Mb0025

Name

: PRASHANT D. DEVALE

Roll Number

: 510932455

Learning Centre Andheri

: ASSIGNMENT KARROX TECHNOLOGIES LTD, MBA

Subject code: MB0025 (3 Credits) SET 1

Subject Accounting

MARKS 60and Management : Financial

Financial and Management Accounting

Date Of Submission : 13th June, 2009

Assignment No. : MB0025

FINANCIAL AND MANAGEMENT MB0025 SET-1 1. Explain the differences between Financial Accounting and Management Accounting. Answer:- c o m p a r i s o n o f f i n a n c i a l a n d m a n a g e m e n t

accounting There are two broad types of accounting information: • Financial Accounts: geared toward external users of accounting information • Management Accounts: aimed more at internal users of accounting information Although there is a difference in the type of information presented in financial and management accounts, the underlying objective is the same - to satisfy the information needs of the user.

Financial Accounts

Management Accounts

Financial accounts describe the performance of a business over a specific period and the state of affairs at the end of that period. The specific period is often referred to as the "Trading Period" and is usually one year long. The period-end date as the "Balance Sheet Date"

Management accounts are used to help management record, plan and control the activities of a business and to assist in the decision-making process. They can be prepared for any period (for example, many retailers prepare daily management information on sales, margins and stock levels).

Companies that are incorporated under the There is no legal requirement to prepare Companies Act 1989 are required by law to management accounts, although few (if any) prepare and publish financial accounts. The well-run businesses can survive without them. level of detail required in these accounts reflects the size of the business with smaller companies being required to prepare only brief accounts.

Financial Accounts

Management Accounts

The format of published financial accounts is There is no pre-determined format for determined by several different regulatory management accounts. They can be as detailed elements: or brief as management wish. • Company Law • Accounting Standards • Stock Exchange Financial accounts concentrate on the business as a whole rather than analysing the component parts of the business. For example, sales are aggregated to provide a figure for total sales rather than publish a detailed analysis of sales by product, market etc.

Management accounts can focus on specific areas of a business' activities. For example, they can provide insights into performance of: • Products • Separate business locations (e.g. shops) • Departments / divisions

Most financial accounting information is of a Management accounts usually include a wide monetary nature variety of non-financial information. For example, management accounts often include analysis of: - Employees (number, costs, productivity etc.) - Sales volumes (units sold etc.) − Customer transactions (e.g. number of calls received into a call centre) By definition, financial accounts present a historic perspective on the financial performance of the business

Management accounts largely focus on analyzing historical performance. However, they also usually include some forward-looking elements e.g. a sales budget; cash-flow forecast

2. Hiran, a retailer, has prepared the following balance sheets for the years ending 31st March 2004 and 2005:

Balance Sheets as on 31st March, 2004 and 2005 Particulars Freehold property at cost Furniture 32000 Less depreciation Current Assets:

2004 200000

2005 200000 30000

23200

8000

20000

10000

Stock

36000

34000

Debtors and prepayments

50000

34000

Cash in hand and at bank Liabilities:

4000

2000

254800

260000

24000

20000

Capital Trade and accrued expenses

Loan account 20000 ------Total 298800 280000 Other data: The net profit for the year 2004 was Rs.40000. Hiran is paid a salary of Rs.16,000. His drawings amounted to Rs.45,200. You are required to prepare a statement of changes in financial position, on working capital basis. Answer:Changes in working capital

Current Asset

2004

2005

stock

36000

34000

-

2000

Debt

5000

34000

-

16000

Cash

4000

2000

-

2000

24000

20000

Lab Exp Decrease in working capital

Increase

Decrease

4000 16000

20000

20000

3. Enter the following transactions in proper subsidiary book. Find out the total of: a) Purchase book b) sales book c) purchase return book d) sales return book.

