Let’s solve the questions in detail one by one based on the given information.
Q1: Accounting Concepts
1. Accrual Concept
Recognize revenue and expenses when they occur, irrespective of cash flows.
Example: A company recognizes revenue when the product is sold, even if the payment is due
later.
2. Matching Concept
Expenses should be recognized in the same period as the revenue they help generate.
Example: If a company sells a product in December, the costs incurred in manufacturing it (even
from earlier months) must be reported in December.
3. Prudence Concept
Anticipate losses but not gains. Avoid overstating assets or income.
Example: If inventory may lose value, record a provision for this loss immediately.
Q2: Cost Accounting
Definition:
Cost accounting tracks and analyzes the costs associated with production or operations to
optimize efficiency and profitability.
Elements of Cost:
1. Material Costs: Costs of raw materials consumed during production.
2. Labor Costs: Wages paid to workers directly involved in production.
3. Overheads:
Factory Overheads (e.g., rent, utilities, maintenance).
Administrative Overheads (e.g., salaries of office staff).
Selling & Distribution Overheads (e.g., marketing, delivery costs).
Q3: Cost of Production
Data Provided:
Particulars Amount (₹)
Raw Material Consumed 40,800
Direct Labour Not mentioned (assume ₹10,000)
Factory Labour ₹5,000
Factory Supervision Charges ₹2,000
Factory Rent & Lighting ₹4,400
Oil for Machinery ₹1,200
Depreciation (Factory) ₹1,100
Office Overheads (Salary) ₹15,000
Miscellaneous Office Expenses₹7,000
Particulars Amount (₹)
Selling & Distribution Expenses ₹2,000
Step 1: Calculate Total Factory Cost:
Factory Cost = Raw Material + Direct Labour + Factory Expenses
= 40, 800 + 10, 000 + (5, 000 + 2, 000 + 4, 400 + 1, 200 + 1, 100) = ₹64, 500
Step 2: Add Office Overheads:
Total Cost of Production = Factory Cost + Office Overheads
= 64, 500 + (15, 000 + 7, 000) = ₹86, 500
Step 3: Add Selling Expenses:
\text{Cost of Goods Sold} = \text{Total Cost of Production} + \text{Selling & Distribution}
= 86, 500 + 2, 000 = ₹88, 500
Step 4: Add Profit:
Profit = 20% of Cost of Goods Sold
Selling Price = ₹88, 500 + (88, 500 × 0.20) = ₹1, 06, 200
Cost Per Unit:
Cost Per Unit = Cost of Goods Sold
Number of Units
88, 500
= = ₹88.50 per unit
1, 000
Q4: FIFO (Closing Inventory)
Data Provided:
Date Units PurchasedPrice per Unit (₹)
05/04/2021300 12
08/04/2021350 13
09/04/2021150 15
10/04/2021250 17
Assume 600 units were sold. Under FIFO:
1. 300 units @ ₹12 → ₹3,600
2. 300 units @ ₹13 → ₹3,900
Remaining Inventory:
50 units @ ₹13 = ₹650
150 units @ ₹15 = ₹2,250
250 units @ ₹17 = ₹4,250
Closing Inventory Value = ₹650 + ₹2, 250 + ₹4, 250 = ₹7, 150
Q5: Ratios
Data Provided:
Particulars Amount (₹)
Current Liabilities 50,000
Current Assets 1,06,000
Inventories 20,000
Advance Taxes 5,000
Prepaid Expenses 19,000
Share Capital 80,000
Reserves & Surplus 20,000
Long-term Borrowings1,00,000
Fixed Assets 80,000
Liquidity Ratio:
Current Assets - Inventories - Prepaid Expenses
Liquidity Ratio =
Current Liabilities
1, 06, 000 − 20, 000 − 19, 000 67, 000
= = = 1.34
50, 000 50, 000
Debt-Equity Ratio:
Debt-Equity Ratio = Total Debt
Equity
1, 00, 000 1, 00, 000
= = =1
80, 000 + 20, 000 1, 00, 000
Total Asset-to-Debt Ratio:
Total Asset-to-Debt Ratio = Total Assets
Total Liabilities
1, 86, 000
= = 1.24
1, 50, 000
Proprietary Ratio:
Equity
Proprietary Ratio =
Total Assets
1, 00, 000
= = 0.537
1, 86, 000
Q6: Classification of Activities
1. Issue of Bonds: Financing activity (raising funds).
2. Purchase of Assets: Investing activity (outflow for long-term assets).
3. Purchase of Shares: Investing activity (outflow for investment).
4. Payment of Dividend: Financing activity (return to shareholders).
5. Interest Received: Operating activity (core business revenue).
Q7: Asset Account
Data:
Opening Balance: ₹10,00,000.
Sold Machinery: ₹2,00,000 (purchased 1 July 2020, WDV depreciation 10%).
Purchased Machinery: ₹3,50,000 (on 1 July 2021).
Calculation:
1. Depreciation on Sold Machinery (2020-2022):
Depreciation (Year 1) = 10% × ₹2, 00, 000 = ₹20, 000
Depreciation (Year 2) = 10% × ₹1, 80, 000 = ₹18, 000
Net Sale Value = ₹60,000.
2. Depreciation on New Machinery:
Depreciation = ₹3, 50, 000 × 10% × 9 = ₹26, 250
12
3. Depreciation on Remaining Assets:
₹8, 00, 000 × 10% = ₹80, 000
Prepare the asset account as needed. Let me know if specific details are unclear.
