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in ADL 03 Accounting For Managers v4+ For solution to this assignment call at 09810366355 or visit www.educare4u.in
Assignment - A
Problem 1: Journalize the following transactions in the books of Mr. Walter: a) Paid rent of building $ 12,000 half of the building is used by the proprietor for residential use. b) Paid fire insurance of the above building in advance $ 1,000. c) d) e) f) Paid life insurance premium $ 2,000. Paid income-tax $ 3,000. Salary due to clerk $ 500. Charge depreciation on furniture @ 10% p.a. for 1 month (furniture $ 12,000).

g) Provide interest on capital ($ 60,000) at 15% p.a. for 6 months, h) Charge interest on drawing (10,000) at 18% p.a. for 6 months. i) Provide interest on loan to Ram ($ 100,000) at 18% p.a. for 2 months, j) Charge interest on loan to Shyam ($ 200,000) at 18% p.a. for 2 months, k) Received commission $ 1,000 half of which is in advance. I) Brokerage due to us $ 500. Problem 2:

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From following figures extracted from the books of Mr. XYZ, you are required to prepare a Trading & Profit & Loss Account for the year ended 31st March, 2008 and a Balance Sheet as on that date after making the necessary adjustments.

Mr. XYZ's Capital Mr. XYZ' Drawings Plant & Machinery Freehold property Purchases Rtuens outwards Salaries Office Expenses Discount A/c (Dr.) Sundry Debtors Loan to Mr. Krish @10% p.a. Balance on 1.4.2007 Cash at bank Bills payable

$ 228,800 Stock 1.4.2007 13,200 Wages 99,000 Sundry creditors 66,000 Postage & Telegrams 110,000 Insurance 1,100 Gas & fuel 13,200 Bad debts 2,750 Office rent 5,500 Loose tools 29,260 Factory lighting 44,000 Provision for doubtful debts Interest on loan to Mr. Krish 29,260 Cash in hand 5,500 Sales

$ 38,500 35,200 44,000 1,540 1,760 2,970 660 2,860 2,900 1,100 880 1,100 2,640 231,440

Adjustments: a) Stock on 31st March, 2008 was valued at $ 72,600

b) A new machine was installed during the year costing $15,400 but it is not recorded in the books as on payment was made for it. Wages $ 1,100 paid for its erection has been debited to the wages account. c) Depreciate :

a. Plant & machine by 33.33% b. Furniture by 10% c. Freehold property by 6%

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d) e) f) Loose tools were valued at $ 1.760 as on 31.3.2008 Of the sundry debtors Rs.660 are bad and should be written off. Maintain a provision of 5% on sundry debtors for doubtful debts.

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g) The manager is entitled to a commission of 10% of the net profits after charging such commission. Problem 3: Following is the Trial Balance of M/s. Trinity Foods as on 30th June 2007 (after closing Nominal Accounts). Prepare a Balance Sheet on the basis of this trial balance.

Particulars Cash Capital Bank Furniture Ram Rahim Trading & Profit & Loss

Debit (Rs.) Credit (in Rs.) 10,000 100,000 77,000 25,000 15,000 50,000 47,000 162,000 162,000

Problem 4: Given below are the financial statements of Safal Enterprises, using the tool of ratio analysis comment on the profitability and liquidity position of the firm for the year 200607. Total no. of shares outstanding for the firm is 2.69crores. In the view of growth opportunities in the near future the firm has been maintaining a policy of 45% payout.

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Summarized P & L of Safal Enterprises For the year ended 31 March 2006 2007 ( Rs. In crores) 132.00 144.00 12.00 15.00 102.96 110.02 29.04 33.98 12.44 4.42 24.18 3.00 21.18 7.94 13.24 14.36 5.36 29.26 4.01 25.26 9.47 15.79

Particulars Sales Other income Cost of sales Gross margin Operating expenses Administration Selling & distribution Profit before interest & tax (PBIT) Interest Profit before tax (PBT) Provision for taxes Profit after tax (PAT)

Balance Sheet of Safal Enterprises

Particulars Assets Fixed assets Current assets Inventory Accounts receivable Cash Less: Current liabilities Net current assets Total Assets Liabilities &owners equity Share capital Reserves & Surplus Debt(bng term)

31/03/06

31/03/07 (Rs in crores) 31.25 14.56 13.20 1.50 8.55 20.71 51.96 27.00 4.96 20.00 37.50 16.64 15.43 1.75 11.25 22.57 60.07 27.00 6.36 26.71

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Total 51.96 60.07

Problem 5: Given below are the balance sheets of the two firms- Gloria Ltd and Victoria Ltd as on 31st March 2007.

Gloria Ltd. Assets Cash and Bank balance Marketable securities Sundry debtors Prepaid expenses Current Assets Fixed Assets (Net) Total Assets Liabilities and Owners Equity Sundry creditors Notes payable Long term debt Equity Total 12.70 10.00 22.00 93.50 1.12 139.32 589.00 728.323 6.75 6.56 130.01 585.00 728.323

Victoria Ltd. 38.60 21.00 23.70 162.45 2.14 247.90 642.00 889.895 26.45 6.45 345.00 512.00 889.895

Can the financial positions of the two firms be compared assuming that the two firms fall in the same industry?

