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IMT - 57: FINANCIAL ACCOUNTING
PART - A
1. Comment on the relationship between accounting and some other disciplines.
2. Journalize the following transaction:
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1996
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Rs.
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Jan.
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1
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Assets
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Cash
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630
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Cash at Bank
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23,100
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Stock of goods
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26,000
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Mohan and Co.
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6,750
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Jan.
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1
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Liabilities:
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Marathi and Co.
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3880
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Ram
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3,000
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Jan.
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2
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Received cheque form Mohan and Co. in full settlement cheque deposited in
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6,650
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bank
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3
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Sold goods to Dass
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1,400
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4
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Sold goods to Jai Chand
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1,440
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Carriage paid
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35
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Sold goods to Govind for cash
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3,120
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5
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Bought goods from Ram
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4,000
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Paid Marathi and Co. by cheque in full settlement
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3,800
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6
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Bought goods from Chatterjee
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6,300
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7
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Dass returned goods, not being up to salesman
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100
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Travelling expenses paid to salesman
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147
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Goods sold for cash
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800
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10
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Paid for stationery
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66
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Postage stamps
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15
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13
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Returned goods to Chatterjee (not being up to specifications)
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300
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(Chatterjee also admits claim for breakage of goods)
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100
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15
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Paid for furniture by cheque
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700
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16
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Goods used personally by proprietor
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50
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17
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Sold goods to Mohan and Co.
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5,000
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19
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Dass pays by cheque
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1,300
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20
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Cheque received from Jai Chand
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1,440
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22
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Bank advise Jai Chand's Cheque returned unpaid
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23
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Sold goods for cash
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800
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24
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Cash deposited with bank
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2,000
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27
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Cheque sent to Chatterjee (discount allowed Rs. 50)
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5,850
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29
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Paid telephone charges
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23
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31
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Paid salaries
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600
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Paid rent
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300
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Bank charges
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10
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Drew for personal use from bank
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500
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Received claim from Mohan & Co. for defects in goods supplied to them :
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150
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Claim admitted
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3. Explain the dual aspect concept of accounting.
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)
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Particulars
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Dr.
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Cr.
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Rs.
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Rs.
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Stock on 1.1.1995
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Raw materials
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2,000
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Work-in-process
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5,000
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Finished goods
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10,000
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Manufacturing waegs
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10,000
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Purchases of raw materials
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30,000
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Factory rent
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5,000
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Carriage of raw materials
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3,000
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Salary of the works managers
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2,000
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Office rent
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2,000
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Printing and stationery
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1,000
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Bad debts
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1,000
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Sales
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60,000
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Land and buildings
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30,000
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Plant and machinery
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20,000
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Depreciation on plant
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2,000
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Sundry debtors
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5,000
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Sundry creditors
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30,000
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Cash in hand
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5,000
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Capital
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43,000
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133,000
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133,000
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Closing Stock on 31 December, 1995 was as follows;
Rs.
Raw materials 5,000
Work-in-Process 4,000
Finished goods 10,000
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 2.5
Liquidity ratio 1.5
Net working capital Rs. 6,00,000
Stock turnover ratio 5
Ratio of gross profit to sales 20%
Turnover ratio to net fixed assets 2
Average debt collection period 2.4 Months
Fixed assets to net worth 0.80
Share Capital to Reserves & surplus .50
PART - B
Q1. What is trial balance? How is a trial balance prepared and what are the objectives of preparing one?
Q2. 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 Rs. Rs.
(i) Cash A/c Dr. 7,000
To Interest A/c 7,000
(Being interest paid)
(ii) Mohan Dr. 10,000
To Purchases A/c 10,000
(Being purchase of goods from Mohan)
(iii) Hari Dr. 5,000
To Sales A/c 5,000
(Being credit sale of goods to Hari)
(iv) Mukesh Dr. 1,000
To Bank A/c 1,000
(Being salary paid to Mukesh)
(v) Freight A/c Dr. 1,000
To Cash A/c 1,000
(Being freight paid)
(vi) Repair A/c Dr. 1,000
To Cash A/c 1,000
(Being charges paid for overhauling an
old machine purchased)
(vii) Cash A/c Dr. 200
To Rakesh 200
(Being an amount of debt which was
written off as bad debt last year, is
received during the year)
(viii) Purchases A/c Dr. 1,000
To Hari 1,000
(Being goods sold to Hari earlier, now
returned by him)
Q3. Why and how is a bank reconciliation statement prepared?
Q4. 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) Balance as per Pass Book on 31 December, 1995, O/D Rs 1,027.
(ii) 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) Interest on O/D not entered in Cash Book Rs 51.
(iv) 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.
(v) Cost of cheque book, Pass Book, etc; Rs 1.50 entered twice erroneously in Cash Book in November.
