Subject Code: IMT-57

Subject Name : FINANCIAL

ACCOUNTING

A. First Set of Assignments: B. Second Set of Assignments: C. Third Set of Assignments: D. Forth Set of Assignments:

Objective: 1. Develop understating of financial statements including consolidated financial statements; 2. Capture techniques of financial statement analysis; 3. Enables to understand accounting standards; 4. Develop knowledge of using electronic data base containing financial information. Contents Meaning and scope of accounting Accounting principles and standards Journalising transactions Ledger posting and trial balance Bank reconciliation statement Final accounts Company financial statements Financial reporting Financial statements: analysis and interpretation Cash flow statement Reference: 1. Bernstein, L.A., and John J. Wild, Financial Statement Analysis, McGraw Hill International. 2. Bhattacharyya, A.K., Financial Accounting for Business Managers, PHI

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ASSIGNMENTS
FIRST SET OF ASSIGNMENTS Marks Assignment-I = 5

PART A
1. Comment on the relationship between accounting and some other disciplines. 2. Journalize the following transaction: 1996 Jan. 1 Assets Cash Cash at Bank Stock of goods Mohan and Co. Jan. Jan. 1 2 3 4 Liabilities: Marathi and Co. Ram Received cheque form Mohan and Co. in full settlement cheque deposited in bank Sold goods to Dass Sold goods to Jai Chand Carriage paid Sold goods to Govind for cash 5 6 7 Bought goods from Ram Paid Marathi and Co. by cheque in full settlement Bought goods from Chatterjee Dass returned goods, not being up to salesman Travelling expenses paid to salesman Goods sold for cash 10 13 15 16 17 19 20 22 23 24 27 29 31 Paid for stationery Postage stamps Returned goods to Chatterjee (not being up to specifications) (Chatterjee also admits claim for breakage of goods) Paid for furniture by cheque Goods used personally by proprietor Sold goods to Mohan and Co. Dass pays by cheque Cheque received from Jai Chand Bank advise Jai Chands Cheque returned unpaid Sold goods for cash Cash deposited with bank Cheque sent to Chatterjee (discount allowed Rs. 50) Paid telephone charges Paid salaries Paid rent Bank charges 800 2,000 5,850 23 600 300 10 Rs. 630 23,100 26,000 6,750 3880 3,000 6,650 1,400 1,440 35 3,120 4,000 3,800 6,300 100 147 800 66 15 300 100 700 50 5,000 1,300 1,440

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Drew for personal use from bank Received claim from Mohan & Co. for defects in goods supplied to them : Claim admitted 3. Explain the dual aspect concept of accounting.

500 150

4. From the following Trial Balance, prepare a Trading, Manufacturing and Profit and Loss Account as well as Balance Sheet as on 31st December 1995.

TRIAL BALANCE
(as on 31st December 1995) Particulars Stock on 1.1.1995 Raw materials Work-in-process Finished goods Manufacturing waegs Purchases of raw materials Factory rent Carriage of raw materials Salary of the works managers Office rent Printing and stationery Bad debts Sales Land and buildings Plant and machinery Depreciation on plant Sundry debtors Sundry creditors Cash in hand Capital 1,33,000 Closing Stock on 31 December, 1995 was as follows; Rs. Raw materials Work-in-Process Finished goods 5,000 4,000 10,000 5,000 43,000 1,33,000 30,000 20,000 2,000 5,000 30,000 2,000 5,000 10,000 10,000 30,000 5,000 3,000 2,000 2,000 1,000 1,000 60,000 Dr. Rs. Cr. Rs.

5. Based on the following information of the financial ratios, prepare the Balance Sheet of Star Enterprises Ltd, as on 31st December, 2005. Explain your working and assumptions; Current Ratio Liquidity ratio Net working capital Stock turnover ratio Ratio of gross profit to sales 2.5 1.5 Rs. 6,00,000 5 20%

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Turnover ratio to net fixed assets Average debt collection period Fixed assets to net worth Share Capital to Reserves & surplus

2 2.4 Months 0.80 .50

SECOND SET OF ASSIGNMENTS

Assignment-II = 5 Marks

PART B
1. What is trial balance? How is a trial balance prepared and what are the objectives of preparing one? 2. The following entries have been passed by a student. You have to state whether these entries are correctly passed. If not, pass the correct journal entries. Particulars L.F Cash A/c Dr. To Interest A/c (Being interest paid) (ii) Mohan Dr. To Purchases A/c (Being purchase of goods from Mohan) (iii) Hari Dr. To Sales A/c (Being credit sale of goods to Hari) (iv) Mukesh Dr. To Bank A/c (Being salary paid to Mukesh) (v) Freight A/c Dr. To Cash A/c (Being freight paid) (vi) Repair A/c Dr. To Cash A/c (Being charges paid for overhauling an old machine purchased) (vii) Cash A/c Dr. To Rakesh (Being an amount of debt which was written off as bad debt last year, is received during the year) (viii) Purchases A/c Dr. To Hari (Being goods sold to Hari earlier, now returned by him) 3. Why and how is a bank reconciliation statement prepared? Rs. 7,000 Rs. 7,000 10,000 10,000 5,000 5,000 1,000 1,000 1,000 1,000 1,000 1,000

