MID TERM EXAMINATION

MANAGEMENT ACCOUNTING (I)

TERM I, PGDM, 2024
Open Book Exam – Text book, Reference book and class notes only.
Populate the templates provided for Income Statement for FY2023-24,
Balance Sheets as on 31 March 2023 and 2024, and financial ratios.
Kindly secure the templates to your answer notebooks before
submission.

Time – 3 hrs. Marks - 30

Parvez, the promoter of BRUNITEX Architect, had sought your help for the preparation
of the financial statements on the basis of the information set out below. He had to also
pay a tax of 25% on the profit calculated.

BRUNITEX ARCHITECT

In April 2021, Mr Parvez Alam set himself up as a consulting architect after retiring from a real
estate company. While his primary interest was in building institutional complexes, he had
advised some wealthy clients on designing their residential homes. Brunitex was doing pretty
well under the leadership of Parvez but how well was difficult to define in the absence of financial
statements. Parvez was somewhat allergic to accounting as he felt that it stifled creative and
innovative abilities.

In early April 2024, Parvez approached his banker for a line of credit to sustain the business
growth. The banker asked him to submit his tax return along with the required financial
statements, i.e. a profit and loss statement in respect of his operations as well as a balance
sheet as at March 31, 2024. Parvez felt that some attempt had to be made to put together a set
of accounts to satisfy the banker and tax authorities. He instructed Miss Joshi, the young lady
who acted as his secretary, to collect all the necessary details relating to billing made, cash
received, expenses incurred, assets held and outstanding amounts due to suppliers and others
relevant to the period.

Miss Joshi assembled the following data:

1. Business assets consisted primarily of office furniture and equipment which were
acquired on April 1, 2021. These assets were estimated to have a useful life of seven
years. The acquisition cost of these assets was Rs 3,50,000.
2. There were shares and debentures worth Rs 15,00,000 at the beginning of the

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 accounting period.
3. Cash balance and inventory of supplies at the end of the day on March 31, 2023
were Rs 7,12,000 and Rs 70,000 respectively
4. The office records showed that the following cash had been received during the year
ended March 31, 2024.
(a) Collections relating to bills raised on clients 23,45,000
Dividends and interest received from stocks and
(b) 1,19,000
debentures

A thorough analysis of the stubs of used cheque books disclosed that the following payments were
made during that period:
Items Amount in RS
Salaries of architects 10,51,820
Payment to suppliers of inventory 4,02,850
Rent for Office Premises 1,84,800
Professional association Fees 35,000
Shares purchased 1,68,000
Amount withdrawn by Parvez for personal expenses 5,60,000
Selling & Administrative Expenses 1,26,000
Total 25,28,470

Ms. Joshi found that the following bills were outstanding at the end of FY2023 and
2024 respectively:
Outstanding on 31 Outstanding on 31
March, 2023 March, 2024
Salaries of architects 11,900 17,500
Suppliers of inventory 57,400 45,150
Rent for Office Premises 14,000 16,800
Selling, & Administrative Expenses 5,600 1,750
Tax Payable - -
Total 88,900 81,200

Parvez was rather happy about the fact that while actual billings during the year ending
March 31, 2024 were Rs 2,079,000, the cash received from clients was Rs. 23,45,000
and receivables were Rs 3,55,000. However, he was quite shocked when Miss Joshi
informed him that some of the clients, including some of the very wealthy ones who had

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consulted him for designing private residential homes, had refused to pay as they
believed that the advice was given on the basis of the personal friendship which they
had with him. They pointedly mentioned that they were rather shocked to receive bills
for professional services and maintained that since there was no legal contract, they were
not liable to pay up the amounts billed. The estimates of such uncollectible amounts
came to Rs. 37,800 in respect of billings made during FY2023-24 and Rs.121,800 in
respect of billings pertaining to prior periods. Parvez thought that he would have to be
more careful in future before he gave any professional advice, but in any case, it would
not be worthwhile to get involved in legal proceedings in order to recover all these
amounts. He decided that the best course would be to write off these claims. Thank
God, following industry practice the firm was maintaining allowances for doubtful
debts at 10% of closing receivables.
Ms. Joshi also informed that a consultancy contract with customer for a café outlet
construction included inspection, testing and evaluation of the work besides the
specific architectural design. The contract amount was Rs 6,50,000. Parvez identified
that the standalone prices of the services would have been Rs 4,50,000 for design; Rs
80,000 for inspection; Rs 1,00,000 for testing; and Rs 1,30,000 for evaluation of
work. Brunitex received Rs. 5,00,000 after submitting the design but the other three
performance obligations would be performed in the year 2024-25. The billing amount
of Rs 2,079,000 did not include the amount received for these three performance
obligations to be rendered in 2024-25.

Ms. Joshi also informed that the inventory of material as at the end of March 31, 2024
was Rs. 1,10,000. Had Parvez been in regular employment, he would have been taking
home Rs. 60,000 per month, the minimum salary for a junior manager.

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 MID TERM ANSWER SHEET
MANAGEMENT ACCOUNTING (I)
TERM I, PGDM, 2024
Name -

Roll No -

10 Marks + 14 Marks + 6 Marks

Q1. Income Statement of Brunitex Architect for the year ending March 31, 2024

Items Working Note No Amount (Rs)

Revenue:

Operating

Non-Operating

Total Revenue

Cost of Sales: 1

Gross Profit

Operating Expenses 2

Allowances for Doubtful Debts 3

EBITDA

D&A 4

EBIT

Interest

PBT

Tax

EAT/Net Income
* Cost of sales includes inventory used and salaries of architects

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 Q2. Balance Sheet of Brunitex Architect as at March 31, 2023 March 31, 2024
Working Note No. Amount (Rs) Amount (Rs)
Assets
Cash 5
Accounts Receivable 6
Inventory
Shares
PP&E 7
Total Assets
Equity & Liabilities
Accounts Payable
Expenses Payable
Deferred Revenue 8
Allowances For Doubtful Debts
Tax Payable
Equity 9
Total of Equity and Liabilities

Q3. Financial Analysis for 2023-24

Economic Profit

Operating Profit Margin

Net Profit Margin

Net Working Capital

Current Ratio

Interest Coverage Ratio

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