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Business Accounting-2-July-Dec-14

Business Accounting-2-July-Dec-14

Section A (20 Marks)

Write short notes on any four of the following:

  1. Reconstruction of Companies
  2. Slip System of Posting
  3. Problems to Inflation Accounting
  4. HRA in Indian Corporate Sector
  5. Consolidate Funds

Section B (30 marks)

(Attempt any three)

1.      Explain the types of insurance business. Prepare a revenue account of Insurance Company with imaginary figures as per new Form of IRDA.

2.      Ravi Raghav Co. Ltd. passed the necessary resolution and received sanction of the court for the reduction of its share capital by Rs.2,50,000 for the purposes enumerated hereunder: (a) To write off the debit balance of profit and loss account Rs. 1,05,000. (b) To reduce the value of plant and machinery by Rs. 45,000 and of goodwill by Rs. 20,000. (c) To reduce the value of investment to market value by writing off Rs. 40,000. The reduction was made by converting 25,000 preference shares of Rs. 20 each fully paid to the same number of preference shares of Rs. 15 each fully paid and by converting 25,000 equity shares of Rs. 20 each, Rs. 15 paid up into 25,000 equity shares of Rs. 10 each fully paid. Give journal entries necessary in relation to the reduction of share capital and show how you would deal with the balance of the reduction of share capital account.

3.      Following are the Balance Sheets of X Ltd. and Y Ltd. as on 31st December, 2012 on which date X Ltd. acquires 75% shares of Y Ltd. on the:

 

Prepare the consolidated Balance Sheet.

4.      What do you mean by Responsibility Centers? Explain the different types of Responsibility Centers. 

 

Section C (50 marks)

(Attempt all questions. Every question carries 10 marks)

Read the case “Creative Promotion Company” and answer the following questions:

Case Study: Creative Promotion Company

Mr. Bhatt is a young man of bright ideas. Although he is employed as an engineer in one of the large engineering concerns in Lahore (Pakistan), he spends all his spare time developing new products in his private laboratory at home.

 Currently, he has commercially perfected a domestic appliance called Lavex, which would be a great convenience kitchen not help to housewives. He is not interested in manufacturing and selling his new products; his only interest in developing new products is to make money by way of selling patent rights to some established concerns.

However, he releases that till he succeeds in selling the patent rights at price he expects, he has to manufacture and sell the new products on ad hoc basis so as to demonstrate the commercial superiority of his products and thereby to induce the parties to buy the patents from him. With this objective, he is currently thinking of manufacturing and selling 'Lavex'.

He will not give up his full-time job; he will supervise and guide 'Lavex' production and sales during his spare time.

He is continuously maintains quality in audit administration with the clients since its early inception. He is eagerly looking for promising students who are having greater aspirations to become accounting. He has an objective of recruiting freshers to conduct preliminary accounting process with their corporate clients.

For this, the he would like to select the right person who is having conceptual knowledge as well as application on the subjects. It has given the following balance sheet to the participants to study the conceptual applications. The participants are required to enlist the various concepts and conventions of accounting.

Bhatt has already spent Rs.30,000 in developing the product. He proposes to buy the component from other parties and keep the production activity to a minimum. The minimum equipment required would cost Rs.11, 000. He would need to rent a small place for Rs.1,200 per month for production. He proposes to use his residence as office for sales activity.

Bhatt proposes to introduce the product in Chennai city only. His sales projections are as follows:

January            60

February          40

March              110

April                140

May                 220

June                 180

He is not interested in pushing sales beyond 220 units per month as he cannot cope with the production. He has budgeted Rs.20,000 for sales promotion, which will be spent mostly for demonstration in leading department stores in the city. The promotion budget is scheduled as follows:

January            7,000

February          7,000

March              3,000

April                3,000

This selling price per unit will be Rs.280 and the dealers will be given 15% trade discount. He calculates that about 50 units will be needed for "demonstration and display" in the leading stores at his cost.

Although the sales to dealers will be made on one month's credit, he knows that the actual collections will be realized in about 4 week’s time. He rules out cash sales. Assembling is the activity in the production process. Components and materials which will be purchased from outside parties strictly on 30 days credit will cost Rs.160 per unit. Wages per month will be Rs.6000. The production capacity per month will be 220 units. Wages will be paid weekly. Overhead expenses are estimated at Rs.2,800 per month. Materials and components need to be ordered at least one month in advance. There will be inventory of finished goods or goods in process as the production will be strictly against firm orders. Bhatt proposes to employ a full-time production, sales supervisor for Rs.880 per month. Mr Bhatt wants to know how much finance will be needed for his first six months operation and when, so that he may plan accordingly.

 

 

Questions

  1. Discuss the nature of the financial problem involved in the above case.
  2. Prepare the monthly cash budget for the first six-month period of the proposed venture.
  3. How can the above-mentioned problem be sorted out?
  4. How does Mr. Bhatt used to spend his spare time?
  5. What are the advantages of preparing cash budget? 
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