accounting for management questans
TRANSCRIPT
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CASE 1.1
MEHTA AUTOMOBILES
SUMMARY
HISTORY OF MEHTA AUTOMOBILESMr Mehta is a mechanic. Due to his excellent work, professional ability, pleasing manners and sense of responsibility, he was soon promoted to the post of a chief mechanic. Because of his abilities, his friends and relatives advised him to start his own automobile repairs shop. Therefore, after consulting with his family he accepted the offers of his friends Mr Nitin and Mr Mohan Kapoor, who offered to give a rental office in a busy street of Ahmedabad and a loan of 1,00,000 respectively to start his business.
CURRENT POSITIONMr Mehta’s business is well settled small-scale business. He has hired four more assistants in addition to earlier two and also two mechanics and a part-time salesman. He has a small office with necessary furniture, and he stores his goods at his home, which he uses as his small godown. He has also started a small spare parts selling section. He is also assisted by his son Mr Rajendra Mehta for the regular day-to-day activities.
NEW VENTUREDuring his day-to-day activities, Mr Mehta came across an advertisement in a local newspaper, which was about a company, who was in search of a well-known automobile service shop owner, for a sole selling agency of their cars and spare parts in Gujarat. Mr Mehta found this proposal profitable and thus applied for the same.
CONDITIONS OF CONTRACTThe company specified two conditions which every applying firm in order to get the contract had to fulfil. The conditions are as under:
(a) Every firm had to obtain from its bank, a certificate to the effect that a minimum balance of 5,00,000 was maintained in business account.
(b) Every firm had to submit a complete current financial position of the business and the results of immediate past period.
THE PROBLEMMr Mehta found the problem, which was to comply with the above, two conditions. The following were the difficulties, which Mr Mehta had to face in order to get the problem.
As Mr Mehta did not have any knowledge about how to prepare his financial accounts, he had not prepared any regular accounts.
His used to run his business in such a manner that each cash received was deposited in bank and was withdrawn at the time of payment, and as his business was not of a very large scale he was not able to maintain a minimum balance of Rs 5,00,000 in his business account.
Thus due to the above problems, he was not able to satisfy the two conditions laid down by the company.
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THE SOLUTIONIn order to get the contract, Mr Mehta must fulfil the above two conditions so for that he has to do the following things.
(a) Learn the basic things of recording of day-to-day transactions.(b) Collect necessary data for the preparation of last year’s financial statements.(c) Maintain a daily book to record all the day-to-day transactions of the business.(d) Appoint an accountant, who will prepare all the accounts and financial
statements from this daily book.
QUESTIONS AND ITS ANSWERS
1. Mr Mehta mentioned that(a) He could not have systematic accounting records because he did not possess
specialized accounting skill; and(b) Keeping such records would increase in costs, which he could not afford. How
would you respond to these comments?Solution:
(a) Here, as Mr Mehta’s business is not very vast, recording of day-to-day transactions does not require any specialised knowledge so he could just learn the basic fundamentals of accounting and start recording the day-to-day transactions in a daily book. This daily book can be recorded systematically by appointing an accountant (Mr Lal).
(b) In short term, recording of proper accounts will cost a bit to Mr Mehta but it will be equalized by the long-term benefits by maintaining proper books of accounts. In addition, appointing an accountant (Mr Lal) for such limited size firm would not cost very much as he will not have to be paid a very high amount for his services rendered.
2. What information would Mr Lal require for preparing the financial statements?Solution: Mr Mehta would require three types of information for preparing the financial statements, which are as under.
(a) Information related to Trading Account(i) Purchases and sales of goods
(ii) Direct expenses(iii) Closing stock of goods
(b) Information related to Profit & Loss A/c.(i) Daily revenue expenses of the firm
(ii) Daily revenue incomes of the firm(c) Information related to Balance Sheet
(i) Information related to liabilities of firm1. Share capital2. Other liabilities which include:
Reserves & Surplus Secured loan and unsecured loans Current liability Contingent liability
(ii) Information related to Assets of the business:
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1. Fixed assets 2. Investments3. Current Assets 4. Miscellaneous expenditure
3. What items would you expect to find in the statements of financial position and profit and loss analysis relating to Mr Mehta?Solution: Following are the items which may appear in the profit and loss account of Mr Mehta:
Trading Account of Mr Mehta
Particulars Amount Particulars Amount
To Opening Stock xxx By Sales xxxTo Purchase xxx By Closing Stock xxxTo Wages xxxTo Gross Profit xxx By Gross Loss xxx
Total xxxxx Total xxxxx
Profit and loss a/c of Mr Mehta
Particulars Amount Particulars Amount
To Salary of Assistants xxx By sale of Assets xxxTo Electricity Expenses xxx By Discount Received xxxTo Telephone Expenses xxx By Interest on Investment xxxTo Sundry Expenses xxxTo Discount Paid xxxTo Net Profit xxx By Net Loss xxx
Total xxxxx Total xxxxx
Balance Sheet of Mr Mehta
Liabilities Amount Assets AmountShare Capital Fixed Assets
Total ownership capital xxx Land & Building xxxReserve & Surplus Furniture xxx
Profit xxx Equipments xxxSecured Loan Investments
Mortgage Loan xxx Investments xxxUnsecured Loan Current Assets
Friend’s Loan xxx Cash Balance xxxCurrent Liability Bank Balance xxx
Bank Overdraft xxx Debtors xxxCreditors xxx Stock xxx
Total xxxxx Total xxxxx
4. What records would Mr Mehta require to maintain, for controlling his business activities?Solution. Mr Mehta would be required to maintain the following records, for controlling his business activities.
(1) Trading Account(a) It tells us what are the net purchase and net sales of the company.(b) It also specifies the direct expenditure, incurred by the company.(c) Information regarding trading account is helpful during time of calculating
the gross profit of the company.(d) Other benefits.
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(2) Profit and Loss Account(a) It specifies the various expenses made by the company.(b) It also specifies the various incomes earned by the company.(c) This account helps us to find out the net profit of the company.
(3) Balance Sheet(a) It tells the current financial position of the company.(b) It tells the total assets of the company.(c) It also tells about the total liabilities of the company.
Note: A detailed explanation of above statement has been mention in Question 3.
CONCLUSIONThus from the above case, we can conclude that the problem mentions in the case is one of the common problems which every unit faces if it does not prepare and maintain necessary accounts.
Mr Mehta is one of the persons who are suffering from various problems, which are mentioned in this case, and there are many other problems, which may occur due to non-maintenance of accounts.
Thus in order to keep away such problems, every firm big or small should always maintain its accounts in a systematic way.
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Case 2.1
Balance Sheet as on April 12, 1946
Liabilities Amount Assets Amount
Capital Fixed Assets
Mrs Bevan 2,000 Land 2,500
Mrs Maywoods 2,000 Add 2,000 4,500
Mr Maywoods 2,000 6,000 Building 10,500
Secured Loan Equipments 1,000
Mortgage loan 11,500 Current Assets
Cash (6,000 – 4,500) 1,500
Total 17,500 Total 17,500
Balance Sheet as on December 11, 1946
Liabilities Amount Amount Assets Amount Amount
Capital Fixed AssetsMrs Bevan 2000 Land 4,500Add: 400 Less: Depreciation 44.45 4,455.55
2,400Less: Loss 329.34 2070.66 Building 10,500
Less: Depreciation 233.45 10,266.55Mrs Maywood 2,000Less: Loss 329.34 1670.66 Equipments 1,000
Add: Purchase 415.95Mr Maywood 2,000 1,415.95Less: Loss 329.34 1670.66 Less: Depreciation 44.19 1,371.76
Current Assets,Secured Loan Loans & AdvancesMortgage Loan 10800
Deposit 35Current Liabilities Stock 100& Provisions Cash 65.35
Bank 9.78Bills Payable 92.01
Total 16,303.99 Total 16,303.99
SUMMARYIn the year 1946 three partners, Mr Bevan, Mr & Mrs Maywoods, started business contributing $2000 each. They also hire some amount of loan. The cafe was on the highway and frequently visited by truck drivers and voyagers. All of the partners have divided their duty by the mutual understanding.
Due to the friendly relationship between one of the partners, namely, Mrs Maywoods with a customer Fred Mead, she finally she run away with him. Mr Maywoods searched her a lot. After this event occurred, Mrs. Bevan decided to dissolve this partnership. Thus they started their business on 12th April 1946 and dissolve on 16th December 1946. The dissolution of business resulted into loss and all the partners equally shared it.
