Accounting for ManagersPART A (Descriptive Type) = 27 PART B (Case Study) = 4 PART C (Short Question) = 160 Instant Downloadable Solution from AiDLo.com PART A Descriptive Type Question Question 1: From the following particulars, prepare a haw, reconciliation statement, showing the balance as per pass book on 31st March, 1979: The following cheques were paid into firm's current account in March, 1979, but were credited by the bank in April, 1979.A=Rs. 2,500, B=Rs. 3,500 and C=Rs. 1,900.The following cheques were issued by the firm in March, 1979 and are cashed in April, 1979.P= Rs. 2,500, Q=Rs. 4,500 and R=Rs. 4,000.A cheque of Rs. 1,000 which was received from a customer was entered in; the bank column of cash book in March, 1979. but the same was paid into the bank in Awn), 1979.The pass book shows a credit of Rs. 2,500 for interest and debit of Rs.1000 for bank charges. The balance as per cash book was Rs. 1,80,000 on 31st March, 1979. Question 2: Inder drew upon on Mohan a bill for Rs. 9,000 on 1 April for three months, forth mutual accommodation. Mohan accepted the draft. On 4 April Inder got it discounted at 6% p.a. and remitted one-third of the proceeds to Mohan. At maturity, Inder was not able to send the required sums and asked Mohan to receive two month Promissory Note for Rs 6,090 which Mohan did. Mohan go to the note discounted for Rs 6,000 and met his acceptance. Inder became insolvent just before his Promissory Note was due for payment. Only 50% was received from his estate. Give Journal entries in the books of both Inder and Mohan. Question 3(a): What do you understand by the concept of conservatism? Why is it also called the concept of prudence? Why is it not applied as strongly today as it used to be in the Past? Question 3(b): What is a Balance Sheet? How does a Funds Flow Statement differ from a Balance Sheet? Enumerate the items which are usually shown in a Balance Sheet and a Funds Flow Statement. Question 4: 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) Paid life insurance premium $ 2,000. d) Paid income-tax $ 3,000. e) Salary due to clerk $ 500. f) 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 Question 5: Name the accounting concept violated, if any, in each of the following situations and explain them in detail. a) The Rs 1,00,000 figure for inventory on a Balance Sheet is the amount for which it could be sold on the balance sheet date. b) The Balance Sheet of a retail store which has experienced a gross profit of 40% on sales contains an item of merchandise inventory of Rs. 1,15,00,000 Merchandise inventory (at cost) Rs 69,00,000. c) Company M does not charge annual depreciation, preferring instead to show the entire difference between original cost and proceeds of sale as a gain or loss in the period when the assets is sold. It has followed this practice for many years. Question 6: From the following Trial Balance extracted from the books off M/s Jayshee Trade, Bombay, prepare Trading and Profit and Loss Alc for the year ended 31 Dec. 1992 and a Balance sheet as on that date: You are given following further information: 1. Interest of Rs.150 was due from bank but it was not received 2. It was decided to increase Reserve for bad and doubtful debts to Rs.2,800 after writing off Rs.500 as bad debts during the year. 3. Provide depreciation at 5% p.a. on building and 10% p.a. on Furniture & Fixture. 4. A Bill of Rs. 250 for printing of advertisement in newspaper remained unpaid at the end of the year. Question 7: What is meant by financial statements? Discuss the utility and significance of financial statements to various parties interested in the business concern? Question 8: What is a trial balance? What are the different columns of a trial balance? Explain the different methods of preparing trial balance. Question 9: On 1st July 1994, Raj & Co. purchased machinery worth Rs. 40,000. On 1st July 1996 it buys additional machinery worth Rs. 10,000. On 30th June, 1997, half of the machinery purchased on 1st July 19:94 is sold for Rs.9.500. The company writes off 10% on the original cost. The accounts are closed every year on 31st December. Show the machinery account for four years accounts are closed on December 31, ever year. Question 10: Balance Sheet of ASD Co. Ltd. At the end of the 2005 and 2006 are given below: Liabilities Share Capital Share Premium General Reserve Profit & Loss A/C 12% Debenture Provision for Dep. On Plant Provision Furniture for Dep. On 2005 1,00,000 --50,000 10,000 70,000 50,000 5,000 20,000 86,000 2006 1,50,000 5,000 60,000 17,000 50,000 56,000 6,000 30,000 95,000 Assets Freehold Land Plant at Cost Furniture at Cost Investments cost Debtors Stock 60,000 Cash 30,000 at 2005 1,00,000 1,04,000 7,000 60,000 30,000 65,000 45,000 2206 1,00,000 1,00,000 9,000 80,000 70,000 Provision for Taxation S. Creditors TOTAL 3,91,000 4,69,000 3,91,000 4,69,000 A Plant purchased for Rs. 4,000 (Depreciation Rs 2,000) was sold for cash for Rs800 on 30th September, 2006. On 30, June 2006, an item of furniture was purchased for Rs. 2,000. These were the only transactions concerning fixed assets during 2006. A dividend of 22.5 % on original shares was paid. Question 11: The Cash book of Mr A shows Rs. 8,364 as the balance at bank as on 31st December 2006 but you find that this does not agree with the balance as per Bank Pass Book. On scrutiny, you find following discrepancies. 1. On 15th December, the payment side of the Cash Book was under cast by Rs 100. 2. A cheque for Rs. 131 issued on 25 December, was recorded in the Cash column. 3. One deposit of Rs. 150 was recorded in the Cash Book as if there is not Bank column there in. 4. On 18th December, the debit balance of Rs. 1,526 as on the previous day, was brought forward as a credit balance. 5. Of the total cheques amounting to Rs. 11,514 drawn in the last week of December, cheques aggregating Rs 7,815 were encashed in December. 6. Dividends of Rs.250 collected by the bank and subscription of Rs.100 paid by it, were not recorded in the cash book. 7. One out going cheque of Rs. 350 was recorded twice in the cash Book. Prepare Bank Reconciliation Statement as on 31 December 2006. Question 12:. "Cost may be classified in a variety of ways according to their nature and, the information needs of the manage meant". Explain. Question 13: On 31st March 2006 the following Trail Balance has been extracted from the books of a Rahul. Dr. Balance Cr. Balance Drawings account Sundry Debtors Interest on Loan Cash in Hand Opening Stock (01.04.05) Moto r Vehicles Cash at Bank Land & Building Bad Debts Purchases Sales Return Carriage outward Advertisement General expenses Bills Recoverable 3000 19100 200 3050 5839 9000 4555 12000 625 67458 7821 1404 2264 4489 6882 Rahul's Capital A/c 30000 Sundry Debtors 8401 5% Loan on Mortgage(01.04.05) 8500 Bad Debts Provision 710 Sales 111243 Purchase Returns 1346 Discounts 440 Bills Payable 2714 Rent Received 250 5% . 500 is taken by proprietor for personal use and no entry for the same is made in books of acco unts. 4. 7. 2.03. Taxes & Ins. Prepaid insurance amounted to Rs 175. Question 15: From the ratios and other data given below for Bharat Auto Accessories Ltd. If any Question 14(b): Why do you understand by the term 'pay-out ratio'? What factors are taken into consideration while determining pay-out ratio? Should a company follow a fixed pay-out ratio policy? Discuss fully.10 22% 10% 278% 110% 3. 8. and motor Vehicles at 15% p. Salaries amounting to Rs 700 and Rates amounting to Rs 400 are due. 3891 Prepare Trading Profit & Loss account for the year ending 31.20 50 110% 5.a. 6. A Pro v.a. Provide manager's commission @ 5% on net profit after charging such commission.41 2.50 7.2006 and a Balance Sheet as on that date after considering following matters: 1.0% 25% 23% 11.01 4.75 9. Goods destroyed due to fire worth Rs 200.Carriage Inward Establishment 3929 8097 Rates. indicate your interpretation of the company's financial position.00 8. Year I Year II Year III Current Ratio Acid Test Ratio Working Capital Turnover (times) Receivables Turnover Average Collection Period (Days) Inventory to Working Capital Inventory Turnover (times) Income per Equity Share Net Income to Net Worth Operating Expenses to Net Sales Sales increase during the year 265% 115% 2.83 37 95% 6. Depreciate Land & Bulding at 5% p.11 5. 3. Stock a on 31.25 7.05 23% 16% 302% 99% 3. For Doubtful debts is to be brought upto 5% of sundry debtors. Goods worth Rs. 5.03.06 is Rs. Question 14(a): Discuss the importance of ratio analysis for inter-firm and intra-firm comparisons including circumstances responsible for its limitations.07% 8.6250.41 43 100% 6. operating efficiency and profitability. 000 95.000 were still due on 31st March.81.40.50.7.000 2. receipts Rs.000 40.000 By Machinery purchased (on 1.000 paid as insurance premium for the year ending 30th June. 2004 and the balance sheet as on that date.Cost of goods sold to Net Sales 70% Dividend per share Fixed Assets to Net Worth Net Profit on Net Sales Rs.000 61.000 1.20.00.09% 73% Rs.50.53. 