(i)

200 200

1,000 1,000

4. From the following particulars taken on 31 December, 1995, you are required to prepare a bank reconciliation statement to reconcile the bank balance shown in the Cash Book with that shown in the Pass Book: (i) (ii) Balance as per Pass Book on 31 December, 1995, O/D Rs 1,027. Four cheques drawn on 31 December but not cleared till January are as follows: Rs 12; Rs 1,021; Rs 98; and Rs 113. (iii) (iv) (v) Interest on O/D not entered in Cash Book Rs 51. Three cheques received on 30 December and entered in the bank column of the Cash Book but not lodged in bank for collection till 3 January next: Rs 1,160; Rs 2,100; and Rs 2,080. Cost of cheque book, Pass Book, etc; Rs 1.50 entered twice erroneously in Cash Book in November.

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(vi)

A Bill Receivable for Rs 250 due on 29 December, 1995 was passed to the bank for collection on 28 December, 1990 and was entered in Cash Book forthwith whereas the proceeds were credited in the Pass Book only in January following.

(vii) Chamber of Commerce subscription Rs 10 paid by bank on 1 December, 1990 had not been entered in the Cash Book. (viii) Bank charges of Rs 5 had been debited in the pass book twice erroneously. 5. A firm had the following Balances on 1 January 1994: (i) (ii) (iii) Provision for bad and doubtful debts Provision for discounts on debtors Provision for discounts on creditors Rs 2,500 Rs 1,200 Rs 1,000

During the year, bad debts amounted to Rs 2,000, discounts allowed were Rs 100 and discounts received were Rs 200. During 1995 bad debts amounting to Rs l,000 were written off while discounts allowed and received were Rs 2,000 and Rs 5,000 respectively. Total debtors on 31 December, 1995 were Rs 48,000 before writing off bad debts, but after allowing discounts. On 31 December, 1995, this amount was Rs 19,000 after writing off the bad debts, but before allowing discounts. Total creditors on these two dates were Rs 20,000 and Rs 25,000 respectively. It is the firm's policy to maintain a provision of 5% against bad and doubtful debts and 2% for discount on debtors and a provisions of 3% for discount on creditors. Show the accounts relating to provisions on debtors and provisions on creditors for the year 1994 and 1995.

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THIRD SET OF ASSIGNMENTS

Assignment-III = 5 Marks

PART C
1. From the following details, compute the amount of current assets to be shown in the company's balance sheet as per schedule VI: Cash Debtors Stock Trade-creditors Land Investments Interest accrued on investments Loose tools 48,000 50,000 60,000 60,000 20,000 40,000 5,000 10,000

2. What is meant by financial reporting and what are its main objectives? 3. Calculate the following for the years 2005 and 2006 using figures made available: (i) (ii) (iii) (iv) (v) (vi) (vii) Return on capital employed Current ratio Debt/equity ratio Fixed assets turnover ratio Inventory turnover ratio Earning per share Dividend cover

BALANCE SHEET
(as on 31st December) Particulars Liabilities Share Capital: Shares of Rs. 10 each Reserves and Surplus Secured Term Loans Cash Credits from Banks Sundry Creditors Assets Fixed Assets: Gross Block Less: Depreciation Stock Debtors Other Current Assets 2004 800 700 800 800 1,200 4,300 2,800 920 1,880 1,520 480 420 2,420 4,300 (Rs in lakh) 2005 2006 1,000 800 2,000 1,000 900 5,700 3,000 1,400 1,600 2,400 500 1,200 4,100 5,700 1,000 1,000 2,400 1,500 1,100 7,000 4,000 2,000 2,000 2,800 900 1,300 5.000 7,000