As the professional approach was a lacking factor for this partnership, finally it had to be broken up and bear a loss. After briefly analysing the case, we can say that the proper planning was not present in this partnership and they did have the scarcity of funds from the beginning.
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CASE 2.2
PREMIER ENGINEERING COMPANY LTD.
Debtors Account
Dr CrParticulars JF Amount Particulars JF AmountTo Balance b/d - 14,505,000 By Sales return - 20,000To Sales - 2,90,000,000 By Discount - 40,000
By Cash - 26,00,00,000By Balance c/f - 4,44,45,000
Total 3,04,50,000 Total 3,04,50,000
Creditors AccountDr CrParticulars JF Amount Particulars JF Amount
To Cash - 14,000,000 By Balance b/d - 1,50,00,000
To Balance c/f - 2,06,00,000 By Purchase - 14,50,00,000
By Supplies - 6,00,000
Total 16,06,00,000 Total 16,06,00,000
Cash AccountDr CrParticulars JF Amount Particulars JF Amount
To Balance b/d - 14,10,000 By Machinery - 80,00,000
To Bank - 10,00,20,000 By Insurance and tax - 9,27,000
To Debtors 26,00,000,000 By Miscellaneous - 1,00,03,000 expenditure
By Bank loan 8,00,00,000
By Creditors 14,00,00,000
By Insurance and tax 2,59,65,500
By Dividend 1,39,40,000
By Balance c/f 69,08,000
Total 36,14,30,000 Total 36,14,30,000
Loan AccountDr Cr
Particulars JF Amount Particulars JF Amount
To retirement of bank loan - 8,00,00,000 By Balance b/d - 4,00,20,000
To Balance c/f - 6,00,40,000 By Bank loan - 10,00,20,000
-
Total 16,06,00,000 Total 16,06,00,000
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Sales AccountDr Cr
Particulars JF Amount Particulars JF Amount
To Sales return & - 20,000 By Debtors - 29,00,00,000 allowances
To Sales discount - 40,000 -
To Balance c/f - 28,99,40,000 -
Total 29,00,00,0000 Total 29,00,00,000
Machinery AccountDr CrParticulars JF Amount Particulars JF Amount
To Balance b/d - 22,61,30,000 By Depreciation - 7,88,20,000
To Cash - 80,00,000 (accumulated & current year depreciation
By Balance c/f - 15,53,10,000
Total 23,41,30,000 Total 23,41,30,000
Accured TaxDr CrParticulars JF Amount Particulars JF Amount
To Balance c/f - 2,59,65,500 By Balance b/d - 2,59,65,500
Total 2,59,65,500 Total 2,59,65,500
Depreciation AccountDr CrParticulars JF Amount Particulars JF Amount
To Balance c/f - 7,88,20,000 By Balance b/d - 4,48,00,000
By P & L a/c - 3,40,20,000
Total 7,88,20,000 Total 7,88,20,000
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Trading and Profit & Loss Account
For year ending on 31st March 1983
Particulars JF. Amount Particulars JF Amount
To Opening stock - 8,32,05,000 By Sales 29,00,00,000 -
To Purchase - 14,56,00,000 Less : -
To Direct labour 2,40,50,000 Sales return 20,000 - 28,99,40,000
To Indirect labour 48,40,000 Sales discount 40,000 -
To ESIS premium 2,50,000
To Heat, light and power 35,46,000 By Closing stock ** 9,26,80,000
To Sales administrative service 4,30,00,500To Interest 1,00,03,000
To Manufacturing taxes and insurance 8,00,000
To Depreciation 3,40,20,00
To Income tax 29,348,275
To Net profit 3,957,225
Total 38,28,20,000 Total 38,28,20,000
**Calculation of Closing Stock
Opening Stock 8,32,05,000 (5,30,00,000 + 1,00,05,000 + 2,00,00,000 + 2,00,000)
Add:
Purchase 14,56,00,000
22,88,05,000
Less:
Raw Material 13,55,20,000 consumed
Supplied used 6,05,000
13,61,25,000
Closing Stock 9,26,80,000 (22,88,05,000 – 13,61,25,000)
Profit & Loss Appropriation Accountfor year ending on 31st March 1983
Particulars JF Amount Particulars JF Amount
To Provision for dividend - 1,39,40,000 By Net profit - 39,57,225
By Deficit - 99,82,775
Total 13,940,000 Total 13,940,000
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Balance Sheet as on 31st March 1983
Particulars JF Amount Particulars JF Amount
Shareholders Fund - -
Equity - 19,10,46,700 Fixed Assets
Retained earnings 84,97,800 Plant and Equipments 15,53,10,000
Secured Loans Investments
Loans 6,00,40,000
Current Liabilities & Current Assets Provisions 2,06,00,000 Loans & Advances
Creditors 2,93,48,275 Debtors 4,44,45,000
Provision for income tax Cash 69,08,000
Closing stock 9,26,80,000
Prepaid taxes and 80,000 insurance
Advance Taxes paid
9,27,000
Less :
Expired 8,00,000 1,27,000
Misc. Expenditure
Deficit 99,82,775
Total 30,95,32,775 Total 30,95,32,775
Premier Engineering Company Ltd.,General Budget for 1983
Worksheet
Assets Amount Increase in Decrease in Net ChangesAssets Assets
Cash 14,10,000 54,98,000 -- 69,08,000
Debtors 1,45,05,000 2,99,40,000 -- 4,44,45,000
Raw Materials 5,30,00,000 94,80,000 -- 6,24,80,000
Goods in Process 1,00,05,000 -- -- --
Finished Goods 2,00,00,000 -- -- --
Supplies 2,00,000 -- 5000 1,95,000
Prepaid Taxes & Insu. 80,000 -- -- --
Manufacturing Plant 22,61,30,000 -- 7,08,30,00015,53,10,000
Liabilities Amount Increase in Decrease in Net ChangesLiabilities Liabilities
Loans 4,00,20,000 2,00,20,000 -- 6,00,40,000
Creditors 1,50,00,000 56,00,000 -- 20,600,000
Accursed Taxes 2,59,65,500 -- 2,59,65,500 --
Accumulated Dep. 4,48,00,000 3,42,20,000 -- 78,820,000
Equity 19,10,46,700 -- -- --
Retained Earnings 84,97,800 -- -- --
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CASE 3.1
MASTERS FUEL OIL COMPANY
Income Statement for the year ended 31st December 1958
Particulars Amount Amount
Income from Sales & ServicesFuel oil, non-budget accountsBurner services & repairsInstallationsCredit Sales 2,39,776Closing Stock of burner parts 8,250 2,48,026Total Income 2,48,026
Cost of Sales & Services
Fuel oil deliveredBuner partsInstallationsSubcontract chargeOpening stock burner inventory parts 5,490Credit Purchases 1,58,990 1,64,480Total Cost of Sale 1,64,480
Gross Profit on Sales 83,546
Operating Expenses:
Utilities 424Add Outstanding 36 460Supplies 277Telephone 231Advertising 2,627Add Outstanding 159 2,786Property Taxes 972Office & Printing costs 1,119Fees for professional services 1,520Payroll Taxes Outstanding 490Rental of Uniforms 512Vehicles Operation 2,312Wages 9,816Miscellaneous Exp. 1,949Depreciations:Furniture & Fixture 148Delivery & Services Equipment 4,757Vehicle (Truck) 202Building 1,084 6,191
28,635
Net Profit from operation 54,911
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Master Fuel Oil CompanyBalance sheet as on 31st Dec. 1958
Liabilities Amount Assets Amount
Capital: Fixed Assets:
Leonard Master 31,295 Land 6,000
Less: Drawing 12,650 Furniture & Fixture 1,481
Profit 27,456 46,101 Less: Depreciation 566
Allowance
Louis Webster 32,185 Less: Depreciation 148 767
Less: Drawing 15,000
Profit 27,455 44,640 Delivery & Services 23,786
Equipment
Add: Purchase (Truck) 12,133
35,919
Less: Depreciation 9,787
Allowance
Less: Depreciation 4959 21,173
Building 21,699Less: Depreciation Allowance 7,364
Less: Depreciation 1,084 13,251
Current Liabilities Current Assets:
Account Payables: Cash 15,211
Fuel bills 3,962 Account Receivables:
Utility bills 36 Regular Accounts 18,640
Burner parts 438 Budget Accounts 12,172 30,812
Advertising 159 4,595 Deposit on Commercial bids 900
Other Liabilities 278 Less: 750 150
Inventory of Burner Part 8,250
Total 95,614 Total 95,614
Cash Account
Date Particulars Amount Date Particulars Amount
1 Jan., To Opening Balance b/d 13,993 By Account Payable 4,3821958 Last Year’s
To Regular Customers 1,06,478 By Drawing L. Master 12,650
To Budget Plan Customers 97,798 By Drawing L. Webster 15,000
To Burner Service & repair 12,714 By Fuel Purchase 1,46,260
To Installation Work 4,460 By Burner Parts 5,905
To Deposit Refunds 750 By Installations 2,111
By Subcontractors 314
By Utilities 424
By Supplies 277
(contd.)