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Assignment - B
Problem 1: Find out the cost of raw material purchased from the data given below:

Particulars Prime cost Closing stock of raw material Direct labour cost Expenses on purchases' Problem 2:

Rs. 200,000 20,000 100,000 10,000

The product of a manufacturing concern passes through two processes A and B and then to finished stock. It is ascertained that in process A normally 5% of the total input is scrap which realizes Rs. 80 per tone. From the following information relating to process A for the month of August 2007, prepare process A account Materials Cost of materials Wages Manufacturing overheads Output 500 tonnes Rs. 125 per tonne Rs. 14,000 Rs. 4,000 415 tonnes

Problem 3: Ahmedabad Company Ltd. manufactures and sells four types of products under the brand name Ambience, Luxury, Comfort and Lavish. The sales mix in value comprises the following: Brand name Percentage Ambience 33 1/3

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Luxury Comfort Lavish 412/3 16 2/3 8 1/3 _____ 100

The total budgeted sales (100%) are $ 600,000 per month. The operating costs are: Ambience Luxury Comfort Lavish 60% of selling price Luxury 68% of selling price Comfort 80% of selling price Lavish 40% of selling price

The fixed costs are $. 159,000 per month. A) Calculate the breakeven point for the products on an overall basis. b) It has been proposed to change the sales mix as follows, with the sales per month remaining at $. 6,00,000:

Brand Name Ambience Luxury Comfort Lavish

Percentage 25 40 30 05 -------100

Assuming that this proposal is implemented, calculate the new breakeven point.

Case study:

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Bajaj Auto Limited: The Unprecedented Growth Story Bajaj Auto Limited is the flagship company of the Bajaj Group. The company manufactures two & three wheelers. Mr. Rahul Bajaj is the present Chairman of the company. The company was incorporated in the year 1945 as M/s Bachraj Trading Corporation Private Ltd. The promoters hold about 30% equity, whereas Indian public holds about 26% and institutional investors have more than 27% stake in the company. The products manufactured by Bajaj Auto are scooters, motor cycles, auto spares parts, machine tools, steel and engineering products. The company also produces threewheelers as goods carriers such as pick-up or delivery vans and passenger carriers such as auto-rickshaws. Bajaj Auto has a network of 498 dealers, 1,500 authorized service centres and 162 exclusive three-wheeler dealers spread across the country. Bajaj Auto has also diversified into the general as well as life insurance business through its subsidiaries Bajaj Allianz General Insurance Company Ltd, respectively. The Bajaj brand has presence in many countries such as Sri Lanka, Mexico, Bangladesh, Columbia, Peru, Egypt, etc. The main competitors of the company in the two-wheelers and threewheelers segment are- Hero Honda Motors Ltd, Kinetic Motor Co Ltd, LML ltd, Maharashtra Scooters Ltd, and TVS Motor Co. Ltd. The company sold close to 23 lakh vehicles in 2005-06, which is a record performance in its history. The sales of motorcycles manufactured grew by 32% in 2005-06 compared to a market growth of below 19%. For the fifth successive year, the company raised its market share in the motorcycle segment. Today it stands at almost 31%. Sales increased by almost 31% to an all-time high of Rs 9,285 crore in 2005-06. the export of the company in all its product categories has also been unprecedented during the FY 2005-06 as is reflected in the figures given below: Table A Product-wise exports of Bajaj Auto Ltd Product Motorcycles Total two-wheelers Three-wheelers Total vehicles 2005-06 (in numbers) 165,288 174,907 75,297 250,204 2004-05 123,946 130,945 65,765 196,710 Growth (in percentage) 33 34 14 27

Even more impressive has been the growth in company's operating EBITDA, which increased by 47% to touch Rs 1805 crore during 2005-06. Consequently the operating EBITDA margin grew by 220 basis points to 17.9% of the sales and operating income. Earnings per share have been risen from Rs 75.60 to Rs 111.00 in the current year.

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Dividend too has grown to Rs 40 per share (400%) for the year ended 31st March 2006 as against Rs 25 per share in 2005. Over the past few years, Bajaj Auto has focused on his technology development, and product development in anticipation of market needs, scaling up its manufacturing facilities, implementing best-in-class production systems, rationalizing vendors, slashing costs while upgrading quality, restructuring dealerships, and distribution channels. These capabilities enabled the company to create exciting new products, which have set benchmarks in styling, design, and technology. The company's products are creating a customer pull at all price points and the company has now transformed from being a price warrior to a price leader. The results of these strategies are reflected in its financial statements as follows (refer Table B and C): Table B Profit and Loss Account for Bajaj Auto Ltd for the year ended March 2003 Sales Other income Change in stocks Expenditure Profit & Loss 4987.05 297.10 32.92 5317.07 4335.16 March 2004 March 2005 March 2006 (Rs in crore) 5721.44 7078.06 9284.84 507.04 516.41 602.52 10.87 -11.57 50.10 6239.35 7582.90 9937.46 5017.92 6286.91 8131.87

