Maa Assignment.docx

Gaurav Kumar (EPGDM Term1) 33rd Batch

Question1: State the accounting assumption or principle that describes each of the given situations. Situation 1 – Person and business transactions are separately maintained Solution: Accounting Entity Concept (Assumption) A company is considered a separate “living” enterprise, apart from its owners. In other words, a corporation is a “fictional” being:  It has a name.  It has a birth date and birthplace (referred to as incorporation date and place, respectively).  It is engaged in clearly defined activities.  It regularly reports its financial health (through financial reports) to the general public.  It pays taxes.  It can file lawsuits.

Situation 2 - Inventory is recorded at its purchase price Solution: Consistency Concept (Assumption) Companies can choose among several different accounting methods to measure the monetary value of their inventories. What matters is that a company consistently applies the same inventory method across different fiscal years.

Situation 3 - The death of the chief executive officer of the company is not recorded in accounts. Solution: Money Measurement Concept (Assumption) Financial statements have limitations; they show only measurable activities of a corporation such as its quantifiable resources, its liabilities (money owed by it), amount of taxes facing it, and so forth. For example, financial statements exclude:  Internally developed trademarks and patents (think of Coke, Microsoft, General Electric)—the value of these brands cannot be quantified or recorded.  Employee and customer loyalty—their value is undeterminable. Since financial statements show only measurable activities of a company, they must be reported in the national monetary unit: U.S. financial statements are reported in U.S. dollars (Exhibit 2.2); European financial statements now use the euro as a standard monetary unit.

Situation 4 - In case of doubt, it is considered better to understate rather than overstate income. Solution: Conservatism (Principles)

Financial statements should be prepared with a downward measurement bias. Assets and revenues should not be overstated, while liabilities and expenses should not be understated.

Situation 5 - Assets are not stated at their liquidation value 1|Page

Gaurav Kumar (EPGDM Term1) 33rd Batch

Solution: Cost Concept (Assumption) The fundamental concept of accounting closely related to the going concern concept is that an asset is recorded in the books at the price paid to acquire it and that this concept is the basis for all subsequent accounting for the assets.

Situation 6 - Financial Statements are prepared on an annual basis Solution: Accounting Period Concept (Assumption) Normally accounting period adopted is one year as it helps to take any corrective action, to pay income tax, to absorb the seasonal fluctuations and for reporting to the outsiders. A period of more than one year reduces the utility of accounting data.

Situation 7 - Expenses are recognized in the same period as the related revenues Solution: Matching Concept of accrual Accounting (Principle) Under the accrual basis of accounting, expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid.

Situation 8 - Revenue is recognized when it is earned and expense is recognized when it is incurred Solution: Revenue Recognition of accrual Accounting (Principle) Accrual basis of accounting dictates that revenues must be recorded when earned and measurable.

Situation 9 - The accounting records only events that affect the financial position of the entity and at the same time can be reasonably determined in monetary terms. Solution: Money Measurement Concept Financial statements should be prepared with a downward measurement bias. Assets and revenues should not be overstated, while liabilities and expenses should not be understated.

Situation 10 - Same treatment is given to comparable transactions from period to period Solution: Consistency For each company, the preparation of financial statements must utilize measurement techniques and assumptions that are consistent from one period to another.

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Gaurav Kumar (EPGDM Term1) 33rd Batch

Question 2: The manager of a company who did not have proper accounting knowledge prepared the following balance sheet. He has wrongly classified the items under assets, liabilities and owners’ equity. Owner’s Equity Liabilities Share Capital Equipment Cash

and

Balance Sheet Rs Assets 10,00,000 9,00,000 2,00,000

Retained Earnings Land and Buildings Long – term loan Accounts Payable Accounts Receivables

