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FINANCIAL & MANAGEMENT ACCOUNTING

SET – 1

Question 1. Explain the differences between Financial Accounting and


Management Accounting.

Solution:

The major differences between financial accounting & management accounting are as
under :

Financial Accounting Management Accounting


• The primary users of financial • Top, middle and lower level
accounting information are managers use the information for
shareholders, creditors, planning and decision making.
Government Authorities, employees
etc.
• Accounting information is always • Management accounting may adopt
expressed in terms of money. any measurement unit like labour
hours, Machine hours or product
units for the purpose of analyses.
• Financial data is presented for a • Reports are prepared on continuous
definite period, say one year or a basis, monthly or weekly or even
quarter. daily.
• Financial accounting focuses on • Management accounting is oriented
historical data. towards future.
• Financial accounting is a discipline • Management accounting makes use
by itself and has its own principles, of other disciplines like economics,
policies and conventions. management, information system,
operation research etc.
Question 2. Hiran, a retailer, has prepared the following balance sheets for the
years ending 31st March 2004 and 2005:

Balance Sheets as on 31st March, 2004 and 2005

Particulars 2004 2005


Freehold property at cost 200000 200000
Furniture 32000 8000 30000 10000
Less depreciation 20000
23200
Current Assets: 36000 34000
Stock 50000 34000
Debtors and prepayments 4000 2000
Cash in hand and at bank

Liabilities: 254800 260000


Capital 24000 20000
Trade and accrued 20000 -------
expenses
Loan account
Total 298800 280000

Solution:
Hiren

Statement of changes in financial position on working capital basis.

Particulars Prev. Year Current Year Increase (+) Decrease (-)


Current Assets
Stock 36000 34000 2000
Debtors & prepayments 50000 34000 16000
Cash in hand & bank 4000 2000 2000

Current Liabilities
Trade & accrued 24000 20000 4000

4000 20000

Answer = Decrease Rs. 16000/-


Question 3. Enter the following transactions in proper subsidiary book. Find out
the total of:

a) Purchase book
b) sales book
c) purchase return book
d) sales return book.

Jan 1 Purchase goods from Karthik 34000


5 Sold goods to Vinay 12000
7 Sold goods to Nagaraj 10000
10 Bought goods from Vikas 40000
12 Bought goods from Naveen 102000
14 Vinay returned goods 3000
15 Bought goods from Brinda 100000
18 Returned goods to Karthik 4000
19 Returned goods to Naveen 8000
20 Sold goods to Gururaj worth Rs. 20000 subject to a trade discount of 25%
22 Nagaraj returned goods 2000
25 Bought goods from Anand 45000

Solution:

Purchase book

Date Name of Supplier / Creditor Ledger Inward Amount (Rs.)


Folio Invoice No.
Jan 01 Karthik 34000.00

Jan 10 Vikas 40000.00

Jan 12 Naveen 102000.00

Jan 15 Brinda 100000.00

Jan 25 Anand 45000.00


------------------
Total 321000.00
Sales book

Date Name of customer / debtor Ledger Outward Amount (Rs.)


Folio Invoice No.
Jan 05 Vinay 12000.00

Jan 7 Nagaraj 10000.00

Jan 20 Gururaj 15000.00

------------------
Total 37000.00

Purchase Return book

Date Name of Supplier / Creditor Ledger Debit note Amount (Rs.)


Folio No.
Jan 18 karthik 4000.00

Jan 19 Naveen 8000.00


------------------
Total 12000.00

Sales Return book

Date Name of customer / debtor Ledger Credit note Amount (Rs.)


Folio No.
Jan 14 Vinay 3000.00

Jan 22 Nagaraj 2000.00


------------------
Total 5000.00
Question 4 (a) On 01-04-2007 Mr. Gundu Rao stated business with Rs. 3, 00,000
cash and opened a bank account with Rs. 1,50,000. He purchased furniture for his
business for Rs. 25000. Goods were bought from selvaraj for Rs. 50000 on credit.
He sold goods for Rs. 27000 in cash and Rs. 30000 on credit. He paid Rs. 2500 for
business expenses during April month. Rs. 10000 was withdrawn for office
purpose form the back. Find out the closing balance of cash and bank.

Solution:

Two column cash book of Mr. Gundu Rao

Date Receipts Cash Bank Date Payments Cash Bank


2007 2007
Apr. 01 To Capital 300000 April 01 By bank ( C ) 15000
0
To Cash ( C ) 150000 By Furniture
25000
To Sales 27000 By Business exp.
2500
To bank ( C ) 10000 By Cash ( C ) 10000

By Balance c/d 140000


15950
Total 337000 150000 Total 0 150000

33700
0
Question 4 (b) Following are the extracts from the Trial Balance of a firm as on 31st
December 1998:

TRIAL BALANCE

Particulars Dr. Cr.


Salaries A/c 10,000
Rent a/c 5,000

I. Salary for the month of December Rs.2000 has not yet been paid.

II. Rent amounting to Rs.1000 is still outstanding


You are required to pass the necessary adjusting entries and show how the above
items will appear in the Firm’s Account.

