the following:
a. The Sales account is under cast by Rs.15,000
b. Goods returned by the customer Mr. of Rs.5650 has been posted in the Return
Inward Account as Rs.5560 and in Mr. a/c as Rs.6,550.
c. Salary paid Rs.6,000 has been posted to Rent account
d. Cash received from Ram posted to Shyam account Rs.7,000
e. Cash received from Jadu Rs.8,640 has been posted to the debit of Madhu’s a/c
Ans.
DATE PARTICULARS L.F DR. CR.
a. Suspense A/c. Dr. 15,000 15,000
To Sales A/c.
(Being under casting of sales account rectifies)
b. Mr. X A/c. Dr. 900
Return Inward A/c. Dr. 90
To Suspense A/c. 990
(Being wrong posting of return inward rectified)
c. Salary A/c. Dr. 6000
To Rent A/c. 6000
(Being wrong posting of rent account rectified)
d. Suspense A/c. Dr. 7000
To Ram A/c. 7000
(Being wrong posting of cash received rectified)
e. Jadu A/c. Dr. 8640
To Madhu A/c. 8640
(Being wrong debit of madhu account rectified)

11. Set- 2
Q1. Distinguish between Management Accounting and Financial Accounting?
Ans.
Distinction between Financial Accounting and Management Accounting
Financial accounting is the preparation and communication of financial information to outsiders
such as creditors, bankers, government, customers and so on. Another objective of financial
accounting is to give complete picture of the enterprise to shareholders. Management accounting
on the other hand aims at preparing and reporting the financial data to the management on
regular basis. Management is entrusted with the responsibility of taking appropriate decisions,
planning, performance evaluation, control, management of costs, cost determination etc., For
both financial accounting and management accounting the financial data is the same and the
reports prepared in financial accounting are also used in management accounting But the
following are major differences between Financial accounting and Management accounting.
Financial accounting Management accounting
The primary users of financial accounting Top, middle and lower level managers use the
information are shareholders, creditors, information for planning and decision making
government authorities, employees etc.
Accounting information is always expressed in Management accounting may adopt any
terms of money measurement unit like labour hours, machine
hours or product units for the purpose of analysis
Financial data is presented for a definite period, Reports are prepared on continuous basis,
say one year or a quarter monthly or weekly or even daily
Financial accounting focuses on historical data Management accounting is oriented towards
future
Financial accounting is a discipline by itself and Management accounting makes use of
has its own principles, policies and conventions other disciplines like economics, management,
information system, operation research etc.,

12. Q2. 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
4thGoods purchased from Ravi Kumar 10000
10thPaid to Ravi Kumar 7000
14thCash sales 8000
18thPurchased furniture for office 4000
22nd Paid wages 500
25thPaid rent 600
30thReceived Commission 4000
30th Withdrew for personal purpose 1000
31stPaid salary 900
Hint:
Goods Purchased from Ravi Kumar is a credit purchase
Balance c/f should be 17000
Ans.
Single column cash book of Gopichand
Date Receipt Cash Date Payments Cash
MARCH MARCH
2003 2003
1ST To Capital 20,000 2nd By Goods 5,000
3rd To Sales 4,000 10th By Ravi 7,000
Kumar
14th To Sales 8,000 18th By Office 4,000
Furniture
30th To 4,000 22nd By Wages 500
Commission
25th By Rent 600
th
30 By Drawings 1,000
31st By Salary 900
st
31 By Bal. c/d. 17,000
36,000 36,000

13. Q3. What is cash flow statement and how is the cash flow statement subdivided?
Ans.
Cash flow statement, also known as Statement accounting for variations in cash, Where Got Where Gone
Statement. It shows the movement of cash and their causes during the period under
consideration. The statement is significant to the stakeholders of the company and is prepared
to show the impact of financial policies and procedures on the cash position. It takes into account
all the transactions that have a direct impact upon cash and cash equivalent.
According to Accounting Standard 3 (Revised) method cash flow statement is sub divided into
three parts:
(i) cash flow from operating activities
(ii) cash flow from investing activities
(iii) cash flow from financing activities.
1. Cash flow from Operating Activities:
Operating activities are the principal revenue producing activities of the enterprise. Therefore,
they generally result from the transactions and other events that enter into the determination
of net profit or loss. The amount of cash flows arising from operating activities is a key indicator of
the extent to which the operations of the enterprise have generated sufficient cash flows to
maintain the operating capability of the enterprise, pay dividends, repay loans and make new
investments without recourse to external source of financing. Information about the specific
components of future operating cash flows is useful in conjunction with other information in
forecasting future operating cash flows.
Computation of Operating Profit before Working capital changes:
The Net Profit shown in the Profit and Loss Account will have to be adjusted for non-cash items
For find out operating profit before working capital changes. Some if these items are as follows:
i. Depreciation:
Depreciation does not result in outflow of cash and, therefore, net profit will
Have to be increased by the amount of depreciation or development rebate charged, in order to
find out the real cash generated from operations.