21,00,000

Rs 5,00,000 7,00,000 4,00,000 2,00,000 3,00,000 21,00,000

Required: Prepare the correct Balance sheet Solution: Owner’s Liabilities

Equity

and

Balance Sheet Rs Assets

Rs

Share Capital

1000000

Equipment

900000

Retained Earnings

500000

Cash

200000

Accounts Payable

200000

Land and Buildings

700000

Long – term loan

400000

Accounts Receivables

300000

2100000

2100000

Question 3: Using Accounting Equation, Answer the following independent Questions A) New Company’s assets are Rs 250 Lakh and its external liabilities are of Rs 100 Lakh, determine the amount of owner’s Equity. Solution: Owner’s Equity = Company’s Assets – External Liabilities = 250 Lakh – 100 Lakh = 150 Lakh Owner’s Equity = 150 Lakh

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Gaurav Kumar (EPGDM Term1) 33rd Batch

B) Royal Industries has total assets of Rs 100 Lakh and owners’ Equity of Rs 70 Lakh, Compute the amount of external liabilities. Solution: Owner’s Equity = Company’s Assets – External Liabilities External Liability = Company’s Assets – Owner’s Equity = 100 Lakh – 70 Lakh = 30 Lakh External Liability = 30 Lakh

C) Small Enterprise has following amounts appearing in Balance Sheet as at 31st December, 2015: Capital Rs 50 Lakh, Reserves and undistributed profits Rs 15Lakh, and total external liabilities Rs 35 Lakh, Determine the amount of total assets. Solution: Total Assets = Capital + Reserves and undistributed + External Liabilities = 50 Lakh + 15 Lakh + 35 Lakh = 100 Lakh Total Assets = 100 Lakh

Question 4: Journalize the following transactions, Post them into ledger account and prepare a Trial Balance. 2017 March – 1 Commenced business with cash Rs.1,00,000 March – 2 Purchased goods for cash Rs. 25,000 March – 3 Purchased furniture for cash Rs. 6,000 March – 5 Purchased goods from Suresh on credit Rs. 5,000 March – 7 Sold goods for cash Rs. 30,000 March – 10 Sold goods to Mahesh on credit Rs. 25,000 March – 12 Returned goods to Suresh Rs. 500 March – 13 Mahesh returned us goods worth Rs. 500 March -15 Paid Rs. 4,450 to Suresh by cheque in full settlement of his account March – 20 Received a cheque of Rs. 24,450 from Mahesh and gave a discount of Rs. 50 March – 25 Withdrew cash for personal use Rs. 2,500 March – 28 Paid rent of Rs. 5,000 and Salary Rs. 6,000 by cheque

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Gaurav Kumar (EPGDM Term1) 33rd Batch

Solution: Journal Entry For the Month of March 2017 Date Particular Mar-01 Cash A/C

LF ...Dr

Dr. (Amt Rs.)

Cr. (Amt Rs.)

1,00,000

To Capital A/C

1,00,000

(Being Capital brought in)

Mar-02 Purchase A/C

...Dr

25,000

To Cash A/C

25,000

(Being Goods purchased by cash)

Mar-03 Furniture A/C

...Dr.

6,000

To Cash A/C

6,000

(Being Furniture purchased by cash)

Mar-05 Purchase A/C

...Dr.

5,000

To Suresh A/C

5,000

(Being Goods purchased by credit)

Mar-07 Cash A/C

...Dr.

30,000

To Sales A/C

30.000

(Being Goods sold by cash)

Mar-10 Mahesh A/C

...Dr.

25,000

To Sales A/C

25,000

(Being Goods sond by credit)

Mar-12 Suresh A/C

...Dr.

500

To Purchase Return A/C

500

(Being Goods returned to Suresh)

Mar-13 Sales Return A/C

...Dr.

500

To Mahesh A/C

500

(Being goods returned by Mahesh)

Mar-15 Suresh A/C

...Dr.

4,500

To Bank A/C

4,450

To Discount A/C

50

(Being Payment made and discount received from Suresh

Mar-20

Bank A/C

...Dr.

24,450

Discount A/C

...Dr.

50

To Mahesh A/C

24,500

(Being Payment received and discount allowed to Mahesh)

Mar-25 Drawings A/C

...Dr.