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By New Truck 12,133
By Telephone 231
By Advertising 2,627
By Property Taxes 972
By Office & Printings 1,119
By Fess Pro. Services 1,520
By Liabilities Last Yr 256
By Payroll Taxes C.Y 212
By Rental of Uniforms 512
By Vehicle Operation 2,312
By Wages 9,816
By Miscellaneous Exp. 1,949
31st Dec By Closing Balance 15,211
Total 2,36,193 Total 2,36,193
Account Receivable (Debtors) A/c
Date Particulars Amount Date Particulars Amount
1 Jan., To Balance b/d 12,486 31 Dec., By Cash A/c (1,06,478 2,21,450
1958 1958 + 97,798 + 12,714 +
4,460)
31 Dec., To Credit Sales 2,39,776 31 Dec., By Balance c/f :1958 1958
Regular A/c 18,640
Budget A/c 12,172 30,812
Total 2,52,262 Total 2,52,262
Account Payable (Creditors) A/c
Date Particulars Amount Date Particulars Amount
31 Dec., To Cash (4.382 + 1,58,972 1 Jan., By Balance b/d 4,382
1958 1,46,260 + 5.905 + 1958
2111 + 314)
31 Dec., To Balance c/f (3,962 4,400 31 Dec., By Credit Purchases 1,58,9901958 + 438) 1958
Total 1,63,372 Total 1,63,372
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Profit and loss account of the year Ended on 31/3/1982Dr. Cr.Expenses Amount Amount Income Amount Amount
To Depreciation on - 21,815 By Dividend received 1,19,000
office equipment By Bills received 20,79,000
To salary 10,39,920 By Closing Stock 70,000
+ Outstanding 17,500 10,57,420
To office supply 3,45,450
+ Outstanding 45,150 3,90,600
To rent 1,70,800
+ Outstanding 16,800 1,87,600
To miscellaneous expenses 1,20,400
+ Outstanding 1,750 1,22,150
To Profession fee Exp. 35,000
Bad debts 37,800
Net Profit c/f. 4,15,615
22,68,000 22,68,000
Balance sheet of Latif Khan Architect As on 31/3/1982
Capital Amount Amount Assets Amount Amount
Capital 11,86,253 Office equipment 2,18,153
+ Net profit 4,15,615 - Depreciation 21,815 1,96,338
16,01,868 Investment 3,50,000
– Drawing 5,60,000 10,41,868 + Purchase 1,68,000 5,18,000
Outstanding Exp. Debtors 2,91,200
Salary 17,500 Cash at Bank 47,530
Rent 16,800 Closing Stock 70,000
Supplies 45,150
Miscellaneous Exp. 1,750
11,23,068 11,23,068
Cash AccountDr. Cr.Particulars Amount Particulars Amount
To Bal b/d. 1,12,000 By Salary & charges 10,51,820To Debtor 23,45,000 By Office supplies 4,02,850To Dividend Int. 1,19,000 By Rent. 1,84,800
By Profession exp. 35,000By Purchase shares 1,68,000By Drawing 5,60,000By Miscellaneous Exp.By Bal. B/d. 1,26,000 47,530
25,76,000 25,76,000
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WORKING NOTES:
FOR FINDING CAPITAL:-
Asset: Office Furniture And Equipment 21,8,153
Investment 3,50,000
Cash 1,12,000
Debtors 5,95,000
12,75,153
Less
Outstanding of 1981
Salary 11,900
Supplies 57,400
Rent 14,000
Misc. 5,600
88,900
Capital in the Business 1,86,253
FOR FINDING DEBTOR:
Op. balance 5,95,000
+ Bills issued 20,79,000
26,74,000
Less
By cash Received 23,45,000
By Bad debts. 37,800
23,82,800
Net debtors at end of the year 1982 2,91,200
Cash Received = 17,50,000 + 5,95,000 = 23,45,000
CASE No. 3.3
Profit Reconciliation Statement
Particulars Amount Amount
Profit as per Bhatia 2,05,000
Less:
Acc. Dep 29,000
Provision for Exp. 40,000
Reduction in Value of stock 25,000 94,000
Add:
Prepaid Ins. 2,500
Prepaid Subscription 75
Change in Capital 37,750 40,325
Profit as per accountant 1,51,325
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Opening Statement of Affairs
Liabilities Amount Assets Amount
Capital 1,16,250Furniture 1,00,000
Creditors 80,000 Cash & Bank 47,000Debitors 12,000
Accumulated Dep. 19,000 Stock 56,2502,15,250 2,15,250
Debtors AccountDr CrParticulars Amount Particulars Amount
To Balance 12,000 By Cash 12,000By Cash 9,70,000
To Sales 10,00,000By Bal 30,000
10,12,000 10,12,000
Creditors AccountDr CrParticulars Amount Particulars Amount
To Cash 80,000 By Bal 80,000To Cash 6,40,000
By Purchase 7,50,000To Bal 1,10,000
8,30,000 8,30,000
Acc. Dep. AccountDr CrParticulars Amount Particulars Amount
By Bal 19,000
To Bal 29,000 By Depreciation 10,000
29,000 29,000
Balance Sheet as at 31st Dec. 1981
Liabilities Amount Assets Amount
Capital 1,16,250
Less: Drawings 1,69,000 Furniture 1,00,000
– 52,750
Add: Profit 1,51,325 98,575 Cash & Bank 70,000
Debtors 30,000
Pro. for Service Exp. 50,000
Less: Exp. Inc. 10,000 40,000 Prepaid Ins. 2,500
Prepaid Subscription 75
Acc. Dep 19,000
Add. Dep. 10,000 29,000 Closing Stock 75,000
Creditors 1,10,000
2,77,575 2,77,575
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Income & Exp. A/c for the year ended on the 31st Dec. 1981Dr CrParticulars Amount Particulars Amount
Opening Stock 56,250
Purchase 7,50,000 Sales
of Radios 10,00,000
Dep. on Furniture 10,000 of Radio Parts 50,000
Prov. For Service Exp. 50,000
Exp. for Services 20,000 (For the radios sold in the Previous Period)Wages & Salaries 60,000
Insurance Paid 2,500
Rent Paid 10,000
Selling & Gen. Exp 14,850
Subscription 75
Net Profit 1,51,325
10,50,000 10,50,000
CASE 4.1
International Hotels Ltd
Journal-Adjusting Entries
Date Particulars LF Debit CreditRs. Rs.
30th Bad debts A/c Dr. 19,250
June To Debtors A/c 19,250
(Being there is a Bad debts
arise and deduct from Debtors)
30th P&L A/c Dr. 19,250
June To Bad debts A/c 19,250
(Being Bad debts is recognize
and debited to P&L A/c
30th Advertisement Exp. A/c Dr. 2,02,500
June To P&L A/c 2,02,500
(Being Advertisement Exp. is
carried forward to next year)
30th Depreciation A/c Dr. 31,97,250
June To Building & Furniture A/c 31,97,250
(Being Amt. Depreciated to
the Building and Furniture)
30th P&L A/c Dr. 3,197,250
June To Depreciation A/c 3,197,250
(Being the depreciation recognizedand debited to P&L A/c)
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30th P&L A/c Dr. 1,92,000
June To O/s wages A/c 1,92,000
(Being O/s wages is transfer to
P&L A/c)
30th General Reserve A/c Dr. 1,46,505
June P&L Appro. A/c Dr. 95,13,495
To proposed equity div A/c 96,60,000
(Being the proposed dividend
is paid through P&L Appro.
A/c and G.R. A/c
30th P&L A/c Dr. 28,900
June To Repairs and maintenance A/c 28,900
(Being repairs and maintenance
is not recorded)
Total 1,65,16,400 1,65,16,400
Solution (ii) International Hotels Ltd.