Jan 1

Purchase goods from Karthik

34000

5

Sold goods to Vinay

12000

7

Sold goods to Nagaraj

10000

10

Bought goods from Vikas

12

Bought goods from Naveen

14

Vinay returned goods

15

Bought goods from Brinda

100000

18

Returned goods to Karthik

4000

19

Returned goods to Naveen

8000

20

Sold goods to Gururaj worth Rs. 20000 subject to a trade discount of 25%

22

Nagaraj returned goods

25

Bought goods from Anand

40000 102000 3000

2000 45000

Answer:Purchase book:Particulars

Amount

To Kartihik To Vikas To Naveen To Brinda To Anand

34000 40000 10200 100000 45000

Particulars

Amount

By bal c/d

321000

321000

321000

Sales book :To Bal c/d

42000

42000

Sales Return:-

To Vinay By Nagraj By gawarang By discount A/c

12000 1000 15800 4200 42000

To Vinay To Nagraj

3000 2000 By Bal c/d

5000

5000

5000

Purchase Return :By Karthik By Naveen To Bal c/d

12000 12000

4000 8000

12000

4a. On 01-04-2007 Mr. Gundu Rao stated business with Rs. 3, 00,000 cash and opened a bank account with Rs. 1,50,000. He purchased furniture for his business for Rs. 25000. Goods were bought from selvaraj for Rs. 50000 on credit. He sold goods for Rs. 27000 in cash and Rs. 30000 on credit. He paid Rs. 2500 for business expenses during April month. Rs. 10000 was withdrawn for office purpose form the back. Find out the closing balance of cash and bank. Answer:Cash / Bank A/c Particulars To opening balance To opening bank A/c To Sales Account A/c

Amount 300000 18000 27000

Particulars By purchase By business Exp

25000 2500

By withdrawals

10000

By Bal c/d 477000

4b.

Amount

439000 477000

Following are the extracts from the Trial Balance of a firm as on 31st December 1998:

TRIAL BALANCE As on 31st December 1998 Particulars Salaries A/c Rent a/c Additional Information:

Dr. 10,000 5,000

I.

Salary for the month of December Rs.2000 has not yet been paid.

II.

Rent amounting to Rs.1000 is still outstanding

Cr.

You are required to pass the necessary adjusting entries and show how the above items will appear in the Firm’s Account Answer:-

Profit & Loss A/c Particular To salary (+)Outstanding To Rent (+) Outstanding 1000

Amt.

Particul ar

Am t.

10000 2000

1200 0

5000 6 000

5. From the following figures extracted from the book if Shri Govind, you are required to prepare a Trading and Profit & Loss Account for the year ended 31st March, 1999 and a Balance Sheet as on that date after making the necessary adjustment. Particulars Shri Govind’s Capital Shri Govind’s Drawings Plant and Machinery Freehold Property Purchases Returns Outwards Salaries

Amount Rs 228800 13200 99000 66000 110000 1100 13200

Particulars Stock 1.4.1999 wages Sundry Creditors Postage and Telegrams Insurance Gas and Fuel Bad Debt

Amount Rs. 38500 35200 44000 1540 1760 2970 660

Office Expenses Office Furniture Discounts A/c (Dr.) Sundry Debtors Loan to Shri Krishna @ 10% p.a. –balance on

2750 5500 1320 29260 44000

Office Rent Freight Loose Tools Factory Lighting Provision for D/D

2860 9900 2200 1100 880

Interest on loan to Shri

1100

1.4.1999

Cash at Bank Biils Payable

Krishna 29260 Cash in Hand 5500 Sales

2640 231440

Adjustments 1. Stock on 31st March, 1999 was valued at Rs. 72,600 2. A new machine was installed during the year costing Rs. 15,400, but it was not recorded in the books as no payment was made for it. Wages Rs. 1,100 paid for its erection has been debited to wages account. 3. Depreciate: Plant and Machinery by 33 1/3 % Furniture by 10% Freehold property by 5% 4. Loose tools were valued at Rs. 1,760 on 31.3.1999. 5. Of the Sundry Debtors Rs. 600 are bad and should be written off. 6. Maintain a provision of 5% on Sundry Debtors for doubtful debts. 7. The manager is entitled to a commission of 10% of the net profits after charging such commission.

Answer:

Trading of Profit and Loss a/c for year ended 31-3-99 Particular Amt. Particular Amt. 3850 By Sales To Opening Stock 0 231440 1100 (-)Retn. O/S 2303 To Purchases 00 1100 40 To Wages 35200 3410 (-)Inst. 1100 0 To Gas&Fuel 2970 7260 To Fright 9900 By Closing Stock 0 To Factory Light 1100 1063 To Gross c/d 20

To Salary To Ofiice Exp. To Discount To Postage & Tele To Insurance To bad debt 660 (+) FBD 600 1260 (+) NRDD 1433 2693 (-)ORDD 880 To Office rent To loose tools rev To Depn Nac To Depn Furniture To Depn freehold To comm. To Net Profit

