IMT-57: Financial Accounting

IMT - 57: FINANCIAL ACCOUNTING

PART - A

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1. Comment on the relationship between accounting and some other disciplines.

2. Journalize the following transaction:

1996						Rs.
Jan.	1	Assets	Cash			630
			Cash at Bank			23,100
			Stock of goods			26,000
			Mohan and Co.			6,750
Jan.	1	Liabilities:	Marathi and Co.			3880
			Ram			3,000
Jan.	2	Received cheque form Mohan and Co. in full settlement cheque deposited in				6,650
		bank
	3	Sold goods to Dass				1,400
	4	Sold goods to Jai Chand				1,440
		Carriage paid				35
		Sold goods to Govind for cash				3,120
	5	Bought goods from Ram				4,000
		Paid Marathi and Co. by cheque in full settlement				3,800
	6	Bought goods from Chatterjee				6,300
	7	Dass returned goods, not being up to salesman				100
		Travelling expenses paid to salesman				147
		Goods sold for cash				800
	10	Paid for stationery				66
		Postage stamps				15
	13	Returned goods to Chatterjee (not being up to specifications)				300
		(Chatterjee also admits claim for breakage of goods)				100
	15	Paid for furniture by cheque				700
	16	Goods used personally by proprietor				50
	17	Sold goods to Mohan and Co.				5,000
	19	Dass pays by cheque				1,300
	20	Cheque received from Jai Chand				1,440
	22	Bank advise Jai Chand's Cheque returned unpaid
	23	Sold goods for cash				800
	24	Cash deposited with bank				2,000
	27	Cheque sent to Chatterjee (discount allowed Rs. 50)				5,850
	29	Paid telephone charges				23
	31	Paid salaries				600
		Paid rent				300
		Bank charges				10
		Drew for personal use from bank				500
		Received claim from Mohan & Co. for defects in goods supplied to them :				150
		Claim admitted

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)

Particulars	Dr.	Cr.
	Rs.	Rs.
Stock on 1.1.1995
Raw materials		2,000
Work-in-process		5,000
Finished goods		10,000
Manufacturing waegs		10,000
Purchases of raw materials		30,000
Factory rent		5,000
Carriage of raw materials		3,000
Salary of the works managers		2,000
Office rent		2,000
Printing and stationery		1,000
Bad debts		1,000
Sales			60,000
Land and buildings		30,000
Plant and machinery		20,000
Depreciation on plant		2,000
Sundry debtors		5,000
Sundry creditors			30,000
Cash in hand		5,000
Capital			43,000
		133,000	133,000

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)

Particulars	2004	2005	2006
Liabilities
Share Capital: Shares of Rs. 10 each	800	1,000	1,000
Reserves and Surplus	700	800	1,000
Secured Term Loans	800	2,000	2,400
Cash Credits from Banks	800	1,000	1,500
Sundry Creditors	1,200	900	1,100
	4,300	5,700	7,000
Assets
Fixed Assets: Gross Block	2,800	3,000	4,000
Less: Depreciation	920	1,400	2,000
	1,880	1,600	2,000
Stock	1,520	2,400	2,800
Debtors	480	500	900
Other Current Assets	420	1,200	1,300
	2,420	4,100	5,000
Total Assets	4,300	5,700	7,000

EXTRACTS FRM PROFIT AND LOSS ACCOUNT

Particulars	For year ended
	31st Dec. (Rs lakh)
	2005	2006
Sales	4,800	7,200
Profit before Depreciation and Interest on Term Loans	1,500	2,400
Depreciation	480	600
Interest on Term Loans	420	600
Tax	300	600
Dividends	100	150
4. The following figures relate to the trading activities of M/s ABC Traders Ltd for the year ending 31 March 2004.
Particulars		Amount (Rs)
Sales		5,20,000
Opening stock		76,250
Purchases		3,22,250
Closing stock		98,500
Sales return		20.000
Selling and Distribution Expenses
Salaries		15,300
Advertising		4,700
Travelling		2,000
Administrative Expenses
Salaries		27,000
Rent		2,700
Stationery		2,500
Depreciation		9,300
Other charges		16,500
Provision for tax		4,000
Non Operating Income
Dividend on shares		9,000
Profit on sales of shares		3,000
Non Operating Expenses
Loss on sale of fixed asset		4,000

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:

	Calls in arrears	7500
	Premises 300000	300000
	Plant and Machinery	330000
	Interim dividend paid on August 2002	37500
	Stock 1 April 2002	75000
	Fixtures	7200
	Sundry debtors	87000
	Goodwill	25000
	Cash in hand	750
	Cash at bank	39900
	Purchases	185000
	Wages	84865
	Preliminary expenses	5000
	General expenses	16835
	Freight inward	13115
	Salaries	14500
	Directors fees	5725
	Bad debts	2110
	Debentures interest paid	9000
	Subscribed and fully paid up capital	400000
	6% Debentures	300000
	Profit and loss A/C (Cr)	14500
	Bills payable	38000
	Sundry creditorS	50000
	Sales	415000
	General reserve	25000
	Provisions for doubtful debts as on 1/4/2002	3500

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:

Details	Rs.	Credits	Rs.
Buildings	2,90,000	Sales	5,20,000
Machinery	1,00,000	Salaries Outstanding	2,000
Closing Stock	90,000	Provision for Bad Debts
Purchase (adjusted)	2,10,000	(1.4.2005)	3,000
Salaries	60,000	Equity Share Capital	2,00,000
Directors' Fees	10,000	General Reserve	40,000
Rent	26,000	Profit and Loss	25,000
Depreciation	20,000	Sundry Creditors	92,000
Bad Debts	6,000	Depreciation on:
Interest Accrued on	2,000	Building 50,000
Investment		Machinery 55,000	1,05,000
12,000 Shares of A LTD of	1,20,000	14% Debentures	2,00,000
Rs. 10 each Rs. 8 paid-up
Debenture Interest	28,000	Interest on Debentures
Loose Tools	23,000	accrued but not due	14,000
Advance Tax	60,000	Interest on Investment	12,000
Sundry Expenses	18,000	Unclaimed Dividend	5,000
Sundry Debtors	1,25,000
Bank	30,000
	12,18,000		12,18,000

You are required to prepare Trading and Profit and Loss Account for the year ending 31 March, 2006 and Balance Sheet as at that date after taking into consideration the following information:

(i) Closing stock is more than opening stock by Rs 30,000

(ii) Provide for doubtful debts @ 4% on debtors

(iii) Make a provision for income tax for Rs76,000

(iv) Depreciation expenses includes depreciation of Rs 8,000 on buildings and that of Rs 12,000 on machinery

(v) The directors recommended a dividend @25%

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