Statement showing Profit and Loss Account of the year ended June 30, 1982Dr. Cr.Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock By sales
wine, cigars 9,20,000 wine, cigars 5,260,000
+ food stuff 17,89,000 27,09,000 + food stuff 13,640,000 18,900,000
To purchase By closing stock
wine, cigars 28,70,000 wine, cigars 3,375,000
+ food stuff 9,430,000 12,300,000 + food stuff 4,460,000 7,835,000
To wages & salaries 4,245,000
o/s wages & salaries 192,000 4,437,000
To coal & firewood 493,500
To Carriage & freight 121,500
To Gross Profit 6,674,000
26,735,000 26,735,000
To Depreciation To Gross Profit 6,674,000
Land & Building 2,550,000 To rent room 8,108,950
Fitting & Furniture 647,250 3,197,250 To Casino Room Earning 142,500
To Bad Debts (T) 0 To golf course Earning 148,500
+ Bad Debts (Adj) 19,250 To Health club earning 268,250
+ B.D.R.(Adj) 0 To Pool side earning 136,400
19,250 To shopping arcade rentals 145,000
– B.D.R(T) 0 19,250 To discotheque earnings 125,400
To Adventiserpent Exp. 1,254,000
+ c/f next year. 202,500 1,051,500
To Repair & Maintanance 637,500
+ Not Recover 28,900 666,400
To rent, Rates, Taxes 1,335,000
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To Laundry 122,500
To miscellaneous Exp. 876,000
To O/s debenture Int. 4,050,000
To Provision for Tax 2,442,605
To net profit 1,998,495
15,749,000 15,749,000
Statement showing Profit and Loss Appropriation Account of the year endedJune 30, 1982
Dr. Cr.
Particulars Rs. Particulars Rs.
To proposed equity By Bal b/d 6,225,000
share dividend 9,660,000 By P & L A/c 1,998,495
By General reserve 146,505
9,660,000 9,660,000
Statement showing Balance Sheet as on June 30, 1982.
Liabilities Rs. Rs. Assets Rs. Rs.
Share capital Fixed assets
1207500 Equity share 120,750,000 Good will 75,000,000
of Rs. 100 each 75,000,000 Land & building 127,500,000
750000 Preference -Dep. @ 2% 2,550,000 124,950,000
share of Rs. 100 each Furniture & Fittings 12,945,000
Reserve & surplus - Dep. @ 5% 647,250 12,297,750
General reserve 30,000,000
- Equity share 1,436,505 28,563,495
dividend
Investment: 40,845,000
Secured loan:
300000 13.5% Current assets:
Deb of Rs. 100 each 300,000,000 loan & advances
+O/s deb. int. 4,050,000 34,050,000 Closing stock:
wine, cigars 3,375,000
Current liabilities & + food stuffs 4,460,000 7,835,000
Provision Cash in Hand 330,000
O/s repairs & 28,900 Cash in Bank 11,457,000
maintenance
Creditors 6,300,000 Debtors 2,889,000
Proposed equity dividend 9,660,000 - Bad. Debt 19,250 2,869,750
Provision for tax 2,442,605 Carried forward 202,500
O/s wages & salaries 192,000 Adv. exp
Miscellaneous
Expenses:
Preliminary &
formation expenses 1,200,000
276,987,000 276,987,000
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CASE 4.2:
SUMMARY
This is the cas of Supreme Paper Company Ltd. Here list of balances is given, from that information following items should be prepared.
1. The adjustment entries.2. The Profit and loss account for the year ending December 31, 1982.3. The Profit and loss appropriation account.4. The Balance Sheet as on December 31, 1982.
P&L A/c for the year ended as on Dec. 31, 1982
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Tax on dividend 31,400 By Dividend on Investment 1,00,000
To Debenture interest 84000 By Net Loss 20,53,300
+ Outstanding interest 176000 2,60,000
To Un-expired payment 60,000
To Director’s fees 40,000
To Interim Dividend 3.45,000
To Depreciation on
Land & Building 1,00,000
Plant 6,00,000
Furniture 32,000
Vehicles 50,000 7,82,000
To Tax 6,34,900
Total 21,53,300 Total 21,53,300
Profit & Loss Appropriation A/c for the year ended on Dec. 31, 1982
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Debenture Redemption 4,00,000 By balance b/d 32,51,700Reserve
To General Reserve 7,00,000 By balance c/f 9,46,140
To provision for dividend 7,20,000
To provision for taxation 3,24,540
To net loss 20,53,300
Total 41,97,840 Total 41,97,840
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Balance sheet as on 31st December 1982
Liabilities Amount Assets Amount
Owners’ Equity: Fixed Assets:
Share capital 60,00,000 Lease hold and
& Building 16,00,000
Reserves and Surplus: - Depreciation 1,00,000 15,00,000
General reserve 6,00,000
+ Extra provision 7,00,000 13,00,000 Plant & machinery 42,40,000
- Depreciation 6,00,000 36,40,000
Debn redm reserve 4,00,000
+ Extra provision 4,00,000 8,00,000 Furniture & Equip 3,20,000
- Depreciation 32,000 2,88,000
Share premium 1,00,000
Secured Loans: Vehicle 2,00,000
13 % debenture 20,00,000 - Depreciation 50,000 1,50,000
+ interest outstanding 1,76000 21,76,000
Current Liabilities: Investment: 10,00,000
Other liabilities 600 Current Assets:
Creditors & accured charges 40,69,000 Debtors 49,10,000
Stocks & WIP 33,20,000
Provisions: Cash 10,000
Proposed dividend 7,20,000 Bank 5,00,000
Provision for taxation 12,06,540 Other assets 1,08,000
By P & L A/C 9,46,140
1,63,72.140 1,63,72,140
Adjustment Entries
Date Particulars LF No. Debit Credit
March 31 Depreciation A/C Dr. 1,00,000To land & building A/C 1,00,000
(Depreciation provided on theLand & Building at the end ofthe year)
March 31 Depreciation A/C Dr. 6,00,000To plant & machinery A/C 6,00,000
(Depreciation provided on theplant & Machinery at the endof the year)
Mach 31 Depreciation A/C Dr. 50,000To vehicle A/C 50,000
(Depreciation provided on thevehicle at the end of the year)
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March 31 P & L A/C Dr. 7,82,000To Depreciation A/C 7,82,000
(Transfer of Depreciation A/Cto the Profit & Loss A/C
March 31 P & L appropriation A/C Dr. 3,24,520To provision for taxation A/C 3,24,520
(Provision made for the Taxation)March 31 P & L appropriation A/C Dr. 4,00,000
To debenture redemption reserve A/C 4,00,000(Provision made for the DebentureRedemption Reserve)
March 31 P & L appropriation A/C Dr. 7,00,000To general reserve A/C 7,00,000
(Provision made for the General Reserve)
March 31 P & L appropriation A/C Dr. 7,20,000To provision for dividend A/C 7,20,000
(Provision made for the proposed12 % Dividend)
March 31 Debenture interest A/C Dr. 1,76,000To debenture A/C 1,76,000
(Outstanding Debenture Interest)
March 31 P & L A/C Dr. 1,76,000To debenture interest A/C 1,76,000
(Outstanding Debenture Interest)
TOTAL 56,44,520 56,44520
CASE 4.2
Monarch Trading Corporation Ltd.
Trial Balance for the Period ending on March 31, 1982
Particulars Debit Credit
Leasehold Land 2,000,000Buildings 77,00,000Stock (31 March 1982) Merchandize 4,80,000Cost of Merchandise sold 10,120,000Carriage inward 95,000Creditors 4,520,000Wages 8,850,000Debtors 9,405,000Bank overdraft 3,000,000Interest on Bank overdraft 240,000Advertisement expenses 328,000Premium received (Apprentice Scheme) 50,000Office administration expenses 192,000
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Discount allowed and earned 147,000 101,000Capital 10,000,000Salaries 3,553,000Electricity charges 186,000Rent and rates 215,000Retained earnings (1st April 1981) 3,188,000Commission earned 75,000Investments & interests on investment 247,500Sales 2,750,000 30,038,000Stock of stationery as at 1st April 1981 45,000Furniture and fixtures 1,710,000Salesmen’s salary and commission 1,632,000Carriage outward 218,000Purchase on stationery 180,000Accumulated depreciation 1st April 1981
Buildings 1,750,000Furniture and Fittings 450,000
Provision for bad debts as on 1st Apr-81 176,500Advance Income tax during the year 3,550,000
Total 53,596,000 53,596,000
Journal Adjustment Entries
Date Particulars LF Debit Credit
No. Rs. Rs.