14. ii. Amortization of intangible assets:
Goodwill, preliminary expenses, etc., when written off should therefore, be added back to profits
to find out the cash from operations.
iii. Loss on Sale of fixed assets:
It does not result in outflow of cash and, therefore, should be added back of profits.
iv. Gains from sale of fixed assets:
Since a sale of fixed assets is taken as a separate source of cash, it should be deducted from net
profits.
v. Creation of reserves:
If profit for the year has been arrived at after charging transfers to reserves, such transfers should
be added back to profits. If cash operations show a net loss, such net loss after making
adjustments for non-cash items will be shown as an application of cash. Thus cash from
operations is computed on the pattern of computation of Funds from operations.
Cash generated from Operations
To find the cash from operations, adjustments will have to be made for µchanges in current
assets and current liabilities arising on account of operations.
Any decrease in current assets or any increase in current liabilities between two
periods should be added back to Operating profit before working capital changes.
Likewise any increase in current assets or any decrease in current liabilities should be
deducted from Operating profit before working capital changes to arrive at cash
generated from Operations.

15. Computation of Net Cash Flow from Operating Activities:
From cash generated from operations Income tax paid, cash flow from extraordinary items
(if any) should be adjusted (subtracted) to arrive at Net cash flow from operating activities.
2. Cash Flow from Investing Activities
Transactions like purchase or sale of fixed assets proceeds from sale of equipments, Interest on
Investment received, Dividends received are recorded.
3. Cash Flow from Financing Activities
Transactions such as proceeds from issue of shares, debentures, proceeds from long term loans,
repayment of long term loans, Interest paid on debentures, dividend payment
to equity, preference share holders are shown to arrive at net cash used in financing activities.
Purchase of plant and machinery on lease or hire purchase should be shown separately as
deferred credit. However the cost of machinery purchased will be shown as application of cash.
Computation of Net Increase in Cash and Cash Equivalent
The net cash flow from operating, investing and financing activities is added to arrive at net
increase in cash and cash equivalent. To this cash and cash equivalent at the beginning of
the period is added to get cash and cash equivalent at the end of the period.

16. Q4. A large retail stores makes 25% of its sales for cash and the balance on 30 days net.
Due to faulty collection practice, there have been losses from bad debts to the extent of 1 %
of credit sales on average in the past. The experience of the store tells that normally 60 %
of credit sales are collected in the month following the sale, 25% in the second following
month and 14 % in the third following month. Sales in the preceding three months have
been January 2007 Rs.80,000, February Rs.1,00,000 and March Rs.1,40,000. Sales for the
next three months are estimated as April Rs.1,50,000, May Rs.1,10,000 and June
Rs.1,00,000. Prepare a schedule of projected cash collection.
Hint: Cash Receipts: April Rs. 1,27,650, May Rs. 1,31,750, June Rs. 1,17,325
Ans.
Statement of expected Cash Receipts
Collections from April May June
Cash Sales 37,500 27,500 25,000
Collections From Debtors- January 8,400 - -
February 18,750 10,500 -
March 63,000 26,250 14,700
April - 67,500 28,125
May - - 49,500
Total 127,650 131,750 117,325

17. Assume that the credit policy is enforced strictly, what would be the cash receipts
Cash Sales:
Debtors 37,500 27,500 25,000
March 105000 - -
April - 112500 -
May - - 82500
Total 142,500 140,000 107,500
Forecasts of cash payments:
The items of expenditures differ from business to business. The normal items which come under
the lists are:
1. Cash purchases
2. Payment to creditors or suppliers
3. Payments to Bills payable
4. Payment to employees in the nature of wages, salaries
5. Manufacturing, selling and distribution and administration expenses
6. Repayments of bank load and special obligations such as bonus, donations, advances

18. 7. Interest and dividend payments
8. Capital expenditures for acquiring assets of enduring benefit
9. Payment of tax liability
10. Other expenses of periodic nature
The quantum of amount likely to be spending on the above each item is generally determined
with reference to functional budgets of the concerns. The policy of the management will also
play a crucial role. It is the policy which determines the ratio of cash purchases and credit
purchases. In many cases, the time lag affects the amount of expenditures to be incurred in a
particular period. The formula adopted for the expenses payable in next month is: month’s
amount x time lag.