1.21.000 2.2003) By Closing balance 9.3 18% 5.25. Receipts To Opening balance To Cash sales To Receipt from debtors To Misc. 2004. 3. 8.50.10.60.000 1. . 5.000 1.000.000 April On 31st 2004 Rs.000 1.000 1.3 22. 4. 2004 is as follows: Assets Liabilities and On 1st 2003 Rs. Bad debts written off were Rs.7% 2. Sundry debtors Stock Machinery Furniture Sundry creditors 1.5.0% Question 16: Bose has supplied the following information about his business for the year ended 31st March.03% 71% Rs. Wages amounting to Rs.000 9.000 Discount allowed totalled Rs.50.4% 7.2003) 1.000. 3 16.000 16. 2004 Prepare trading and profit and loss account for the year ended 31st March.000 March.000 7.21.10.000 40.93.000 1.10. The office expenses included Rs.000 ? ? 1.000 To Loan from Dass @ 9% per annum (taken on 1. Depreciation was written off on furniture @5% per annum and machinery @ 10% per annum under the straight line method of depreciation.10.000 and discount received was Rs.000 Payments By Payments to creditors By wages By Salaries By Drawings By Sunday office expenses Rs. 25. f) Dividends on shares Rs. 15.40. determine the bank balance as per pass book of Priya & Co. a) Credit balance as per cash book on 28th February. for which Priya & Co. as on 28th February 2008.500 and Rs.000 25.500 was presented for payment up to 28th February.000 units) Direct materials Direct labour Direct expenses Fixed overheads: Factory Administration Selling and Distribution 2. The cost estimates of the new product are as follows: Cost elements Rs. d) Out of the cheques of Rs. did not have any information. 15. 125 were also recorded only in the pass book. 7.20. the Company decides to introduce a new product with marginal investment but largely using the existing plant and machinery. 7.5% of factory overheads and 20% of selling and distribution overheads are variable with production and sales.000 5. 2008 was Rs.000 paid into the bank. Sales (6.750 were cleared and credited by the bankers.Question 17 (a): What procedure would you adopt to study the liquidity of a business firm? Question 17 (b) Who are all the parties interested in knowing this accounting information? Question 17 (c) What ratio or other financial statement analysis technique will you adopt for this.000 1.000 12.00. c) Bank charges made by the bank Rs.500 were collected by the bankers directly. 500 was recorded in the pass book. Question 19: A company manufactures a single product in its factory utilizing 600% of its capacity. Question 18: From the following particulars. Since the existing product could not achieve budgeted level for two consecutive years.000 21. e) Two cheques of Rs. 4. The selling price and cost details are given below: Rs.000 96.000 b) Interest charged by the bank up to 28th February Rs.000 19. per unit . 18.000 were issued but out of them only one cheque of Rs. Administrative overheads are wholly fixed. cheques of Rs. 8 lakh.000 units of the new product can be sold at a price of Rs.75 lakh.200 44.500 annually.50 2. What are the provisions of Accounting Standard 2 (AS-2) with regards to inventory valuation? Question 21: From following figures extracted from the books of Mr. 12. which would take the total cost of the project to Rs.200 99. after making assumption that the present investment is Rs. 8.200 Stock 1.000 1.000. 75. Question 20(a): What is Master Budget? How it is different from Cash Budget? Question 20(b): What are the various methods of inventory valuation? Explain the effect of inventory valuation methods on profit during inflation.Direct materials Direct labour Direct expenses Variable factory overheads Variable selling and distribution overheads 16. 2008 and a Balance Sheet as on that date after making the necessary adjustments. The fixed factory overheads are expected to increase by 10%.4. $ Mr.000 1. (b) Make any further observation/recommendations about profitability of the company on the basis of the above data. The company considers that 20% pre-tax and interest return on investment is the minimum acceptable to justify any new investment.000 66.760 2.800 13. XYZ's Capital Mr.00 1.500 35. XYZ' Drawings Plant & Machinery Freehold property Purchases Rtuens outwards Salaries 228.00 1. XYZ.100 13. However. you are required to prepare a Trading & Profit & Loss Account for the year ended 31st March.50 It is expected that 2.970 660 .2007 Wages Sundry creditors Postage & Telegrams Insurance Gas & fuel Bad debts $ 38. there will be an increase of working capital to the extent of Rs.540 1.00 15. Administrative overheads remain unchanged. You are required to (a) Decide whether the new product be introduced. 