P & L A/c Dr. 100,000
To Land A/C 100,000
Wages A/c Dr. 15,000
Salaries A/c Dr. 27,500
To Outstanding wages A/c 15,000
To Outstanding salaries A/c 27,500
Miscellaneous Expense A/c Dr. 160,000
P & L A/c Dr. 40,000
To Advertisement Expense A/c 200,000
Premium of Apprentice A/c Dr. 12,500
To Prepaid Apprentice A/c 12,500
Commission accured A/c Dr. 12,500
To Commission A/c 12,500
P & L A/c Dr. 195,000
To Stationery A/c 195,000
P & L A/c Dr. 470,250
To Provision for Bad Debts A/c 4,70,250
P & L A/c Dr. 5,56,000
To Accumulated A/c 5,56,000
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Adjusted Trial Balance for the Period ending on March 31, 1982
Particulars Debit Credit
Leasehold Land 19,00,000
Buildings 7,70,000
Stock (31 March 1982) Merchandize 4,80,000
Cost of Merchandize sold 10,120,000
Carriage inward 95,000
Creditors 4,520,000
Wages 8,850,000
Debtors 9,405,000
Bad Debt Provision 6,46,750
Bank overdraft 3,000,000
Interest on Bank overdraft 240,000
Advertisement expenses 128,000
Miscellanius Expense (Advertisement) 160,000
Premium received (Apprentice Scheme) 37,500
Office administration expenses 192,000
Discount allowed and earned 147,000 101,000
Capital 10,000,000
Salaries 3,580,000
Electricity charges 186,000
Rent and rates 215,000
Retained earnings 3,188,000
Commission earned 875,000
Outstanding commission 12,500
Investments & interests 247,500
Sales 2,750,000 30,038,000
Stock of Stationery 30,000
Furniture and fixtures 1,710,000
Salesmens salary and commission 1,632,000
Carriage outward 218,000
Accumulated Depreciation
Buildings 2,135,000
Furniture and Fixture 6,210,00
Advance Income tax during the year 1982 3,550,000
Outstanding Wages and Salaries 42000
P and L A/c 1,348,750
Total 54664250 54664250
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Profit and Loss Account and Retained Earning Statement for the Year endedMarch 31, 1982
Particulars Amount Amount Particulars Amount Amount
To Cost of Marchandise 1,01,20,000 By Sales 3,00,38,000
To Carriage Inward 95,000 Less: Sales 27,50,000 2,72,88,000
Return
Wages 88,50,000
Add: Outstanding Wages 15,000 88,65,000
To P and L A/c (Gross Profit) 82,08,000
Total 2,72,88,000 Total 2,72,88,000
To Land A/c 1,00,000 By Trading A/c 82,08,000
To Stationary A/c 1,95,000 By Premium of 12,500Apprentice
To Bad Debt Reserve 4,70,250
To Interest on BOD 2,40,000 By Discount 1,01,000Earned
To Advertisement Expense 1,28,000 By Commission 75,000Earned
Add: Adv. Expense 40,000 1,68,000 Add: Accrued 12,500 87,500Commission
To Office Expense 1,92,000 By Investment 2,47,500and its Interest
To Discount Allowed 1,47,000
To Salaries Paid 35,53,000
Add: Outstanding Salary 27,000 35,80,000
To Electric Charges 1,86,000
To Rent & Rates 2,15,000
To Depreciation:
Building 3,85,000
Furniture 1,71,000 5,56,000
To Salesman Salary 16,32,000
To Carriage Outward 2,18,000
To Provision of Tax 3,93,770
To Net Profit 3,63,480
Total 86,56,500 Total 86,56,500
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Balance Sheet as on March 31, 1982
Liabilities Amount Amount Assets Amount Amount
Capital Fixed Assets:Capital 1,00,00,000 Land 19,00,000
Building 77,00,000Furniture 17,10,000
Reserve and Surplus: Investments:Retained Earnings 31,88,000Net Profit 3,63,480Premium of Apprentice 37,500Provisions: Current Assets:Accumulated Depreciation Debtors 94,05,000Building 17,50,000 Less: Prov. For 6,46,750 87,58,250
Bad debtsAdd: Depreciation 3,85,000 21,35,000Furniture 4,50,000 Stock of Merchandice 4,80,000Add: Depreciation 1,71,000 6,21,000Provision For Tax 3,93,770 Stock of Stationary 30,000Current Liabilities: Loans and Advances:Creditors 45,20,000 Accured Commission 12,500BOD 30,00,000 Advance Tax Paid 35,50,000
(1982)Outstanding Wages 15,000Outstanding Salary 27,000
Miscellaneous Expenses:Advertisement Expenses 2,00,000Less: Written Off 40,000 1,60,000
Total 2,43,00,750 Total 2,43,00,750
Stationery Account
Dr CrParticulars Amount Particulars AmountTo Balance B/d 45,000 By P & L A/c 195,000To Bank A/c 180,000 By Closing Stock 30,000
Total 225,000 Total 225,000
CASE 5.1Oliver Optics Company
Trading A/c for year ending 31 December
Particulars Amount Amount Particulars Amount Amount
To purchase 15,130 By Sales 35,210To gross profit 23,280 By closing stock 3,200
38,410 38,410
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P&L A/c for year ending 31 December
Expenditure Amt. ($) Amt.($) Particulars Amt.($) Amt.($)
To Insurance 50 By Gross profit 23,280
To Interest on uncle’s loan 60
To Office & admin. Exp.Salary to Miss Schultz 800Salary to Oliver 1,200 2,000
To Selling Exp. (Shop salaries) 11,900 (3,500 + 3,200 + 4,800 + 400)To Rent 2,000To Office supply used 200To Electricity 430To Travel and Advertising Exp. 2,670To Bad debts 310To B.D.R. 103To Depreciation on equipment 800To Prov. for loss by rejection 208To Net profit 2,429
23,280 23,280
Balance Sheet As On 31 December
Liabilities Amount Amount Assets Amount Amount($) ($) ($) ($)
Capital 5,000 Equipment (W.N-4) 5,000+ Net profit 2,429 7,429 Less Dep. (W.N-5) 800 4,200
Provision for loss 208 Debtor’s 10,250 by rejectionUncle’s Loan 2,000 Less B.D.R. 103 10,147Creditors for 3,000 Insurance paid in advance 150 Equip. (W.N-4)Creditors 5,130 Interest paid in advance 20
Stock of office supply 50Closing stock 3,200
17,767 17,767
WORKING NOTE NO. 1 (W.N.-1)
Particulars Amount Particulars Amount
To Interest on uncle’s loan 80 By Capital 5,000To Interest on equipments 120 By uncle’s loan 2,000To Installment and down payment 2,000 By Debtor’s 24,650To Salaries paid 13,900To rent paid 2,000To Suppliers (Creditors) 10,000To Office supply 250To Electricity and etc. 430To Travel and Advertisement Exp. 2,670To Insurance paid 200
31,650 31,650
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Working Note No. 2 (W.N.-2)Debtor’s A/c
Particulars Amount ($) Particulars Amount ($)
To Sales 35,210 By Cash (Cash a/c) 24,650
By Bad Debts 310
By Balance (Cash sales) 10,250
35,210 35,210
Working Note No. 3 (W.N.-3)Creditor’s A/C
Particulars Amount ($) Particulars Amount ($)
To bank/cash A/C. 10,000 By Purchase 15,130To balance 5,130
15,130 15,130
Working Note No. 4 (W.N.-4)Equipment value
Down payment = 1,000
+ Instalment (250* 16) = 4,000
Total Cost = 5,000
Working Note No. 5 (W.N.-5)Equipment value
Equipment value = 5,000
Less Scrap value = 1,000
Net value = 4,000
Usage period = 5 Years
So, Depreciation = 800 p.a
Journal Entries
2 Audit fees 5,500 P&L 16 Rental received from 47,510 P&L employees provided with quarters
4 Entertainment expenses 84,720 P&L 32 Interest and dividends 88,480 P&L received on investments
6 Remuneration paid to 3,52,000 P&L managing director
10 Loss on sales of assets 2,150 P&L
12 Depreciation (for the 11,12,280 P&L year ended Dec 31, 1982)
14 Interest paid on loans 3,68,300 P&Lduring the year
18 establishment expense 2,75,370 P&L
20 Traveling expense 1,82,250 P&L
22 Insurance expenses for 1,15,420 P&L
machinery at work site
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24 Salaries, wages, bonus, 38,91,640 P&Letc
26 Repairs to machinery 3,74,860 P&L
and building
28 Power and fuel 11,22,760 P&L
30 Freight and transpora- 31,88,320 P&L 11 Retained earning (jan. 1, 43,57,430 P&L tion expenses 1982)
APPR.