2,500

To Cash A/C

2,500

(Being amount withdrawn by proprietor)

Mar-28 Rent A/C

...Dr. To Bank A/C

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5,000 5,000

Gaurav Kumar (EPGDM Term1) 33rd Batch

(Being Rent paid for the Month of March 2017)

Mar-28 Salary A/C

...Dr.

6,000

To Bank A/C

6,000

(Being Salery paid for the month of March 2017) Total

2,34,500

2,34,500

Ledgers: Dr. Date Particular Mar-31 To Balance b/d

Capital A/C JF Amt Date Particular 100000 Mar-01 By Cash

Total

Dr. Date Particular Mar-01 To Capital Mar-07 To Sales

100000

JF

Total

Dr. Date Particular Mar-20 To Mahesh

Total

Dr. Date Particular Mar-02 To Cash Mar-05 To Suresh Total

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Cash A/C Amt Date 100000 Mar-02 30000 Mar-03 Mar-25 Mar-30 130000

JF

Bank A/C Amt Date 24450 Mar-15 Mar-28 Mar-28 Mar-31 24450

Cr. JF Amount 100000

Total

Particular By Purchase By Furniture By Drawings By Balance b/d

100000

JF

Total

Particular By Suresh By Rent By Salary By Balance b/d Total

Purchase A/C JF Amt Date Particular 25000 Mar-31 By Balance b/d 5000 30000 Total

Cr. Amount 25000 6000 2500 96500 130000

JF

JF

Cr. Amount 4450 5000 6000 9000 24450

Cr. Amount 30000 30000

Gaurav Kumar (EPGDM Term1) 33rd Batch Dr. Date Particular Mar-31 To Balance b/d

Sales A/C JF Amt Date Particular 55000 Mar-07 By Cash Mar-10 By Mahesh

Total

Dr. Date Particular Mar-03 To Cash

55000

JF

Dr. Date Particular Mar-31 To Balance b/d

6000

Dr. Date Particular Mar-13 To Mahesh

500

JF

Dr. Date Mar-12 Mar-15 Mar-15

Particular To Purchase Return To Bank To Discount

500

Dr. Date Particular Mar-10 To Sales

Total

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5000

JF

Mahesh A/C Amt Date 25000 Mar-13 Mar-20 Mar-20 25000

JF

Cr. Amount 500 500

JF

Cr. Amount 500 500

JF

Total

Particular By Sales Return By Bank By Discount Total

Cr. Amount 6000 6000

Total

Suresh A/C JF Amt Date Particular 500 Mar-05 By Purchase 4450 50

Total

JF

Total

Sales Return A/C Amt Date Particular 500 Mar-31 By Balance b/d

Total

55000

Total

Purchase Return A/C JF Amt Date Particular 500 Mar-12 By Suresh

Total

JF

Total

Furniture A/C Amt Date Particular 6000 Mar-31 By Balance b/d

Total

Cr. Amount 30000 25000

Cr. Amount 5000

5000

JF

Cr. Amount 500 24450 50 25000

Gaurav Kumar (EPGDM Term1) 33rd Batch Dr. Date Mar-20

Particular To Mahesh

JF

Total

Dr. Date Particular Mar-25 To Cash

50

JF

Total

Dr. Date Mar-28

Particular To Cash

JF

Total

Rent A/C Amt Date 5000 Mar-31 5000

JF

Particular By Suresh

JF

Total

Cr. JF Amount 2500

Total

2500

Particular By Balance b/d

JF

Total

Cr. Amount 5000 5000

Salary A/C Amt Date Particular 6000 Mar-31 To Balance b/d 6000

Cr. Amount 50 50

Drawings A/C Amt Date Particular 2500 Mar-31 By Balance b/d 2500

Total

Dr. Date Particular Mar-28 By Cash

Discount A/C Amt Date 50 Mar-15

Cr. JF Amount 6000

Total

6000

Trial Balance:

Trial Balance Account Title Capital A/C Purchase Cash Furniture Sales Purchase return Sales Return Drawings Rent Salary Bank Total

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Dr

Cr 100000 30000 96500 6000 55000 500 500 2500 5000 6000 9000 155500

155500