60 per unit. while fixed selling and distribution expenses will go up by Rs.000 110. 760 as on 31. Freehold property by 6% d) Loose tools were valued at $ 1.) 10.3. Wages $ 1.260 5.100 2.000 Office rent Loose tools Factory lighting Provision for doubtful debts Interest on loan to Mr.860 2. Plant & machine by 33.000 Credit (in Rs. Question 22: Following is the Trial Balance of M/s. Krish @10% p. f) Maintain a provision of 5% on sundry debtors for doubtful debts.2008 e) Of the sundry debtors Rs.100 880 1. 2008 was valued at $ 72. Balance on 1. Particulars Cash Capital Bank Furniture Ram Rahim Trading & Profit & Loss 50.500 Cash in hand Sales Adjustments: a) Stock on 31st March.100 paid for its erection has been debited to the wages account.000 100.500 29.600 b) A new machine was installed during the year costing $15.) 162.2007 Cash at bank Bills payable 2. Krish 2. Furniture by 10% c.400 but it is not recorded in the books as on payment was made for it. g) The manager is entitled to a commission of 10% of the net profits after charging such commission.000 162.440 29.900 1.000 77.) Sundry Debtors Loan to Mr.000 Debit (Rs. of . using the tool of ratio analysis comment on the profitability and liquidity position of the firm for the year 2006-07.33% b.Office Expenses Discount A/c (Dr.260 44. Trinity Foods as on 30th June 2007 (after closing Nominal Accounts). Prepare a Balance Sheet on the basis of this trial balance.4.000 15. c) Depreciate: a.750 5. Total no.640 231.000 47.a.660 are bad and should be written off.000 25.000 Question 23: Given below are the financial statements of Safal Enterprises. 50 .79 132.57 31.02 33.18 3.04 144.00 102.44 4.25 22.56 13.00 12.36 29.25 37.55 20.42 24.43 1.94 13. Summarized P & L of Safal Enterprises For the year ended 31 March 2006 Particulars ( Rs. In the view of growth opportunities in the near future the firm has been maintaining a policy of 45% payout.shares outstanding for the firm is 2.36 5.47 15.20 1.00 15.69crores. In crores) 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) 12.75 11.98 2007 Balance Sheet of Safal Enterprises 31/03/06 Particulars 31/03/07 (Rs in crores) Assets Fixed assets Current assets Inventory Accounts receivable Cash Less: Current liabilities Net current assets 14.50 8.71 16.64 15.26 4.24 14.18 7.96 29.00 110.26 9.00 21.01 25. 01 585.00 22.96 60.00 512.14 247.895 Victoria Ltd.00 51.000 .70 162.00 6.90 642.45 6.00 728.07 27.96 20. Gloria Ltd.45 2.323 889.00 4.32 589.75 6.00 23.50 1.Gloria Ltd and Victoria Ltd as on 31st March 2007.07 Question 24: Given below are the balance sheets of the two firms.00 93. Total 728.96 27.00 889.70 10.71 60. 200.895 Can the financial positions of the two firms be compared assuming that the two firms fall in the same industry? Question 25: Find out the cost of raw material purchased from the data given below: Particulars Prime cost Rs.Total Assets Liabilities &owners equity Share capital Reserves & Surplus Debt(bng term) Total 51.56 130. Assets Cash and Bank balance Marketable securities Sundry debtors Prepaid expenses Current Assets Fixed Assets (Net) Total Assets 12.323 Liabilities and Owners Equity Sundry creditors Notes payable Long term debt Equity 6.60 21.00 38.12 139.45 345.00 26.36 26. From the following information relating to process A for the month of August 2007.000 Rs. 80 per tone. 4.000: Brand Name Percentage . 14. A) Calculate the breakeven point for the products on an overall basis.000 415 tonnes Question 27: Ahmedabad Company Ltd. The operating costs are: Ambience 60% of selling price Luxury Luxury 68% of selling price Comfort Comfort 80% of selling price Lavish Lavish 40% of selling price The fixed costs are $. The sales mix in value comprises the following: Brand name Ambience Luxury Comfort Lavish Percentage 33 1/3 412/3 16 2/3 8 1/3 _____ 100 The total budgeted sales (100%) are $ 600. b) It has been proposed to change the sales mix as follows.000 100.00.000 per month.000 Question 26:The product of a manufacturing concern passes through two processes A and B and then to finished stock. Luxury.000 per month. Comfort and Lavish. 