Total Assets

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EXTRACTS FRM PROFIT AND LOSS ACCOUNT For year ended 31st Dec. (Rs lakh) 2005 2006 Sales 4,800 7,200 Profit before Depreciation and Interest on Term Loans 1,500 2,400 Depreciation 480 600 Interest on Term Loans 420 600 Tax 300 600 Dividends 100 150 4. The following figures relate to the trading activities of M/s ABC Traders Ltd for the year ending 31 March 2004. Particulars Amount (Rs) Sales 5,20,000 Opening stock 76,250 Purchases 3,22,250 Closing stock 98,500 Sales return 20,000 Selling and Distribution Expenses Salaries 15,300 Advertising 4,700 Travelling 2,000 Administrative Expenses Salaries 27,000 Rent 2,700 Stationery 2,500 Depreciation 9,300 Other charges 16,500 Provision for tax 4,000 Non Operating Income Dividend on shares 9,000 Profit on sales of shares 3,000 Non Operating Expenses Loss on sale of fixed asset 4,000 You are required to: (i) Arrange the above figures in a form suitable for analysis. (ii) Show separately the following ratios. Net profit ratio Operating ratio Stock turnover ratio 5. On 1 January 1996, the following were the ledger balances of Rajan and Co.: Cash in hand Rs 900; Cash in bank Rs 21,000; Soni (Cr.) Rs 3,000; Zahir (Dr.) Rs 2,400; Stock Rs 12,000; Prasad (Cr.) Rs 6,000; Sharma (Dr.) Rs 4,500; Lall (Cr.) Rs 2,700; Ascertain capital. Transactions during the month were: Date 1996 2 Jan. 3 5 7 13 17 22 29 30 Particulars Bought goods of Prasad Sold to Sharma Bought goods of Lall for cash payment made by cheque Took goods for personal use Received from Zahir in full settlement Paid to Soni in full settlement Paid cash for stationery Paid to Prasad by cheque Discount allowed by him Provide interest on capital Rs. 2,700 3,000 3,600 200 2,350 2,920 50 2,650 50 100 Particulars

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30

Rent due to Landlord

200

Journalize the Above Transactions and Post to the Ledger and Prepare a Trial Balance

FOURTH SET OF ASSIGNMENTS

Assignment-IV = 2.5 Each Case Study

CASE STUDY - I
The Alfa Limited is registered with a nominal capital of Rs 6,00,000 in equity shares of Rs 10 each . The following is the list of balances extracted from its books on 31 March 2003: Calls in arrears Premises Plant and Machinery Interim dividend paid on August 2002 Stock 1 April 2002 Fixtures Sundry debtors Goodwill Cash in hand Cash at bank Purchases Wages Preliminary expenses General expenses Freight inward Salaries Directors fees Bad debts Debentures interest paid Subscribed and fully paid up capital 6% Debentures Profit and loss A/C (Cr) Bills payable Sundry creditors Sales General reserve Provisions for doubtful debts as on 1/4/2002 7500 300000 330000 37500 75000 7200 87000 25000 750 39900 185000 84865 5000 16835 13115 14500 5725 2110 9000 400000 300000 14500 38000 50000 415000 25000 3500

Prepare Trading and Profit and Loss account, Profit and Loss Appropriation account as well as Balance Sheet as per the format given in Schedule VI of the Companies Act, 1956 after making the following adjustments: Depreciation on plant and machinery @ 10%. Write off Rs 500 from preliminary expenses. Provide half years Debenture Interest due. Provision for doubtful debts has to be maintained at 5% of sundry debtors. Stock as on 31 March 2003 is Rs 95000.

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CASE STUDY-II
Fine Products Ltd was registered with a nominal capital of Rs 5,00,000 divided into equity shares of Rs 100 each. The following Trial Balance is extracted from the books on 31 March, 2006: Details Buildings Machinery Closing Stock Purchase (adjusted) Salaries Directors' Fees Rent Depreciation Bad Debts Interest Accrued on Investment 12,000 Shares of A Ltd of Rs.10 each Rs.8 paid-up Debenture Interest Loose Tools Advance Tax Sundry Expenses Sundry Debtors Bank Rs. 2,90,000 1,00,000 90,000 2,10,000 60,000 10,000 26,000 20,000 6,000 2,000 Credits Sales Salaries Outstanding Provision for Bad Debts (1.4.2005) Equity Share Capital General Reserve Profit and Loss Sundry Creditors Depreciation on: Building 50,000 Machinery 55,000 1,20,000 14% Debentures Interest on Debentures accrued but not due Interest on Investment Unclaimed Dividend Rs. 5,20,000 2,000 3,000 2,00,000 40,000 25,000 92,000

1,05,000 2,00,000

28,000 23,000 60,000 18,000 1,25,000 30,000 12,18,000

14,000 12,000 5,000

12,18,000

You are required to prepare Trading and Profit and Loss Account for the year ending 31 March, 2006 and Balance Sheet as at that date after taking into consideration the following information: (i) (ii) (iii) (iv) (v) Closing stock is more than opening stock by Rs 30,000 Provide for doubtful debts @ 4% on debtors Make a provision for income tax for Rs76,000 Depreciation expenses includes depreciation of Rs 8,000 on buildings and that of Rs 12,000 on machinery The directors recommended a dividend @25%

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