Centre for Distance and Online Education

Online MBA Program

Semester- I

(Accounting for Managers)

ASSIGNMENT

Prepared by Faculty Name

Name of the Student - Abhay Solanki (Name of the Faculty)

Enrollment no: 2422752011293 Ms. Preksha Dandavate

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 FORMAT

Q. 1 “Managers need to have an understanding to accounting.” Discuss the statement concerning users
to accounting information.
Ans.1.
Understanding Accounting for Managers
Managers indeed require an understanding of accounting for several reasons:
 Financial Decision Making: Managers use accounting information to make financial decisions, such
as budgeting, investment, and pricing strategies.
 Performance Evaluation: They assess the company's performance using financial statements, like
the income statement and balance sheet.
 Resource Allocation: Accounting helps in allocating resources effectively by identifying areas of high
and low profitability.
 Communication: Understanding accounting enables managers to effectively communicate with
stakeholders, such as investors and creditors, using financial reports.
 Compliance and Governance: Managers need to ensure compliance with accounting standards and
regulations, which requires a fundamental understanding of accounting principles.
In summary, a grasp of accounting is crucial for managers to make informed decisions, evaluate
performance, allocate resources, communicate effectively, and ensure compliance.

Q. 2 Classify the following accounts under the traditional approach.

Building Capital
Purchases Drawings
Sales Personal income-tax account.
Rent Interest Receivable account
Cash Dividend received
Trade receivables Discount allowed

Ans.2.
Building - Asset (a physical resource owned by the business)
Capital - Equity (owner's investment in the business)
Purchases - Expense (cost of goods or services acquired)
Drawings - Equity (withdrawals by the owner from the business)
Sales - Revenue (income generated from selling goods/services)
Personal income-tax account - Liability (amount owed to tax authorities)
Rent - Expense (cost incurred for using property)
Interest Receivable account - Asset (amount expected to be received in interest)
Cash - Asset (liquid funds available)
Dividend received - Revenue (income from investments in other companies)
Trade receivables - Asset (amount owed by customers for goods/services sold)
Discount allowed - Expense (reduction in revenue due to discounts given)

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Q. 3 From the following information, prepare a Common size Income Statement for the year ended
March 31, 2016, and March 31, 2017.

Ans.3.
Common-size Income Statement

Particulars Figures for Percentage Figures for Percentage

the year for the year the year for the year
2016-17 2016-17 2017-18 2017-18
Revenue from Operations 18,00,000 100% 25,00,000 100%
Cost of goods sold (10,00,000) -56% (12,00,000) -48%
Gross Profit 8,00,000 44% 13,00,000 52%

Operating expenses (80,000) -4% (1,20,000) -5%

Operating profit 7,20,000 40% 11,80,000 47%
Non-Operating expenses (12,000) -0.7% (15,000) -0.6%
Depreciation (20,000) -1.1% (40,000) -1.6%
Wages (10,000) -0.6% (20,000) -0.8%
Net income 6,78,000 37.7% 11,05,000 44.2%

Q.4 From the following data relating to the assets of the Balance Sheet of ABC Ltd., for the period ended
March 31, 2011, to March 31, 2014, calculate trend percentages.

Ans.4.
Balance Sheet Trend Analysis
2010- 2011- 2012- 2013-
Particulars 11 Percentage 12 Percentage 13 Percentage 14 Percentage

Cash 100 100 120 120 80 80 140 117

Debtors 200 100 250 125 325 163 400 160

Stock 300 100 400 133 350 117 500 125

Other current
assets 50 100 75 150 125 250 150 200

Land 400 100 500 125 500 125 500 100

Buildings 800 100 1,000 125 1,200 150 1,500 150

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 Plant 1,000 100 1,000 100 1,200 120 1,500 150

Total 2,850 3,345 3,780 4,690

Interpretation:
 For Cash, the index shows an increase from 100 in 2010-11 to 140 in 2013-14, indicating a positive trend.