125 per tonne Rs.000 10.Closing stock of raw material Direct labour cost Expenses on purchases' 20. prepare process A account Materials Cost of materials Wages Manufacturing overheads Output 500 tonnes Rs. manufactures and sells four types of products under the brand name Ambience. with the sales per month remaining at $. It is ascertained that in process A normally 5% of the total input is scrap which realizes Rs. 159. 6. 400 crores on account of revaluation was credited to revaluation reserve included in the reserve. Which company bas got a better rate of return? Is the difference in the rate of return (above) due to a better rate of profit on the business conducted or due to a higher volume of business per rupee invested? 4. What is the return available to preference sha reholders in Bharat Co.Ambience Luxury Comfort Lavish 25 40 30 05 -------100 Assuming that this proposal is implemented. calculate the new breakeven point. Vishal Co. for the years 1988 and 1989 is given below 4. PART B Case Study – 1 BHARAT COMPANY AND VISHAL COMPANY Comparative financial Information for Bharat Co. Questions From the financial information given above. What is the rate of return on the total investment for both the Companies? 3. Which company has got a better liquidity position to pay off its short-term commitments? 2. and Vishal Co. you are required to compute various financial ratios so as to discuss the following:1. revalued its fixed assets in the beginning of 1989 increasing its fixed assets by 200% and net increase of Rs. Which company provides the highest safety margin to its debenture holders? 5.? . 1.50 Rs 4. Comment on the depreciation policy as reflected in the financial information of two companies. 2. 150 Rs. The balance of 150 acres is suitable for growing any of the four fruits.) 15 500 Rs.50 Rs 3 Lemons 15 150 Rs. 3 Rs 1.50 Rs 3 Oranges 30 100 Rs. presents the following data and requests yo u to advice about the area to be allo tted fo r the cultivation of various types of fruits.50 Peaches 45 200 Rs. Which company appears to have a higher return per rupee invested in operating assets? 7. Calculate the operating cycle for both the companies. 225 Rs.10. 150 Rs. 300 acres are suitable for growing only Oranges and Lemons. Which company is in a better position as regards the operating cycle? (Operating cycle is the time of conversion of current assets into each position) 8.50 The total fixed costs in each season would be Rs. (c) The marketing strategy of the company requires the compulsor y production of all . 195 Rs. 9. is twice that of its book value. 4. The following limitations are also placed before you. The company contemplates growing Apples. (a) The area available is 450 acres but out of this. Oranges and Peaches: Particulars Selling Price per Box Seaso n's yield in boxes per acre Costs: Material per Acre Labour Cost: Growing per Acre Picking and packing cost per box Transport cost per box Apples (Rs. 105 Rs. Assuming the market value of the equity shares of Bharat Co. while that for Vishal Company is one-and-a-half times of its book value. 300 Rs.000. 90 Rs.6. (b) As the produce may be hypothecated to banks area allotted for any fru it should be demarcated in complete acres and not in fractio ns o f acres. Lemons. which would result in maximization of profits. 1. 270 Rs. Which company ba s a higher price-earning ratio? What is the dividend yield for both? Case Study – 2 The Chief Cost Accountant of a company running an orchard with an adequate supply of labour. 15000/. while a cost standard of 40 minutes per unit would be used in reporting.the four types of fruits in a season and the minimum quantity of any one type to be 18. On Ist June 2003. recommended by the consulting firm. or 16 units per day for each worker. Useful historical data are not available because detailed production records have not been maintained. the consultants recommended a labor standard of one unit of production every 30 minutes. From Ist Jan 2005 . 