(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) (viii)Bank charges of Rs 5 had been debited in the pass book twice erroneously.
Q5. A firm had the following Balances on 1 January 1994:
(i) Provision for bad and doubtful debts Rs 2,500
(ii) Provision for discounts on debtors Rs 1,200
(iii) Provision for discounts on creditors 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.
PART - C
Q1. From the following details, compute the amount of current assets to be shown in the company's balance sheet as per schedule VI:
Cash 48,000
Debtors 50,000
Stock 60,000
Trade-creditors 60,000
Land 20,000
Investments 40,000
Interest accrued on investments 5,000
Loose tools 10,000
Q2. What is meant by financial reporting and what are its main objectives?
Q3. Calculate the following for the years 2005 and 2006 using figures made available:
(i) Return on capital employed
(ii) Current ratio
(iii) Debt/equity ratio
(iv) Fixed assets turnover ratio
(v) Inventory turnover ratio
(vi) Earning per share
(vii) Dividend cover
BALANCE SHEET
(as on 31st December)
(Rs in lakh)
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Particulars
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2004
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2005
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2006
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Liabilities
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Share Capital: Shares of Rs. 10 each
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800
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1,000
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1,000
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Reserves and Surplus
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700
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800
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1,000
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Secured Term Loans
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800
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2,000
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2,400
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Cash Credits from Banks
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800
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1,000
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1,500
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Sundry Creditors
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1,200
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900
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1,100
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4,300
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5,700
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7,000
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Assets
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Fixed Assets: Gross Block
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2,800
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3,000
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4,000
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Less: Depreciation
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920
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1,400
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2,000
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1,880
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1,600
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2,000
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Stock
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1,520
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2,400
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2,800
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Debtors
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480
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500
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900
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Other Current Assets
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420
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1,200
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1,300
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2,420
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4,100
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5,000
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Total Assets
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4,300
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5,700
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7,000
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EXTRACTS FRM PROFIT AND LOSS ACCOUNT
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Particulars
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For year ended
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31st Dec. (Rs lakh)
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2005
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2006
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Sales
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4,800
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7,200
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Profit before Depreciation and Interest on Term Loans
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1,500
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2,400
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Depreciation
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480
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600
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Interest on Term Loans
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420
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600
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Tax
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300
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600
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Dividends
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100
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150
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4. The following figures relate to the trading activities of M/s ABC Traders Ltd for the year ending 31 March 2004.
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Particulars
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Amount (Rs)
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Sales
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5,20,000
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Opening stock
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76,250
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Purchases
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3,22,250
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Closing stock
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98,500
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Sales return
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20.000
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Selling and Distribution Expenses
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Salaries
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15,300
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Advertising
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4,700
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Travelling
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2,000
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Administrative Expenses
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Salaries
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27,000
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Rent
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2,700
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Stationery
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2,500
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Depreciation
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9,300
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Other charges
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16,500
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Provision for tax
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4,000
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Non Operating Income
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Dividend on shares
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9,000
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Profit on sales of shares
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3,000
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Non Operating Expenses
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Loss on sale of fixed asset
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4,000
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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
Q5. 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 Particulars Rs.
1996 2 Bought goods of Prasad 2,700
Jan.
3 Sold to Sharma 3,000
5 Bought goods of Lall for cash payment made by cheque 3,600
7 Took goods for personal use 200
13 Received from Zahir in full settlement 2,350
17 Paid to Soni in full settlement 2,920
22 Paid cash for stationery 50
29 Paid to Prasad by cheque 2,650
Discount allowed by him 50
30 Provide interest on capital 100
30 Rent due to Landlord 200
Journalize the Above Transactions and Post to the Ledger and Prepare a Trial Balance
CASE STUDY - 1
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:
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Calls in arrears
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7500
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Premises 300000
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300000
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Plant and Machinery
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330000
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Interim dividend paid on August 2002
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37500
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Stock 1 April 2002
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75000
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Fixtures
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7200
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Sundry debtors
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87000
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Goodwill
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25000
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Cash in hand
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750
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Cash at bank
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39900
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Purchases
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185000
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Wages
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84865
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Preliminary expenses
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5000
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General expenses
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16835
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Freight inward
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13115
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Salaries
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14500
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Directors fees
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5725
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Bad debts
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2110
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Debentures interest paid
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9000
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Subscribed and fully paid up capital
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400000
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6% Debentures
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300000
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Profit and loss A/C (Cr)
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14500
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Bills payable
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38000
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Sundry creditorS
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50000
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Sales
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415000
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General reserve
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25000
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Provisions for doubtful debts as on 1/4/2002
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3500
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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.
CASE STUDY - 2
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:
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