 Debtors also show a positive trend with the index increasing from 100 to 160 over the period.

 Stock has shown a significant increase with the index rising from 300 to 500.
 Other current assets, Land, Buildings, and Plant also show positive trends with varying degrees of increase
over the years.

Q. 5 How can we calculate cash flow from operating activities? Explain this with a hypothetical example.
Ans.5.
Cash flow from operating activities (CFO) is a key component of a company's cash flow statement, reflecting the cash
generated or used by the core business operations during a specific period. It can be calculated using two methods:
the direct method and the indirect method. Here, I will explain both methods with a hypothetical example.
1. Direct Method:
This method involves listing all cash receipts and cash payments from operating activities.
Formula: Cash Receipts from Customers - Cash Payments to Suppliers and Employees
2. Indirect Method:
This method starts with net income and adjusts for non-cash transactions and changes in working capital.
Formula: Net Income + Non-Cash Expenses + Changes in Working Capital
Hypothetical Example:
Let's assume a company, ABC Corp, has the following financial data for the year:
 Net Income: 100,000

 Depreciation Expense: 20,000

 Increase in Accounts Receivable: 10,000

 Decrease in Inventory: 5,000

 Increase in Accounts Payable: 15,000

Using the Indirect Method:
1. Start with Net Income: Net Income = 100,000

2. Add Non-Cash Expenses: Add Depreciation = 20,000

3. Adjust for Changes in Working Capital:

 Increase in Accounts Receivable: This means cash was not collected, so we subtract it. Subtract
Increase in Accounts Receivable = -10,000

 Decrease in Inventory: This means cash was freed up, so we add it. Add Decrease in Inventory =
5,000

 Increase in Accounts Payable: This means cash was retained by delaying payments, so we add it.
Add Increase in Accounts Payable = 15,000

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 4. Calculate CFO: CFO = 100,000 + 20,000 - 10,000 + 5,000 + 15,000

CFO = 130,000
Conclusion:
The cash flow from operating activities for ABC Corp is 130,000. This indicates that the company generated 130,000
in cash from its core business operations during the year, which is a positive sign of operational efficiency.

Q. 6 Classify the following cash transactions into i) Cash from Operating Activity; ii) Cash from Investing
Activity; iii) Cash from Financing Activity: -
1) Dividend paid to shareholders
2) Payment made to supplier
3) Interest income on Debenture
4) Dividend Received
5) Taxes Paid
6) Salary Paid
7) Purchase of Shares
Ans.6.
To classify the given cash transactions into the categories of Cash from Operating Activities, Cash from Investing
Activities, and Cash from Financing Activities, we can use the following definitions:
Cash from Operating Activities: Cash flows from the core business operations, including revenues and expenses.
Cash from Investing Activities: Cash flows related to the acquisition and disposal of long-term assets and
investments.
Cash from Financing Activities: Cash flows related to transactions with the company's owners and creditors, including
equity and debt financing.
Now, let's classify the provided transactions:
Dividend paid to shareholders
Classification: Cash from Financing Activity
Payment made to supplier
Classification: Cash from Operating Activity
Interest income on Debenture
Classification: Cash from Operating Activity (often considered operating income, though it can also be classified as
investing depending on the context)
Dividend Received
Classification: Cash from Investing Activity (as it relates to returns on investments)
Taxes Paid
Classification: Cash from Operating Activity
Salary Paid
Classification: Cash from Operating Activity
Purchase of Shares
Classification: Cash from Investing Activity (if it refers to purchasing shares of another company; if it refers to
treasury stock, it would be financing)

Issue of Shares
Classification: Cash from Financing Activity
Summary of Classifications:
Cash from Operating Activity:
Payment made to supplier
Interest income on Debenture
Taxes Paid
Salary Paid

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Cash from Investing Activity:
Dividend Received
Purchase of Shares
Cash from Financing Activity:
Dividend paid to shareholders
Issue of Shares
This classification helps in understanding the sources and uses of cash in a business, which is essential for financial
analysis and decision-making.

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