1. The production vice president conducted several sessions prior to . On Ist July 2005. The primary area of concern identified by management is direct labor. company has changed the method of depreciation fro m Straight Line method to Written down value metho d Prepare Machinery Account for three years and aslso caslculate profit or loss on sale of Machinery. After a complete study of the work process. Geeta & Company has retained an engineering consulting firm. purpose of preparation of Accounting Equation? Case Study – 3 Geeta & Company has experienced increased production costs. management decided to use a dual standard.on overhauling of Machinery. purchased Machinery worth Rs. the president of Geeta & Company believed the standard should be set at a high level to motivate the workers and to provide adequate information for control and reasonable cost comparison. Differentiate between Fixed Installment And reducing Balance Metho d of Depreciation with Suitable example. On Ist October 2003 it buys additional second hand machinery worth Rs.The company writes o ff Depreciation at 10% o n Straig ht Line method. After much discussion. Management also concluded that the workers would not be informed of the cost standard used for reporting purposes.000 boxes. 115000/. The accounts are closed every year on 31 December. The company is considering adopting a standard cost system to help control labor and other costs. 285000/-and incurred Rs. Anand Tyres company. half of the Machinery which was purchased on Ist April 2003 is sold for Rs. To establish labor standards. The labor standard of one unit every 30 minutes. believed that a labor standard of 40 minutes per unit or 12 units per day for each worker would be more reasonable. and from experience with the labor force. What do you mean Accounting equation? What are its constituents? Briefly explain with suitable example. 760000/and incurred Rs 40000/.on installation. Calculate the total that would accrue if your advice is fo llowed. The consultants further advised that Geeta's wage rates were below the prevailing rate of Rs per hour 'Geeta's production vice-president thought that this labor standard was too tight. 4. 3. would be employed in the plant as a motivation device. 400 3.850U U RS5.5.800 Rs3.300 3. and plant facilities and conditions have not changed to a significant extent during the six month period.2.950U Rs6. informing the workers of the new standard cool system and answering questions. At the end of six months of operation.000 2. these statistics on labor performance were presented to executive management: Jan 5.633 -0F Rs.900 Apr 4.implementation in the plant.700 2.167 U *U = Unfavorable.100 3.000 May 4.033 Rs. F = Favorable Materials quality.250 U RS.800F F Rs.000 June 4.000 Feb 5. The new standards were not related to incentive pay but were introduced when wages were increased to Rs 7 per hour. The standard cost system was implemented on January 1.1.100 Production (units) Direct labor hours Quantity Variances: Variance based on labor standard (one unit each 30 minutes) Variance based on cost standard (one unit each 40 minutes) Rs. 2007.933 U RS.3.500 3.3150 U* Rs2.900 Mar 4.300 U Rs. . labor mix.1. respectively. Mexico. The main competitors of the company in the two-wheelers and three-wheelers segment are.Hero Honda Motors Ltd. Columbia. The products manufactured by Bajaj Auto are scooters. and specifically. etc. the likely effect on motivation of adopting the labor standard recommended for Geeta & Company by the engineering firm. LML ltd. Kinetic Motor Co Ltd. For the fifth successive year. machine tools. Bajaj Auto has also diversified into the general as well as life insurance business through its subsidiaries Bajaj Allianz General Insurance Company Ltd. motor cycles. the company raised its market share in the motorcycle segment. 1. and TVS Motor Co. The company manufactures two & three wheelers. steel and engineering products. The promoters hold about 30% equity. auto spares parts.500 authorized service centres and 162 exclusive three-wheeler dealers spread across the country. The Bajaj brand has presence in many countries such as Sri Lanka. Sales increased by almost 31% to an all-time high of Rs 9. Mr. Bajaj Auto has a network of 498 dealers. Today it stands at almost 31%. Peru. Describe the impact of different types of standards on motivations. which is a record performance in its history.285 crore in 2005-06.Questions: 1. The sales of motorcycles manufactured grew by 32% in 2005-06 compared to a market growth of below 19%. Bangladesh. 2. Maharashtra Scooters Ltd. Case Study – 4 Bajaj Auto Limited: The Unprecedented Growth Story Bajaj Auto Limited is the flagship company of the Bajaj Group. The company sold close to 23 lakh vehicles in 2005-06. The company also produces threewheelers as goods carriers such as pick-up or delivery vans and passenger carriers such as auto-rickshaws. Please advise the company in reviewing the standards. The company was incorporated in the year 1945 as M/s Bachraj Trading Corporation Private Ltd. 