34 Stores and materials 1,05,69,720 P&Lconsumed
3 Loan given to a sister 4,76,580 B/S 1 Paid up capital 27,70,000 B/Sinstititution, CapitalStores, a supplier ofbuilding materials
19 Debtors 42,780 B/S 5 Unsecured loan from bank 6,24,850 B/S
23 Cash in hand 4,38,940 B/S 8 Accumulated depreciation 80,61,490 B/SDec. 31, 1982
25 Cash at bank 5,35,180 B/S 27 Interest accured but not 86,320 B/S
due on unsecured loan
29 Investments in shares 9,88,170 B/S 15 Secured loans (against 53,67,530 B/S
work-in-progress and
stock of stores and
supplies) repayable on
Dec. 31, 1986)
31 Fixed Assets 1,42,09,400 B/S 17 “on account” advances 33,52,950 B/Sreceived from customersagainst uncompletedcontracts
33 Advances to suppliers 6,57,450 B/S 21 Creditors 42,72,900 B/S
equipment and stores
35 Advance income-tax 11,23,020 B/S 38 Income-tax payable 21,97,520 B/S
36 Billing to customers* 2,21,98,220 B/S General reserve 4,40,71,440 B/S
37 Earnest money deposi- 1,70,700 B/S
ted with the Munici-
pal corporation, Gov-
ernment, etc. against
building
7 Stock of stores and 25,63,410 B/Ssupplies-Dec. 31, 1982 1,02,26,770 B/S
9 Value of uncompletedcontracts (based onarchitect certificateand valued at contractprice for work done
13 Interest accured on 22,510 B/S
Total 7,52,98,420 7,52,98,420
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Profit and Loss Account for the year 31st Dec. 1982
Particulars Amount Particulars Amount2 Audit fees 5,500 16 Rental received from 47,510
employees providedwith quarters
4 Entertainment expenses 84,720 32 Interest and dividends 88,480
received on investment
6 Remuneration paid to 3,52,000 * Contract account profitmanaging director
10 Loss on sales of assets 2,150
12 Depreciation (for the 11,12,280 Net Loss 2,05,83,115year ended Dec31, 1982)
14 Interest paid on loans 3,68,300during the year
18 Miscellaneous 2,75,370establishment expense
20 Traveling expense 1,82,250
22 Insurance expenses for 1,15,420
machinery at work site
24 Salaries, wages, bonus, 38,91,640etc
26 Repairs to machinery 3,74,860
and building
28 Power and fuel 11,22,760
30 Freight and transpora- 31,88,320tion expenses
34 Stores and materials 1,05,69,720consumedLess: Adj. 2 99,66,220less: 6,03,500
Adj. 2: Loss on transit 2,41,400
Adj. 3: Loss on invest 1,75,000ments:
Adj. 4: Provision for bad 856debts
Total 2,14,59,046 Total 2,14,59,046
Profit and Loss Appropriation A/c
Particulars Amount Particulars AmountLoss b/d 2,05,83,115 Retained earning (Jan. 1, 1982) 43,57,430
Proposed dividend 2,77,000 General reserve 2,77,000
Balance c/d 1,62,25,685
Total 2,08,60,115 Total 2,08,60,115
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Balance Sheet as on 31st Dec. 1982
Liabilities Amount Assets Amount Amount Share Capital : 1 Paid up capital 2770000 31 Fixed Assets 14209400
Reserve and Surplus: 8 Less: Accumulated 8061490 6147910General reserve Investments
Adj.5: Transfer to P&L 4379440 29 Investments in shares 988170Approx. A/c debentures
Secured Loan Adj.3: Less loss 17500 813170
15 Secured loans 5367530 CurrentAssets, Loans andAdvances
Unsecured Loan: A. Current Assets
5 Unsecured loan from bank 624850 19 Debtors 42780
Current Liabilities and Less: Provision for bad 856 41924Provisions debts
A. Current Liabilities 23 Cash in hand 438940
27 Interest accured but not due 86320 25 Cash at bank 535180
17 “On account” Advance: 2613009 36 Billing to customers* 22198220 Less: Profit margin 739941 Stock of stores and 2563410
21 Creditors 4272900 7 supplies – Dec. 31,
38 Income-tax payable 2197520 9 Value of uncompleted 10226770contacts (based on archi-tects certificate andvalued at contract pricefor work done
B. Provisions 13 interest accrued on invest 22510ments
Adj. 5:Proposed dividend 277000 Adj: 2.Insurrance claim 362100
B. Loans
3 Loan given to a sister 476580institution, CapitalStores, a supplier ofbuilding, materials
33 Advances to suppliers 657450
of equipment and stores
35 Advance income-tax paid 1123020
P&L A/c (net loss)1,62,25,685
37 Earnest money deposited 1,70,700with the Municipalcorporation, Govern-ment, etc. againstbuilding contracts
Total 62003569 Total 62003569
Adjustment
Adj 1: Contingent liability of Rs. 380000
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Adj 2: Loss in transit included in cost of material consumed603500 60% B/S 362100
40% P/L 241400Adj 3: 250000 Market value decreased due to liquidation 30 paise realizable
i.e. 75000therefore loss on investment 175000
Adj 4: Provision of bad debts on Government contract 2%Assuming Debtor to be of Government contract
Adj 5: Last year unpaid dividend decided to be paidNo effect
Adj 6: Future contract of next accounting year estimatedNo entries
Working note:
Contract profit (profit margin) greater than 50% of contract
Profit margin is to be taken as 2/3rd of total contract profitIf less than 50% 1/3rd of total contract profit is realized.Here, 11971450 / 22198220 = 53%
Therefore, 5% of 22198220 = 1109911 * 2/3 = 749441 profit margin for current year.
CASE No. 5.3
Consumer Product International Ltd.
Manufacturing & Trading A/c for the year ended April 30, 1982
Dr. Cr.Particulars Amount Particulars AmountTo, Opening Stock By Closing Stock:
Raw Material 75544017 WIP-Fin. Goods. 63331296
WIP- Fin. Goods. 61855426 Raw Material 52830817
Raw Material Purchase 427169870
Processing Charge 1107096
Power & Fuel 1107096
Freight & Forwarding Ch. 16032535 Cost of Goods 476575039
592731752 592737152
Cost of Goods 476575039 Sales 885342435
Purchase of finished 2666275 Goods Destroyed by fire 55862 Goods
Gross Profit 406156983
885398297 885398297
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Profit & Loss A/c for the year ended April 30, 1982.
Dr. Cr.Particulars Amount Amount Particulars Amount Amount
To, By,
Employee R & B. 37213329 Gross Profit 406156983
Con. of Stores 1652486 Duty draw back 216567
Rent, Rates, Taxes 5732667 Other income 3963465
- Prepaid 19662 5713005
Insurance 1407567
Advt. 31749447
- 50 % 1592737 30156710
Repair & Maint. 1805062
+ Un Recorded 29650 1834712
Commission 103130
Interest 773772
Mis. Exp. 16403391
Depri. 2005610
+ Extra 221175 2226785
Excise Duty 135740481
Tax. 129844757
Bad Debt. 265382
Salaries 2305680
Loss by Fire 10512
Net Profit? 44685316
410337015 410337015
Profit & Loss A/c for the year ended April 30, 1982.
Dr. Cr.Particulars Amount Amount Particulars Amount Amount
To, By,
Interim Dividend 26822250 Net Profit 44685316
Proposed Div. 1965000
General Reserve
I 3062203II 7713328 10775531
Bal C/F 5122535
44685316 44685316
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Balance Sheet as on April 30, 1982.
Particulars Amount Amount Particulars Amount Amount
Share Capital 29475000 Fixed Asset:
Building 13514577
Reserve Plant & Machi. 6213488& Surplus:
Devel. & Rebate 187400 - Depri. 221175 5992313
General Reserve 43028712 Furniture 1781804
+ I 3062203 + Depri. (wrongly) 64363 1846167
+ II 7713328 53804243 Auto & truck 985282
P & L A/C 5122535 - Depri. 64363 920919
Secured Loan: Investment:
Unsecured Loan: C.A. & Loan, Adv.
Loan from Foreign 29770426 Current Asset:
Store and Spare 1818373
Liability: WIP 743916
Acceptance 45950454 Finished goods 62135880
Creditor 7156668 Debtor 50731705
Unclaimed Div. 408510 - Bad Debt. 265382 50466323
Adv. From Cust. 614318 Cash in hand 23712
Un paid Salary 2305680 Bank Balance 39848499
Proposed Div. 1965000 Insu. Claim 45350
Un Recorded Main 29650 Prepaid Rent 19662
Creative Ltd. (advt) 1592737
Provision: Closing stock RM 52830817
Tax Provision 6844362
Pro. for Exp. 396367 Loan & Advances: 10859458
Adv. For Capital 6358477
WIP
249197180 249197180
CASE NO. 5.4CONSOLIDATED STEELS LTD.
