MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

Q1. Distinction between Book Keeping and Accountancy Answer:

SET_1

Book keeping is defined as the science and act of recording business transactions in a systematic manner in a certain set of books known as books of accounts. It defines the transactions and events, measures the identified transactions and events in a common measuring unit, record them in proper books of accounts and finally classifies them in another book called ledger.

Accountancy refers to a systematic knowledge of accounting. It explains why to do and how to do of various aspects of accounting. It explains us why and how to prepare the books of accounts and how to summarize and analyze the accounting information and communicates it to the user or interested parties. Accounting is the process of identifying the transactions and events, measuring the transactions and evens in terms of money, recording them in a systematic manner in the book of accounts, classifying and grouping then and finally summarizing the transactions in a manner useful to the users of the financial information.

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 book 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.

Distinctions between book keeping and accountancy Book Keeping It is a process of identifying, measuring, It recording and analyzing the transactions in books of accounts involves Accounting summarizing the classified

transactions, interpreting the analyzed results and communicating the information to the users of financial statement

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

Adopt Book principle of accounting for Analyzing and interpreting

SET_1
requires

recording keeping the first stage

skills, knowledge and experience. of Accounting follows book keeping. It is the second stage

accounting process.

The objective is to prepare final accounts The objective is to ascertain net results of and balance sheets in a systematic manner at the end of accounting period. financial operations and communicates the results to all stake holders in manner they understand. Accounts executives who perform this Accountants who perform this function function may not require higher level of knowledge. The nature of job is routine and clerical. need higher analytical skills to interpret the data and to take appropriate decision. The nature of job is non routine but analytical.

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

Q2. Pass journal entries for the following transactions: a) b) c) d) e) Madan commenced business with cash Rs.70000 Purchased goods on credit Rs.14000 Withdrew for private use Rs.3000 Goods purchased for each Rs.12000 Paid wages Rs.5000

SET_1

Answer: Journal Entries for the Madans book of accounts Date 1 Particulars Madan Account Dr. Cash a/c To Capital a.c (Madan brought in capital of Rs.70,000 in cash) Purchase a/c Dr. To Credit a/c (Purchased goods on credit)
Drawals A/c Dr. To Cash A/c (Withdrawal of money by Madan for personal use) Purchases A/c Dr. To Cash A/c (Bought goods for cash) Wages A/c Dr. To Cash A/c (Wages paid by cash)

L/F

Debit (Rs.) 70,000

Credit (Rs.)

70,000

14,000 14,000 3,000 3,000

12,000 12,000 5,000 5,000

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

Q3. Write short notes on a. Outstanding Expenses b. Prepaid expenses Answer:

SET_1

Outstanding Expenses: Expenses yet to be paid or outstanding expenses for the current period should be charged against the current periods income. The extent to which the amount belongs to the current year but payable in the next year is called outstanding expense. Eg. Salaries outstanding (March 2012 month salary paid in April 2012) Rent outstanding Salaries a/c Dr

To Outstanding salaries a/c Being salaries for the month of March 2012 due bt not yet paid accounted. Prepaid Expenses: Expenses paid in advance or prepaid expenses should 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

Eg. Insurance premium is paid from April 2004 to March 2005 and the amount is Rs.3600. The accounting year of the firm ends on 31st December 2004. Therefore the premium relating to Jan, Feb and Mar of 2005 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

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

SET_1

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. Answer:

a)

MCSR Marginal Contribution Sales Ratio (MCSR) Contribution X100 = Sales

Contribution

= = =

Fixed Cost + Profit 3,00,000 + 1,00,000 4,00,000

Contribution X100 Therefore MCSR = Sales 400000 X100 = 100000 = b) BEP Fixed Expenses Break Even Point (BEP) = Contribution sales ratio (MCSR) 300000 = 0.4 = RS. 750000 40 %

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

c) Profit when sales amounted Rs.12,00,000 With MCSR 40% and sales of Rs.12,00,000, the contribution is Contribution = Sales x MCSR = = Profit = = = d) 12,00,000 x 0.4 Rs. 4,80,000 Contribution Fixed Cost 4,80,000 3,00,00 Rs. 1,80,000

SET_1

Sales required to earn profit of Rs.2,00,000 With MCSR 40% and Fixed cost of Rs.4,00,000, the desired profit of Rs.2,00,000 Fixed Cost + Desired Profit 4,00,000 + 2,00,000 Sales = = = = Sales x MCSR

Sales x 40%

6,00,000 / 40% 15,00,000

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

SET_1

Q5. Explain the meaning of Depreciation. Mention the different types of depreciation with examples. Answer: Depreciation is the 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 subjected to depreciation. Whenever, an asset is depreciated, its value goes down and therefore it is a loss to the organization.

Depreciation amount 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 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. 6,00,000. It is depreciated at 5 % on fixed installment method. It appears in journal entry as follows Depreciation account Dr 30,000 To Building account 30,000

Being depreciation amount accounted for.

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

Depreciation appears in the balance sheet for the first year under both the methods:

SET_1

1. Depreciation charged for the first year under straight line and reducing balance method. BALANCE SHEET as on First Year Liabilities Assets Building Less 5% Depreciation 30000 600000 5,70,000

Depreciation during first year is similar under both the method. 2. Depreciation for the second year. Straight Line Method BALANCE SHEET (2nd Year) Assets Building Less 5% SLM (5% of 6,00,00) 30000 5,40,000 5,70,00 Reducing Balance Method BALANCE SHEET (2nd Year) Assets Building Less 5% Depreciation (5% of 5,70,00) 28500 5,41,500 5,70,00

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)

MASTER OF BUSINESS ADMINISTRATION - SEMISTER -1 MB0041 FIANNCIAL MANAGEMENT ACCOUNTING

Q6. Show the rectification entries for the following a. The sales account is undercast by Rs15,000

SET_1

b. Goods returned by the customer Mr.X of Rs. 5650 has been posted in the Return Inward Account as Rs.5560 and in Mr.X account as Rs.6550. c. Salary paid Rs.6,000 has been posted to Rent account d. Cash received from Ram posted to Shyam account Rs.7,000 Answer: S.No. 1. Particulars Suspense A/c To Sale A/c (Sales account undercast is rectifies) Mr.X A/c Returns Inward A/c To Suspense A/c (Being less debit given to returns inwards account to the extent of Rs.90 and Being excess credit given to Mr. X account to the extent of Rs900 now rectified) Salary A/c To Rent A/c (Being Salary paid wrongly debited to Rent Account, now rectified) Shyams A/c To Rams A/c (Being Cash received from Ram wrongly Credited to Shyam, now rectified) Dr Amount Dr. (Rs) 15,000 Amount Cr. (Rs) 15,000 Dr Dr 900 90 990

Dr

6000 6000

Dr

7000 7000

SMU Roll No. 571111211 (ASHA JYOTHI SAJJA)