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: . Ltd. Egypt. Rahul Bajaj is the present Chairman of the company. whereas Indian public holds about 26% and institutional investors have more than 27% stake in the company. 946 130. scaling up its manufacturing facilities. Earnings per share have been risen from Rs 75.710 Motorcycles Total two-wheelers Three-wheelers Total vehicles Even more impressive has been the growth in company's operating EBITDA. and distribution channels.907 75. Dividend too has grown to Rs 40 per share (400%) for the year ended 31 st March 2006 as against Rs 25 per share in 2005. slashing costs while upgrading quality.Table A Product-wise exports of Bajaj Auto Ltd 2005-06 Product 2004-05 Growth (in percentage) 33 34 14 27 (in numbers) 165. 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 . and product development in anticipation of market needs. 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.297 250. rationalizing vendors. Bajaj Auto has focused on his technology development. and technology.00 in the current year.945 65. design.9% of the sales and operating income. Over the past few years. These capabilities enabled the company to create exciting new products. implementing best-in-class production systems.765 196. which have set benchmarks in styling. restructuring dealerships.288 174. Consequently the operating EBITDA margin grew by 220 basis points to 17.204 123. which increased by 47% to touch Rs 1805 crore during 2005-06.60 to Rs 111. 37 1104.16 March 2004 March 2005 March 2006 Sales Other income Change in stocks 5721.17 285.57 7582.59 0.91 9284.35 5017.92 5317.66 1109.91 1.67 185.43 0.28 1613.87 6239.34 191.46 8131.99 0.52 50.66 349.90 6286.41 750.10 9937.32 760.84 602.04 10.32 1036.93 1221.34 1805.07 4335.92 7078.March 2003 (Rs in crore) 4987.44 534.37 274.42 809.41 -11.76 1295.05 297.06 516.94 184.10 32.87 Expenditure Profit & Loss PBDIT Interest Depreciation PBT Tax provision PAT 981.97 509.60 .12 171.44 507. 80 1205.Dividends 159.37 288.05 1230.52 4233.26 Bonus Equity capital 114.58 285.70 3116.32 1834.14 25.43 6.16 5349.17 114.64 461.43 274.28 Paid up Equity capital 101.21 148.50 Table C Assets and Liabilities of Bajaj Auto Ltd as on 31 March 2006 Mar 05 Liabilities Rs in crore Mar 06 Assets Mar 05 Rs in crore Gross assets fixed Mar 06 Net Worth 4447.47 5799.18 101.64 5273.46 4256.02 3092.19 Minority interest Reserves & Surplus Free reserves Share reserves premium 89.20 224.77 6865.82 5076.28 87.18 Capital WIP Less: cumulative depreciation Net Assets fixed 9.79 5099.83 9.81 285.17 1660.78 4790.79 2870.07 4146.11 Investments Deferred assets Inventories Receivables tax Other free reserves . 17 1469.64 7773.97 302.8 7 14680.54 Borrowings 1229.25 1869.40 3593.19 266.90 87. To preclude the complacency from setting in.Specific reserves 23. .74 1404. 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.58 Advances/loan s to corporate bodies Group/associat e companies Other companies Advance payment of tax Other receivables Cash & Bank balance Intangible/DR E not written off 62.41 833.57 27.60 1053.66 Current liabilities &provision s Sundry Creditors Other liabilities Provisions current 4284.20 34.44 6 0.48 4.88 14.43 27.29 33.32 Total Liabilities 10100.20 1.24 23. the management of the firm believes in the philosophy that the quest for perfection is eternal.85 1823.0 1 Total Assets 10100.37 2694.51 476.04 2281.24 Sundry debtors Debtors exceeding months 176.86 1169.13 Deferred liabilities tax 139.40 3674.0 1 Notwithstanding its excellent financial performance in the years following its major strategic shift.8 7 14680.44 19. How attractive is the firm from the short-term and long-term lenders. Differentiate between gross income and net income. What is Accounting? What are its objectives and limitations? 2. perspective? Does the firm appear to be the favorite destination in the automobile sector (twowheelers and three-wheelers segment) for the lenders? 3. 12. . 6. 5. Write notes on creditors for goods. Distinguish between Book-keeping and Accounting. Explain the convention of consistency. How efficient is the firm been in utilizing the resources at its disposal? How do you think the company can improve upon its efficiency? PART C Short Question – Set 1 1. Also differentiate between direct and indirect expenses. Is the profitability performance of the firm satisfactory? If not. 3. What is the meaning of double entry accounting? 10. Explain the term 'Dual Aspects' briefly. What do you mean by material facts in accounting? 