Consolidated Steels Limited manufactures iron and steel products, steel castings (including alloy steel castings) and various types of Industrial Machinery; e.g. Ball Mills, E.O.T. Cranes, Copper converters, etc.
From the following trial balance and adjustments, prepare the Profit and Loss account, the Profit and Loss Appropriation account and the Balance sheet.
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Trial Balance as on December 31, 1982Account Heads Dr. (Rs.) Cr. (Rs.)
Share Capital 60,558,000Reserves and surplus 21,955,000Deferred Payment Liability 113,637,000Unsecured Loans 35,949,000Land and Roads 3,360,000Buildings 34,243,500Plant and Machinery 117,989,250Furniture and Fixtures 7,305,750Vehicles 1,455,000Accumulated Depreciation
- On Building 14,362,500- On Plant and Machinery 76,370,250- On Furniture and Fixtures 2,381,250- On Vehicles 905,250
Capital Work-in-Progress 2,289,000Investments 4,119,750Loose Tools (Stock on 31.12.1982) 507,000Stores (Stock on 31.12.1982) 53,382,000Raw Materials (Stock on 31.12.1982) 45,777,750Debtors 53,014,500Cash and Bank Balances 3,388,500Loans and Advances 41,090,250Creditors 57,501,000Advance received against orders 24,370,500Unclaimed Dividends 71,250Sales 497,322,750Cash subsidy 5,730,000Raw Materials Consumed 158,803,500Interest 10,689,750Depreciation 9,591,750Stores and Spares Consumed 126,394,500Power and Fuel 42,966,000Subcontracting 31,426,500Rent, Rates and Taxes 1,378,500Insurance 988,500Advertisements 446,250Repairs and Maintenance 1,895,250Freight and Carriage 3,060,000Bad debts and Advances Written off 744,000Miscellaneous Expenses 10,664,250Excise Duty 6,731,250Salaries, Wages, etc. 67,650,000Staff Welfare 5,049,000
911,474,250 911,474,250
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Additional Information:
(1) The Board of Directors resolved that Rs. 528,000 included in the interest, relating to buying of an imported plant, be capitalized
(2) A provision of doubtful debts amounting to Rs. 468,000 to be made.
(3) The income-tax liability for the current year was Rs. 14,000.
(4) Company XYZ Limited, to which the company has given a loan of Rs. 326,400 went into liquidation. The liquidator informed that all the unsecured creditors would get a 20% dividend.
(5) Slow moving stock of the following items had to be written off:
Raw Materials – Rs. 430,200
Loose Tools – Rs. 89,500
Stores – Rs. 689,400
(6) A pilferage of Rs. 5,500 was reported from the cash box. This had been included in the cash balance in the Trial balance.
(7) Due to shift in the export policy, the company was to receive an additional cash subsidy of Rs. 732,000
(8) Interest accrued and due on the loans taken – Rs. 759,650
(9) Dividend (proposed) of Rs. 60,55,550 is to be provided.
(10) Closing stock (as on 31.12.82) of the Work-in-progress and Finished goods was:
Work-in-progress Rs. 57,836,250.
Finished goods Rs. 21,807,000.
Consolidated Steels Ltd.
P&L Account for the year ending on 31st Dec. 1982
Particulars Amount Particulars AmountOpening stock: Sales: 497322750
-work-in-progress 53638500 Closing stock:
-Finished Goods 11434500 Work-in-Progress 57836250
Raw Materials Consumed 158803500 Finished Goods 2180700
Stores & Spares consumed 126394500
Power & Fuel 42966000
Subcontracting 31426500
Freight & Carriage 306000
Excise Duty 6731250
Gross Profit 142511250
576966000 576966000
Loss from Pilferage Gross Profit 142511250
Bad Debts (New) 261120
Bad Debts (Old) 744000
B.D.R. 468000 1473120
Interest 10689750
+ Acc. Interest 759650
11449400
- For Assets 528000 10921400
Depreciation 9591750
Rent, Rates & Taxes 1378500
Insurance 988500
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Advertisement 446250
Repairs & maintenance 1895250
Misc. Expenses 10664250
Salaries, Wages etc., 67650000
Staff Welfare 5049000
Provision for Tax 14000
Loss on Moving Stock 1209100
Net Profit 31224630
Total 142511250 Total 142511250
P&L Appropriation Account for the year ending on 31st Dec. 1982
Particulars Amount Particulars Amount
Proposed Dividend 6055550 Net Profit 31224630
Surplus 25169080
Total 31224630 Total 31224630
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Consolidated Steels Ltd.Balance sheet As on 31st Dec.-1982
Liabilities Amount Assets Amount1. Share Capital 60558000 1. Fixed Assets
2. Reserves & Surplus Land & Roads 3360000Reserves & Surplus 21955500 Building 34243500
+ Additional 732000 Plant & Machinery 11798925022687500 + Addition to P & M 528000
Cash Subsidy 5730000 Furniture 7305750Surplus 25169080 53586580 Vehicles 1455000
Capital work in process 2289000 1671705003. Secured Loans
2- Investments 41197504. Unsecured Loans
Loans 35949000 3. C.A., Loans & Adv.+ Unpaid Interest 759650 36708650 A. Current Assets
5. C.L & Provisions Closing Stock 178100900A. Current Liabilities Debtors 52546500
Differed payment 11363700 Cash & Bank 3383000Creditors 57501000 Unreceived Subsidy 732000
Advance against order 24370500 234762400Unclaimed Dividend 71250 B. Loans & Advances
195579750 Loans 41090250B. Provisions Bad Debts 261120Accumulated depreciation 40829130 275591530
- On Building 14362500- On Plant & Mach. 76730250- On Furniture 2381250- On Vehicles 9050250
94379250Tax Provision 14000Proposed Dividend 6055550
100448800 296028550Total 446881780 Total 446881780
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Calculations1. Closing stock:
Loose tools 417500
Stores 52692600
Raw Materials 45347550
Work in progress 57836250
Finished goods 21807000
178100900
2. Lose on moving stock:
Loose tools 89,500
Stores 689,400
Raw Materials 430,200
Total 1,209,100
Manufacturing Account for the year ended on 31st December 1982.
Dr. Cr.Particulars Amount Amount Particulars Amount Amount
in 000 in 000 in 000 in 000
To, Opening Inventory By Closing Inventory
Raw Material 1850 Raw Material 1600
Work in Progress 2300 4150 Work in Progress 2100 3700
To Net Purchase 15800
By Balance C/F. 34061
To Direct Labour 9119 (Cost of Production)
To Indirect Labour 1450
To Rent and Rates 825
To Canteen Charges 2781
To Depreciation 225
Plant & Machinery 2100
Building 300 2625
To Fire Insu. Premium 120
To Power & Light 600
To Service Dept. 191
Total 37761 Total 37761
Trading Account for the year ended on 31st December 1982Dr. Cr.
Particulars Amount Amount Particulars Amount Amountin 000 in 000 in 000 in 000
To, Opening Inventory By Net Sales 48709Finished Goods 3000
To Cost of Production 34061 By Closing InventoryFinished Goods 2850
To Gross Profit 14498
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Total 51559 Total 51559
Profit & Loss Account for the year ended on 31st December 1982
Dr. Cr.Particulars Amount Amount Particulars Amount Amount
in 000 in 000 in 000 in 000
To Interest on Debenture 350 By Gross Profit 14498
To Rent and Rates 550
To Depreciation
Building 185
Furniture 150 335
To Fire Insu. Premium 60
To Powe & Light 100
To Canteen Charges 515
To Service Dept. 382
To Discount Allowed 520
To Selling Expenses 800
To Packing Charges 760
To Advertising Exp. 1500
To Office Salary 2600
To Bad Debt Written Off 250
To Provision for I.T. 2388
To Net Profit 3388
Total 14498 Total 14498
Balance Sheet as on 31st December 1982
Dr. Cr.Liabilities Amount Amount Assets Amount Amount
in 000 in 000 in 000 in 000
Share Capital Fixed AssetsEquity Shares 40000 Land 5000Reserve & Surplus Buildings 10000
Depreciation 3500 6500P & L A/c. (Net Profit) 6775
Plant & Machinery 21000Depreciation 4100 16900
Secured Loan7% Debenture 5000 Furniture & Fixtures 4850
Depreciation 1487.6 3362.4Unsecured Loan
InvestmentsFixed Depositors 398.4
Investments 4500Current LiabilitiesCreditors 4250 Current Assets,
Loans andAdvances
Provisions (A) Current Assets
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Provision for I.T. 2388 Debtors 11700Cash in Hand 67Cash at Bank 4232Closing Stock
Raw Material 1600Work in Progress 2100Finished Goods 2850 6550
(B) Loans & Advances
Total 58811.4 Total 58811.4
Cost Distribution Schedule of Engineering Ancillaries Ltd.
