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IMT-57: Financial Accounting-MT1

IMT-57: Financial Accounting-MT1

 

 

 

 

 

 

 

 

 

 

 

 

IMT - 57: FINANCIAL ACCOUNTING

PART - A

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


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