19. Q5. What are the guidelines that deal with reserve for discount on debtors? What are Bad
debts also mention the accounting treatment of bad debts.
Ans.
Reserves for Discount on Debtors
There are two types of discounts allowed to customers in a business. One is trade discount and
the other is cash discount. After anticipating the amount of cash discount allowable, a provision
is made in the current year itself. In the subsequent years, the actual discount allowed is set
off against the provision for discount on debtors. Every year, the amount of provision for
discount on debtors is deducted from the profits.
The following guide lines may be kept in mind while dealing with the reserve for discount
on debtors
1. If a reserve for discount on debtors do not exist and cash discount is allowed then transfer the
discount to P&L account.
2. Any fresh reserve for discount on debtors is to be made, debit the P&L Account with the
amount of reserve.
3. If provision for discount on debtors exists at the time of providing discount, then write off the
discount from the provision already made for the purpose.
4. New provision should then be calculated and only as much as required to bring the existing
provision to the new figure should be debited to P&L Account.
5. If the new provision required is lower than the provision already existing (old), then the
difference shows profit and transfer the same to P&L Account.
Bad Debts
Bad debts are those debts which are not recovered. Bad debts form loss to the business and
reduce the amount of debtors .Since bad debts are losses, they are debited and the debtor’s
account is credited. If bad debts are recovered, cash account is debited and bad debts recovered
account is credited.

20. Accounting treatment of Bad debts:
A. If bad debts are identified and shown in trial balance:
B. If bad debts are shown outside the trial balance:
This denotes bad debts that they were identified after the preparation of Trial Balance. Two
adjustments should be incorporated.
Example:
The sundry debtors for the year 2005 are Rs.50000. The bad debts amounted toRs.4000 as on 31-
12-2005 already shown in the trail balance. Write off further bad debtsRs.5000. Show how the
above internal adjustments appear in the Profit and loss account and Balance Sheet.
Solution:
Bad debts shown in the trial balance is Rs.4000 and not shown in the trial balance isRs.5000.To
incorporate those bad debts not yet shown in the trial balance.

21. Q6. Prepare a Statement of changes in working capitals from
the following information.
Particulars April 1 March 31
Share Capital 50,000 50,000
Retained earnings 14,000 48,000
Fixed Assets at cost 80,000 90,000
Provision for Depreciation on Fixed Assets 22,000 27,000
Investments in shares of subsidiaries 15,000 15,000
Government securities 6,0000 12,000
8% Debentures (redeemable in 5 equal annual installment of 20,000 -
Rs.20,000 each, from the current year
Prepaid expense 21,000 4,000
Outstanding expenses 5,000 12,000
Creditors and Bills Payables 30,000 25,000
Debtors and Bills Receivables 18,000 20,000
Cash and Bank balances 5,000 13,000
Provision for Doubtful Debts 4,000 2,000
Prepare Statement of Changes in Working Capital
Note: If the investments are in the form of Government Securities, it is treated as current
assets.
Hint: working capital: Balance as on April1st 11000 and 31st March 20000.

22. Ans.
Statement of changes in working capital during the year
DETAILS BALANCE AS ON EFFECT ON W.C
APRIL 1ST MARCH INCREASE DECREASE
31ST
CURRENT ASSETS
CASH & BANK BALANCE 5000 13000 8000 ---------------
DEBTORS & B.R. 18000 20000 2000 ---------------
GOVT. SECURITIES 6000 12000 6000 ---------------
PREPAID EXPENSES 21000 14000 -------------- 7000
TOAL SAY A. 50000 59000 -------------- ---------------
CURRENT LIABILITIES
OUTSTANDING EXPENSES 5000 12000 --------------- 7000
CREDITORS & B.P. 30000 25000 5000 ----------------
PROVISION FOR DOUBTFUL 4000 2000 2000 ----------------
DEBTS
TOTAL SAY B. 39000 39000 ---------------- ----------------
WORKING CAPITAL
A MINUS B 11000 20000 ---------------- ----------------
NET INCREASE IN WORKING 9000 --------------- ------------------ 9000
CAPITAL
20000 20000 23000 23000

23. THANK YOU