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Financial Accounting-NMIMS Dec 17

Financial Accounting-NMIMS Dec 17

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Q1. The following is the Trial Balance as on 31st March 2017 prepared by GSA Ltd. (Rs. in crores)

Particulars                                                                         Debit ( )               Credit ( )

Capital                                                                                  6,000

Drawings                                                                                                            1,000

Cash on hand                                                                     50

Cash at bank                                                                                                      1,250

Sales                                                                                                                  10,000

Purchases                                                                                                           4,000

Loan taken on mortgage                                              1,000

Patents                                                                                                                500

Land & building                                                               3,000

Creditors                                                                                                             500

Advertisement                                                                 5,000

Debtors                                                                               1,800

Rates & taxes                                                                     40

Insurance                                                                           150

Carriage inwards                                                             260

Carriage outwards                                                                                          250

Legal expenses                                                                 200

Total                                                                                   17,500                  17,500

However the auditors of GSA Ltd. did not approve of this trial balance. You are required to rectify and prepare the new trial balance. Justify your answer as to which errors can be detected through the trial balance.

 

 

Q2. Classify the following into revenue, capital and deferred revenue expenditure and interpret your results: (10 Marks)

1. Amortisation of Patents

2. Goodwill of another business acquired

3. Underwriting commission paid in a public issue of company’s shares

4. Loss on sale of Plant and Machinery

5. Cost of market research of a new product

6. Purchase of second-hand laptops for office use

 

Q3. Following are the balance sheets of Suzuki Ltd. & Honda Ltd. as on 31st March 2017 together with the additional information for the year ended on that date:

Liabilities

Suzuki Ltd.

Honda Ltd.

Assets

Suzuki Ltd.

Honda Ltd.

Equity Share

Capital

20,00,000

30,50,000

Goodwill

300,000

400,000

Reserves

50,500

60,000

Furniture

3,20,000

2,40,000

 

Profit & Loss

A/c

12,250

1,02,200

Plant &

 Machinery

659,000

7,29,000

9% Debentures

3,50,000

2,50,000

Office premises

10,27,000

19,00,000

Bank overdraft

11,250

14,800

Stock

66,000

93,000

Sundry Creditors

36,000

58,000

Debtors

85,000

1,75,000

Provision for tax

20,000

15,000

Miscellaneous

 expenses

23,000

13,000

 

 

24,80,000

35,50,000

 

24,80,000

35,50,000

 

Additional Information (Extract of Profit & Loss A/c)

Particulars                                                         Suzuki Ltd.                         Honda Ltd.

Sales for the year                                            8,40,000                              10,50,000

Stock on 31st March 2016                          60,000                                  1,07,000

Gross Profit                                                    2,10,000                              2,50,000

Administrative expenses                             55,000                                  65,000

Selling expenses                                             23,000                                  58,000

Net profit (after tax)                                     85,000                                  87,000

Market price of Suzuki Ltd. Rs. 23 per share and Honda Rs. 28 per share. Dividend paid by Suzuki Ltd. 9.5% p.a. and Honda is 9.8% p.a.

A) Compute any three relevant ratios and comment upon the solvency and financial stability of the two companies. (5 Marks)

B) Which company would you recommend for investment? (Support your answers with the computation of any three relevant ratios). (5 Marks)

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