Solution:
Adjustment entries as on 31st December 1998

Date Particulars Ledger Folio Debit Credit


31 Dec 1998 Salary a/c Dr. 2000
To Outstanding Salary a/c 2000
(Salary has not yet been paid)
31 Dec 1998 Rent a/c Dr. 1000
To Outstanding Rent a/c 1000
(Outstanding rent)

Salary Account

Date Particulars Ledger Folio Debit Credit


31 Dec 1998 To Balance b/d 10000
To Outstanding Salary a/c 2000

By Balance c/d 12000


Rent Account

Date Particulars Ledger Folio Debit Credit


31 Dec 1998 To Balance b/d 5000
To Outstanding Rent a/c 1000

By Balance c/d 6000

Outstanding Salary Account

Date Particulars Ledger Folio Debit Credit


31 Dec 1998 By Salary a/c 2000

To Balance c/d 2000

Rent Account

Date Particulars Ledger Folio Debit Credit


31 Dec 1998 By Rent a/c 1000

To Balance c/d 1000


Question 5. From the following figures extracted from the book if Shri Govind,
you are required to prepare a Trading and Profit & Loss Account for the year
ended 31st March, 1999 and a Balance Sheet as on that date after making the
necessary adjustment.

Particulars Amount Rs Particulars Amount Rs.


Shri Govind’s 228800 Stock 1.4.1999 38500
Capital
Shri Govind’s 13200 wages 35200
Drawings
Plant and 99000 Sundry Creditors 44000
Machinery
Freehold Property 66000 Postage and 1540
Telegrams
Purchases 110000 Insurance 1760
Returns Outwards 1100 Gas and Fuel 2970
Salaries 13200 Bad Debt 660
Office Expenses 2750 Office Rent 2860
Office Furniture 5500 Freight 9900
Discounts A/c 1320 Loose Tools 2200
(Dr.)
Sundry Debtors 29260 Factory Lighting 1100
Loan to Shri 44000 Provision for D/D 880
Krishna @
10% p.a. –
balance on
1.4.1999
Interest on loan to Shri Krishna 1100

Cash at Bank 29260 Cash in Hand 2640


Biils Payable 5500 Sales 231440

Adjustments

1. Stock on 31st March, 1999 was valued at Rs. 72,600


2. A new machine was installed during the year costing Rs. 15,400, but it was not
recorded in the books as no payment was made for it. Wages Rs. 1,100 paid for
its erection has been debited to wages account.

3. Depreciate: Plant and Machinery by 33 1/3 %


Furniture by 10%
Freehold property by 5%

4. Loose tools were valued at Rs. 1,760 on 31.3.1999.

5. Of the Sundry Debtors Rs. 600 are bad and should be written off.

6. Maintain a provision of 5% on Sundry Debtors for doubtful debts.

7. The manager is entitled to a commission of 10% of the net profits after


charging such commission.
Solution:

Shri Govind
Trading and profit & loss accounts
For the year ended on 31st March 1999

Particulars Amount Particulars Amount


To Opening Stock 38500 By Sales 231440
To Purchase 110000 By Closing Stock 72600
Less Pur. Return 1100 109900
To Wages (35200-1100) 34100
To Gas & Fuel 2970
To Factory Lighting 1100
To Freight 9900
To Gross Profit c/f to P&L a/c 107570
304040 304040

To Salaries 13200 By Gross Profit B/d 107570


To Office Expenses 2750 By Interestv on
To Discount 1320 loan to krishna 1100
To postage & Telegrams 1540
To Insurance 1760
To Bad Debts (660+600) 1260
To Provision for D. Debts 2233
To Office Rent 2860

To Depreciation 42790
Plant & Mach. @ 33% 38500
(99000+15400+1100)
Furniture @ 10% 550
Freehold prop. @5% 3300
Loose Tools
(2200.1760) 440
--------
42790

To Commission @ 10% of NP 3896

To Net Profit Trf to B.sheet 35061

108670 108670
Shri Govind
Balance Sheet
As On 31st March 1999

Liabilities Amount Assets Amount


Shri Givind’s Capital 228800 Fixed Assets
Less : Drawings -13200 Plant & Mach. 77000
--------- (99000+15400+1100-38500)
215600
Add. : Net Profit 35061 250661 Freehold Property 62700
---------
Office Furniture 4950
Current Liabilities
Bill Payable 5500 Loose Tools 1760
Sundry Creditors 59400
(44000+15400) Current Assets
Commission Payable 3896 Cash in hand 2640
Cash at bank 29260
Provisions Sundry Debtors 27227
Provision for D.Debts 2233 (29260-600-1433)
Closing Stock 72600

Loans & Advances


Loan to Krishna 44000

321690 321690
Question 6. Differentiate between Standard Costing & Budgetary Control.

Solution:

The main differences between standard costing and budgetary control are as under:

1. The scope of budgetary control is wide. It is integrated plan of action, a


coordinated plan in respect of all functions of an enterprises. The scope of
standard costing, on the other hand, is limited to the operating level. Here too, it is
further linked to costs. Budgetary control is extensive whereas standard costing is
intensive in its application.

2. Budgetary control deals with cost and revenues. But standard costing restricts
only with costs.

3. Budgetary control takes into account all activities such as production, sales,
purchase. Finance, capital expenditure, whereas standard costing is restricted to
deals with only costs.

4. Budgetary control targets are based on past actual adjusted to figure trends. In
standard costing, standards are based on technical assessment.

5. At the approach level, budgeted targets work as the maximum limit of expenses
above which the actual expenditure should not normally exceed. Under standard
costing, standards are attainable level of performance.

6. Budget are projection of final accounts. Standard costs are projection of only cost
account.

7. Budgetary control emphasis the forecasting aspects of the future operation.


Standard costing scope and utility is limited to only operating level of the
concern.

8. Budgetary control is possible in parts of expenses according to the attitude of


management. A standard costing system can not be operated in parts. All item of
expenditure in cost units are to be accounted for.