3029 40

3029 40

1320 0 By Gross Profit b/d 2750 1320 By Interest fee 1540 1760

1063 70 1100

1813 2850 440 3880 0 550 3300 4381 3505 6 1074 70

1074 70

Libalities Amt. Capital 228800 (-) Drawings 13200 215600 (+)Net Profit 25065 35056 6

Bills Payble Creditors

Suspense account

Asssets Amt. Plants & Machin 99000 (+) Add on Mach 15400 114400 (+) Inst. 1100 115500 (-) Depn. 33.33% 38800 77000

Freehold prop. 8800 66000 (-) Depn 5% 44000 3300

6628 1

62700

Furniture 5500 (-)Depn 10% 550

4950

Loan Given Interest Receivable

44000 3300

Cash

29260

Closing Stock

72600

Cash in hand Loose tools 2200 Revolution 440 Debtors 29260 (-) NBD 600

2640

28660 (-)RDD 5% 1433 3697 37

27227 3697 37

6. Differentiate between Standard Costing & Budgetary Control Answer:- Standard Cost Accounting : In modern cost accounting, the concept of recording historical costs was taken further, by allocating the company's fixed costs over a given period of time to the items produced during that period, and recording the result as the total cost of production. This allowed the full cost of products that were not sold in the period they were produced to be recorded in inventory using a variety of complex accounting methods, which was consistent with the principles of GAAP (Generally Accepted Accounting Principles). It also essentially enabled managers to ignore the fixed costs, and look at the results of each period in relation to the "standard cost" for any given product. For example: if the railway coach company normally produced 40 coaches per month, and the fixed costs were still $1000/month, then each coach could be said to incur an overhead of $25 ($1000/40). Adding this to the variable costs of $300 per coach produced a full cost of $325 per coach. This method tended to slightly distort the resulting unit cost, but in massproduction industries that made one product line, and where the fixed costs were relatively low, the distortion was very minor. For example: if the railway coach company made 100 coaches one month, then the unit cost would become $310 per coach ($300 + ($1000/100)). If the next month the company made 50 coaches, then the unit cost = $320 per coach ($300 + ($1000/50)), a relatively minor difference. An important part of standard cost accounting is a variance analysis which breaks down the variation between actual cost and standard costs into various components (volume variation, material cost variation, labor cost variation, etc.) so managers can understand why costs were different from what was planned and take appropriate action to correct the situation. Budgetary Control

A) Budgetary control: • A control technique whereby actual results are compared with budgets. • Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets. Budgetary control and responsibility centres; These enable managers to monitor organisational functions. A responsibility centre can be defined as any functional unit headed by a manager who is responsible for the activities of that unit. There are four types of responsibility centres: a) Revenue centres Organisational units in which outputs are measured in monetary terms but are not directly compared to input costs. b) Expense centres Units where inputs are measured in monetary terms but outputs are not. c) Profit centres Where performance is measured by the difference between revenues (outputs) and expenditure (inputs). Inter-departmental sales are often made using "transfer prices". d) Investment centres Where outputs are compared with the assets employed in producing them, i.e. ROI. Advantages of budgeting and budgetary control There are a number of advantages to budgeting and budgetary control: • Compels management to think about the future, which is probably the most important feature of a budgetary planning and control system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organization purpose and direction. • Promotes coordination and communication.

• Clearly defines areas of responsibility. Requires managers of budget centres to be made responsible for the achievement of budget targets for the operations under their personal control. • Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and noncontrollable factors. • Enables remedial action to be taken as variances emerge. • Motivates employees by participating in the setting of budgets. • Improves the allocation of scarce resources. • Economises management time by using the management by exception principle. Problems in budgeting Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly in perception terms. • Budgets can be seen as pressure devices imposed by management, thus resulting in: a) bad labour relations b) inaccurate record-keeping. • Departmental conflict arises due to: a) disputes over resource allocation b) departments blaming each other if targets are not attained. • It is difficult to reconcile personal/individual and corporate goals. • Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department. Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs. • Managers may overestimate costs so that they will not be blamed in the future should they overspend. Characteristics of a budget A good budget is characterised by the following:

• Participation: involve as many people as possible in drawing up a budget. • Comprehensiveness: embrace the whole organisation. • Standards: base it on established standards of performance. • Flexibility: allow for changing circumstances. • Feedback: constantly monitor performance. • Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centres.