PBDIT 981.91 1221.43 1295.99 1805.59 Interest 1.12 0.94 0.67 0.34 Depreciation 171.42 184.32 185.66 191.28 PBT 809.37 1036.17 1109.66 1613.97 Tax provision 274.44 285.41 349.32 509.37 PAT 534.93 750.76 760.34 1104.60 Dividends 159.81 285.37 288.64 461.50 Table C Assets and Liabilities of Bajaj Auto Ltd as on 31 March 2006

Liabilities Net Worth

Mar 05 Mar 06 Assets Rs in crore 4447.16 5349.79 Gross fixed assets

Mar 05 Mar 06 Rs in crore 2870.02 3092.28

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Paid up Equity capital Bonus Equity capital Minority interest Reserves & Surplus Free reserves Share premium reserves Other free reserves Specific reserves Borrowings Deferred tax liabilities Current liabilities & provisions Sundry Creditors Other current liabilities Provisions 101.18 114.17 89.46 4256.52 4233.28 87.07 4146.21 23.24 1229.17 139.90 4284.64 833.86 1169.04 2281.74 101.18 Capital WIP 114.17 Less: cumulative depreciation 148.79 Net fixed Assets 5099.82 Investments 5076.58 Deferred tax assets 285.78 Inventories 4790.80 Receivables 23.24 Sundry debtors 1469.44 Debtors exceeding 6 months 87.58 Advances/loans to corporate bodies 7773.20 Group/associate companies 1404.40 Other companies 3674.37 Advance payment of tax 2694.43 Other receivables Cash & Bank balance Intangible/DRE not written off 9.14 1660.32 1205.64 5273.83 9.20 224.70 3116.05 176.97 0.20 62.29 34.44 27.85 1823.60 1053.19 266.88 4.57 25.26 1834.19 1230.77 6865.43 6.43 274.47 5799.11 302.54 1.13 33.66 19.41 14.25 1869.40 3593.51 476.48 27.32

Total Liabilities

10100.87 14680.01 Total Assets

10100.87 14680.01

Notwithstanding its excellent financial performance in the years following its major strategic shift, the management of the firm believes in the philosophy that the quest for perfection is eternal. To preclude the complacency from setting in, the management not only sets higher standards it also continuously monitors its performance and benchmarks with the industry performance in general and their closest competitors' results in particular. Discuss

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1. Is the profitability performance of the firm satisfactory? If not, how can it be improved? 2. How attractive is the firm from the short-term and long-term lenders, perspective? Does the firm appear to be the favorite destination in the automobile sector (two-wheelers and three-wheelers segment) for the lenders? 3. How efficient is the firm been in utilizing the resources at its disposal? How do you think the company can improve upon its efficiency?

Assignment - C
Mark 'True' or 'False': 1. 2. Accounting is a language of business. Accounting is a service function.

3. Accounting records only those transactions and events which are financial character. 4. 5. Drawings reduce capital. Capital is increased by profit and decreased by losses.

6. The system of recording transaction on the basis of their two old aspects is called double entry system. 7. 8. 9. 10. 11. Purchases made from B for cash should be debited to B. Earnings of revenue means increase in Cash/Bank balance The balance of an account is always known by the side which is shorter. The return of goods by a customer should be debited to Returns Inwards Account. Goods bought for resale are referred to as Stocks

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12. If the business has any liability, the proprietor's capital must be more than the total assets. 13. 14. 15. 16. 17. 18. Withdrawal of money by the owner is an expense for the business. Ledger is called the book of final entry. Cash book is used to record all receipts and payments of cash. Sales book is used to record all credit sales. The journal is not a book of original entry. Goodwill is an intangible asset.

19. Salaries & Wages appearing in the trial balance are shown on the liabilities side of the balance sheet. 20. The profit & loss account is one of the financial statements.

21. Share having preferential right as to dividend and repayment of capital are termed as equity share capital. 22. Shares which are not preference shares are called equity shares.

23. The amount of share premium received by the company is shown under the heading reserves & surplus in the company's balance sheet. 24. Debenture holders are not the member of the company.

25. There are no legal restrictions, similar to shares, for issue of debentures at discount. 26. 27. 28. 29. Fixed cost per unit remains constant. Direct cost is that cost which can not be easily allocated to cost units. Selling overheads form a part of cost of production. Manufacturing and administrative overheads are different.

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30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. Total fixed cost remains unaffected by the change in volume of output. Variable cost per unit remains fixed. In chemical industries unit costing is used. The output of a process is transferred to next process. Good units bear the abnormal loss arising in the process costing. Excess of pre-estimated loss over actual loss is known as abnormal loss. Marginal costing is a method of ascertaining cost. A firm earns no profit or incurs no loss at BEP. Margin of Safety implies 'Break Even Point'. In marginal costing, stock is valued at fixed costs. Sales below BEP mean profit.

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