Spring 2010

Master of Business Administration- MBA Semester 1 MB0041 Financial Management & Accounting - 4 Credits
(Book ID: 1130) Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions. 1. What is accounting cycle? List the sequential steps involved in Accounting cycle? 2. A. Bring out the difference between Indian GAAP and US GAAP norms? B. What is Matching Principle? Why should a business concern follow this principle?

US GAAP INDIAN GAAP It is established under FASB and It is established under ICAI AICPA Balance Sheet, Income Statement Balance Sheet and income statement & Funds Flow Statement are are alone mandatory mandatory Any change in foreign exchange Any difference in foreign exchange fluctuations cannot be capitalized can be capitalized. but the difference can be shown or debited to Income statement Financial accounting, Management Only financial accounting and accounting and income tax Income tax accounting are prepared. accounting are prepared separately The basic tenets is globalization of The basic tenet is localization business Any long term loan repayable is Long term loans maturing in the the current financial year is shown current financial year need not be separately disclosed separately In lease contract, lessee is more In lease contract, lessor is eligible for beneficiary because he can claim depreciation allowance and not the depreciation allowance lessee. It is more transparent and accepted It is comparatively less transparent. worldwide. More disclosure is For listing the securities in other required countrys stock exchange USGAAP is mandatory Generally Accepted Accounting Principles: The double entry system of accounting is based on a set of principles which are called generally accepted accounting principles. It incorporates the consensus at a particular time as to: Which economic resources and obligations should be recorded as assets and liabilities by financial accounting, Which changes in assets and liabilities should be recorded,

 When these changes are to be recorded, How the assets and liabilities and changes in them should be measured, What information should be disclosed and Which financial statement should be prepared For example, an entity having research and development department may follow the policy of deducting all the R&D expenses incurred in a year as revenue expense while for the same situation another entity may classify R&D expenses into projects and may write off only when the project is not expected to offer any future benefits. Annexure 1 given at the end of this unit provides you details on the difference between US GAAP norms and Indian GAAP norms. Accounting Standards To bring uniformity in terminology, accounting concepts, conventions, and assumptions, the Institute of Chartered Accountants of India (ICAI) established Accounting Standards Board (ASB) in 1977. An Accounting Standard is a selected set of accounting policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. There are altogether 32 accounting standards issued by ASB out of which, one standard (AS8) has been withdrawn pursuant to AS26 becoming mandatory. Annexure 2 given at the end of this unit provides you the details of 32 Accounting Standards (AS).
3. Prove that the accounting equation is satisfied in all the following transactions of Mr. X (a) Commence business with cash Rs.50000 (b) Paid rent in advance Rs.1000 (c) Purchased goods for cash Rs.18000 and Credit Rs.20000 (d) Sold goods for cash Rs.25000 costing Rs.22000 (e) Paid salary Rs.5000 and salary outstanding is Rs.3000 (f) Bought moped for personal use Rs.20000

Transaction Assets = 1 2 3 4 5 6 7 8 9 Cash(+) 50,000 -1000 -18000 25000 -5000 -20000 31000 =33000 Goods(+) 20000 -22000 2000 Debtors(+) Furniture

Liabilities + Owners Equity creditors Captial 50000 -1000 4000 3000 3000 -2000 -20000 3000 34000 =33000

4. Following are the extracts from the Trial Balance of a firm as on 31st March 20X7

Dr
Sundry Debtors Provision for Doubtful Debts Provision for Discount on Debtors Bad Debts Discount

Cr
2,05,000 10,000 1,800 3,000 1,000

5. A. Bring out the difference between trade discount and cash discount.
Spring 2010

B. Explain the term (1) asset (2) liability with the help of examples

Difference between Trade Discount and Cash Discount: 1. Trade discount is a reduction granted by a supplier from the list price on goods or services on business considerations such as quantity bought, trade practices etc while cash discount is a reduction granted from the invoice price in consideration of immediate payment or payment within a stipulated period. 2. Trade discount is allowed to promote the sales while cash discount is allowed to encourage early or prompt payment 3. Trade discount is shown by the way of deduction in the invoice itself. Hence no further entry is required in the books of accounts. Cash discount is shown as an expense in profit and loss account. 4. Trade discount may vary with the quantity purchased while cash discount varies with the period.

Provision for bad debts is a liability to be incurred in future and so it should appear on the liability side of balance sheet Name of the account Capital Personal Drawings Creditors Bills Payable Bank overdraft
Debit / credit balance

Credit Debit Credit Credit Credit

Loans from others Outstanding expenses Pre received incomes Reserves for future expenses or losses All items of incomes Cash in hand or at bank Assets such as furniture, buildings, plant, machinery, tools, stock of goods, etc Debtors, Bills receivable Loans given to others Investments made All expenses such as wages, carriage, insurance, salaries, printing and stationery, advertising, commission paid, interest paid, etc Prepaid insurance, rent or any prepaid expenses Outstanding incomes Losses like depreciation, loss in the revaluation of assets or sale of assets, Any other asset

Credit Credit Credit Credit Credit Debit Debit Debit Debit Debit Debit

Debit Debit Debit Debit

Master of Business Administration- MBA Semester 1 MB0041 Financial Management & Accounting - 4 Credits
(Book ID: 1130) Assignment Set- 2 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions. 1. Uncertainties inevitably surround many transactions. This should be recognized by exercising prudence in preparing financial statement. Explain this concept with the help of an example. 2. A. When is the change in accounting policy recommended and what are the disclosure requirements regarding the change in accounting policy? B. Explain IFRS. 3. Journalise the following transactions: Bought goods for Rs.10,000 01.01.09 02.01.09 Purchased goods from X Rs.20,000 03.01.09 Bought goods from Y for Rs.30,000 against a current dated cheque 04.01.09 Purchased goods from Z [price list price is Rs.30,000 and trade discount is 10%] 05.01.09 Bought goods of the list prce of Rs.1,25,000 from M less 20% trade discount and 2% cash discount. Paid 40% of the amount by cheque 06.01.09 Returned 10% of the goods supplied by X 07.01.09 Returned 10% of the goods supplied by Y