Item Total Basis of Production Sales Administrative Service
Amount Distribution Department Department Department Department
Power & 750,000 Kilo Watt 600000 500000 50000 50000
Light Hours 750000 × 750000 × 750000 × 750000 ×
12:1:1:1 (12/15) (1/15) (1/15) (1/15)
Rent & 1650000 Area 825000 225000 325000 275000
Rates Sq. Feet 1650000 × 1650000 × 1650000 × 1650000 ×
33:9:13:11 (33/66) (9/66) (13/66) (11:66)
Canteen 3399000 No. of 2781000 103000 412000 103000
Charges Employee 3399000 × 3399000 × 3399000 × 3399000 ×
27:1:4:1 (27/33) (1/33) (4/33) (1/33)
Deprec- 485000 Cost of 225000 85000 100000 75000
iation on Furniture
Furniture 45:17:20:15
Deprec 2100000 Cost of 2100000 ***** ***** *****
iation on P & Mach.
Plant &
Machinery
Depreciation 500000 Cost of 300000 50000 100000 50000
on Building Building
6:1:2:1
Fire Insu. 200000 Cost of 1200000 20000 40000 20000
Premium Building
6:1:2:1
Proportion 573000 191000 191000 191000 ****
of Service 1:01:01
Department
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CASE NO. 6.1.CHARLES CROWN COMPANY
Solution 1Project 220
Method (a):102751.5 completed106230.0 claimed208961.5 total cost
49.16775% completed.Method (b):
116970 completed232294 claimed349264 total cost
50.35429% completedNet impact on company’s B/s:Billing Earned through Method (a): 116970Cost earned through Method (a): 102751.5
Net Profit 14218.5Answer:
Net profit earned for current year as per Method (a)= 14218.5 × 49.16775 = 6990.92
Net profit earned for current year as per Method (b)= 14218.5 × 50.35 = 7159.63
Net Change in P&L statement = 6990.92 – 7159.63 = Rs. 168.71.
Solution 2. Project 221Method (a): 76578.18 Task completed
9040.0085618.18 Total cost
89.44% completed.Method (b):
90780 Task completed110220 Total Task (cost)
82.36% completed.Net Billing = 90780 – 70578.18
= Rs. 14201.82 (Net profit)Method (a): 89 unit of 44201.82 = 12702.32
(Net profit earned for current year)Method (b): 82.36% of 44201.82 = 11696.98
(Net profit earned for current year)
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Net change in P&L statement:= 12702.32 – 11696.98= Rs. 1005.34 (Net effect of changing Method)
Project 224:Method (a):
11486.84 completed100250.00 total task111736.84
Total 10.28% task completed.Method (b):
12250 task completed121950 task task
Total 10.05% task completed.Net profit = Net Billing – Cost
= 12250 – 11486= Rs. 763.16.
Entire profit will transfer to contingency reserve.Ans 2.
Method (a):Capital & Liabilities AssetsReserve & surplus:Contingency Reserve 7227.58Surplus 6990.92Method (b):Capital & Liabilities AssetsReserve & surplus:Contingency Reserve 7058.87Surplus 5759.63
Answer 3:Net Profit:
Additional Billing 8030 (125000 – 116970)Estimated cost 6230 (106230 – 100000)Net profit 1800
* Percentage compelation byMethod (a) (49.17%) = 885.02
Percentage compeletion byMethod (b) (50.35%) = 906.38
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Net Effect on profit 21.35
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Answer 4:Mr John would prefer Method A, as profitibility of Method A is higher than
profitibility of Method B.
CASE NO. 6.2GOLDEN GATE HOLIDAY RESORT LTD.
Ans 1.1. Copntribution from members (fees) can be capitalised. And revenue generating
from that would be reserve for the period.2. Identification of Real value of contribution for 99 years and then amortisation of
that fees.Ans 2.
Effect of on Accounts:1.* Contribution on liability side.* Only return will be shown in the P&L Account.2.* Revenue Income (Amrtised value) = Proporturate Revenue Regonition
Real value of contribution/99 years.* If instalment system is followed then proporturate division of EMI will be treated
as revenue and will be shown in P&L credit side.Ans 3.
Second option is preferable because it reflects the revenue of primary business.
CASE NO. 7.3CALCUTTA MOTORS PVT. LTD.
1. If there is no estimate for future warranty of repair cost, then current year’s financial statement will show higher profit and results into outflow of current tax and return to stake holders.
2. Mr Bannarji should make estimate for outstanding warranty expenditure on the basis of some reasonable percentage on sale made.
3. Adding 2% warranty on expenditure (As per Income Tax Act in India) in Profit & Loss account and then profit should be found. The second effect will be on the provision side of Balance Sheet.
CASE NO. 7.4VAT IN DAT
As per AS 2, Inventory should be valued net of MODVAT e.g.Purchase Price × × × ×MODVAT × × ×
Net value of Inventory × × × × MODVAT has been replaced by SENVAT in the year 2004.
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CASE NO. 8.1CONTROL DATA CORPORATION
Solution 1As manufacturing cost of product is 50% of the selling piece of the listed selling price, it can be possible to spend on maintenance of computer to increase the life of the product. If possible, life of computer can be increased by 2 more years. Given figures of cost of specification of computer it is always possible to increase the life of product.Solution 2Yes, CDC should change the department policy. Simple WDV would be more preferable for six years. Depreciation rate will end up around 16.677, which will give stability in cost and profit. As depending on nature of business, depreciation shares 317 of the total cost which is considerable. Written Down Value (WDV) method will give constitency in cost structure in long run..
CASE No. 8.2National Pharma Ltd
Solution 1. Managerial factors :*To sustain goodwill of the organisation or net profit is negative with present policy.*To identify appropriate policy for depreciation that suits to the company.*Present performance of the company will not show sound and rosy picture of the
organisation so far reporting to shareholders and other external associates some adjustments in financial statement is required.
*To sustain dividend policy. For dividend policy decision led to reconsider the policy.Operational Factors :
*Profit will turn from negative to positive. It will save the doubts of operational efficiency of business.
*To identify appropriate policy for depreciation, in terms of accounting of usage of fund since the doubts are raised by the secretary which will demand another thought about companies policy.
*Reduction of Net profit ratio from 4% (app.) to – 127. (app.) the strong factor to think over operational issues. Depreciation policy is one of them.Financial
*To have an ideal Dividend Policy decision for the current year. And use this experience in future to divide such situation.
*Interest exp. is increased by more than five times. It will give considerable effect on financial statement as interest are paid to long term loans which are taken for long-term assets in general.
*To get an advantage of current amendment of financial policies of government for example revised depreciation rates.
Solution 2Suggested changes in accounting policy for depreciation is valid for the current year. Because profit with suggested policy is getting increased by Rs. 54,89,000. So far the current year, it is better to change the policy. Another reason, This action will reduce
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current assets (by reducing inventory) of increase in Fixed Assets which is positive move for the better financial reporting.Solution 3No. change in the depreciation policy is not the permanent solution. This proposed change will differentiate the financial statement from the financial statement reported policy then their would be serious question mark for the past performance. Because it can be taken as c past attempt to create the secrete reserve.Solution 4Impect of taxation wound be as per the current rate. This action will increase tax.
CASE NO. 9.3RAINBOW PAINTS LTD.
No Accounting standard for R&D.(A) Amalgumation of Nature of Purchase.
Balance Sheet
Capital-Liabilities Assets
Share capital FA (3000 + 200) 3200(500 + 200) 700 Investment 60
Reserve & Surplus: Current AssetsReserve 1500 (1940 + 75) 2075Loans
(2500 + 50) 2550Current Liabilities
(500 + 25) 525
5275 5275
(B) The company can show the same as the Amalgamation of Nature of merger in which all Assets and Liabilities will merge with acquiring company and Net impact of change will be given to reserve and surplus. Investment (60) will be eliminated from investments.
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