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DRIVE- SPRING 2014
PROGRAM- MBADS/ MBAFLEX/ MBAHCSN3/ MBAN2/ PGDBAN2
SEMESTER- 1
SUBJECT CODE & NAME- MB0041 & FINANCIAL AND MANAGEMENT ACCOUNTING
Q1. Accounting is an art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events. Explain the accounting process and write the objectives of accounting. (Explanation of accounting process, Objectives of accounting) 2, 8
Answer: Accounting Process
1. Identifying the transactions and events – This is the first step in the accounting process. It recognises the transactions of financial character that are essential to be recorded in the books of accounts. When money, goods, or services are transferred from one person or account to another person or account, it is known as a transaction.
Q2. Journal is a book of original entry and only one journal is maintained if the business is very small in size and the transactions are limited. Give the meaning of a subsidiary book. List and explain all the types of subsidiary books. (Explanation of subsidiary books, Explanation of all types of subsidiary books) 3, 7
Answer: Subsidiary Books
Each subsidiary book is meant for recording transactions of a particular type. Typically, the subsidiary books are maintained for transactions that occur most repeatedly and are most voluminous. For example, sales, purchases, and cash transactions.
Q3. For the following balances extracted from a trial balance, prepare a trading account.
| Particulars | Amount in Rs. |
| | |
| Stock on 1-1-2004 | 70700 |
| | |
| Returns inwards | 3000 |
| | |
| Returns outwards | 3000 |
| | |
| Purchases | 102000 |
| | |
| Debtors | 56000 |
| | |
| Creditors | 45000 |
| | |
| Carriage inwards | 5000 |
| | |
| Carriage outwards | 4000 |
| | |
| Import duty on materials received from abroad | 6000 |
| | |
| Clearing charges | 7000 |
| | |
| Rent of business shop | 12000 |
| | |
| Royalty paid to extract materials | 10000 |
| | |
| Fire insurance on stock | 2000 |
| | |
| Wages paid to workers | 8000 |
| | |
| Office salaries | 10000 |
| | |
| Cash discount | 1000 |
| | |
| Gas, electricity, and water | 4000 |
| | |
| Sales | 250000 |
| | |
Preparation of trading account
Answer:
| Solution | | | | | | | |
| | Dr | Trading Account For the Year Ending - - - | Cr | ||||
| | | | | | | ||
| | Particulars | Rs. | Particulars | | Rs. | ||
| | | | | | | | |
| | To stock on 1-1-2004 | 70700 | | | | | |
Q4. Write short notes on:
a) Cost Management System (CMS)
b) Value added
Answer: Cost Management System (CMS)
The explosion in technology coupled with increasing worldwide competition, is forcing managers to produce high quality goods and services in order to provide outstanding customer service and at the lowest possible cost. Horngren and others define a CMS as “a collection of tools and techniques that identifies how management’s decisions affect costs”.
Q5. Ajay industries manufactures a product X. On 1st January, 2007, there were 5000 units of finished product in stock.
| Work-in-progress | Rs.57,400 |
| Raw materials | Rs.1,16,200 |
The information available from cost records for the year ended 31st December, 2007 is as follows:
| Direct material | 9,06,900 |
| | |
| Direct labour | 3 ,26,400 |
| | |
| Freight on R M purchased | 55,700 |
| | |
| Indirect labour | 1,21,600 |
| | |
| Other factory overhead | 3,17,300 |
| | |
| | | | | |
| | Stock of raw materials on 31st Dec 2007 | 96,400 | | |
| | Work-in-progress on 31st Dec 2007 | 78,200 | | |
| | Sales (1,50,000 units) | 30,00,000 | | |
| | | | | |
| | Indirect materials | 2,13,900 | | |
| | | | | |
There are 15000 units of finished stock in hand on 31st December 2007. Prepare a statement of cost and profit assuming that opening stock of finished goods is to be valued at the same cost per unit as the finished stock at the end of the period.
(Preparation of statement of cost and profit) 10
Solution:
Statement of Cost and Profit of Product X
| Particular | | Rs. | Rs. | | |
| | | | | | |
| Opening Stock of Raw Materials | 1,16,200 | | | | |
Q6. Assume a company is considering dropping product B from its line because accounting statement shows that product B is being sold at a loss.
| Product | | Income Statement | | | |
| | | | | | |
| A | B | C | Total | | |
| | | ||||
| | | | | | |
| Sales revenue | 50,000 | 7,500 | 12,500 | 70,000 | |
| | | | | | |
| Cost of sales: | | | | | |
| | | | | | |
| D. material | 7,500 | 1,000 | 1,500 | 10,000 | |
| | | | | | |
| D. labour | 15,000 | 2,000 | 2,500 | 19,500 | |
| | | | | | |
| Indirect manufacturing cost (50% of | 7,500 | 1,000 | 1,250 | 9,750 | |
| Direct labour) | | | | | |
| | | | | | |
| Total | 30,000 | 4,000 | 5,250 | 39,250 | |
| | | | | | |
| Gross margin on sales | 20,000 | 3,500 | 7,250 | 30,750 | |
| | | | | | |
| Selling and Admn | 12,500 | 4,500 | 4,000 | 21,000 | |
| | | | | | |
| Net income | 7,500 | (1,000) | 3,250 | 9,750 | |
| | | | | | |
Additional information:
a) Factory overhead cost is made up of fixed cost of Rs. 5850 and variable cost of Rs. 3900.
b) Variable cost by products are: A – Rs. 3000, B – Rs. 400, and C – Rs. 500.
c) Fixed costs and expense will not be changed if product B is eliminated.
d) Variable selling and administrative expenses to the extent of Rs. 11000
can be traced to the product: A - Rs.7,500, B - Rs.1500, and C - Rs. 2000.
e) Fixed selling and administration expense are Rs. 10000.
(Preparation of income statement , Conclusion with interpretation ) 8, 2
Solution:
| Product | | | Income Statement | | | |
| | | | | | | |
| | A | B | C | Total | | |
| | | | ||||
| | | | | | | |
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