7. 4. 8. Distinguish between fixed assets and floating assets. Explain briefly the meaning of 'financial transactions'. how can it be improved? 2.Discuss 1. 9. What do you understand by Money Measurement Concept? 11. Explain the meaning of expenses. What is an operating ratio? How do you calculate it? What does it indicate? 27. 25. Define Financial Analysis. What is a Balance Sheet? 14. 32. How would you determine whether an asset is current asset or a current asset? 22. How is working capital turnover ratio calculated? 26. What do you understand by trial balance? 15. 31.13. Is depreciation a source of funds? Give reasons in support of your answer. What is a current asset? 20. Enumerate four heads of sources and application of funds. What is the importance of financial statements for creditors? 18. What is a current liability? 21. What is a funds flow statement? 30. Illustrate the method of determining debtors turnover ratio? What does it indicate? 28. What is an Income Statement? 16. Distinguish between funds flow statement and position statement . What do you mean by accounting ratios? 19. 17. 29. How do you compute 'Stock-turnover rate'? What does it indicate? 24. What is current ratio? What does in indicate? 23. Explain any three accounting ratios based on sales. Differentiate between gross profit ratio and operating profit ratio. Explain briefly the Dual Aspect Concept of Accounting: 3. ii) Loss on sale of fixed assets. Explain the meaning -Non-Cash Items". Enumerate the "Sources of Cash". (d) None of the above 2. 40. 37.33. Which transactions do not affect the flow of funds? 34. 38. iii) Goodwill written off. the amount should be credited to: (a) Debtor's account (b) Bad Debt account (c) Sales Account (d) None of the above 4. Explain the term Ledger Posting? 6. What type of transactions result in the flow of funds? 35. In case of Debt becoming bad. What do you understand by overheads? 36. Explain the term "Accounting Cycle". Why are the following items added to profit to calculate the fund from operations? (i) Depreciation. When a firm maintains "Three Column Cash Book" it need not maintain: (a) Cash account in the Ledger (b) Bank Account in the Ledger (c) Discount Account in the Ledger (d) Both Cash & Bank Account in the Ledger . Distinguish between overhead apportionment and over-head absorption. iv) Transfer to General Reserve. 5. Multiple Choice Question – Set 1 1. Accounting principles are generally based on: (a) Practicability (b) Subjectivity (c) Convenience in recording. What is a Cash Flow Statement? 39. Stock. Distinguish between "Straight Line Method of Depreciation" and "Diminishing Balance Method" of providing depreciation. Depletion and amortization. Purchases book is used to record: (a) All purchases of goods (b) All credit purchases (c) All credit purchases of goods (d) All credit purchases of assets other than goods. 21. Also give example of each. 9. 10. Error of Principle and Error of Commission. What do you understand by the term Depreciation. Which method of depreciation is suitable for Plant & Machinery and why? 15. What is the need for Financial Analysis? How Ratio analysis technique helps in it? 18. Define financial ratios. 11.7. 17. Write short note on market value/ Book value of shares. Interest on drawing is: (a) Expenditure for the business (b) Expense for the business (c) Gain for the business. What is Contra Entry? 8. Explain the Imprest system of "Petty Cash Book". Distinguish between Funds Flow Statement and Cash Flow Statement. 16. Cost of Goods Sold = Op stock + Net Purchases __ Expenses on Purchasing Goods __ Cl. Give any three formulas of Solvency Ratios. 19. Distinguish between Error of Omission. 14. Cash from operation is equal to (a) Net Profit plus increase in outstanding expense (b) Net Profit plus increase in debtors . 13. Tax paid is (a) Application of Fund (b) Source of Fund (c) No Flow of Fund (d) None of the above 20. 12. 45000 38. 2000 (b) Rs. When fixed Cost is Rs 10000 and P/V/Ratio is 50%.(c) Net Profit plus increase in stock (d) None of the above 22. Direct Material Cost Variance Analysis with the help of an example.Even point. 37. List major uses of Standard Costing. 20000 (d ) Rs. 29. Why do we require proper inventory valuation. 30. 34. Define Zero Base Budgeting. Back Flush Costing Life cycle Costing. the Break even po int is _____ (a) Rs 40000 (b) Rs. Define marginal costing. Production Budget and Cash budget. 28. Show Break .Even analysis P/V Ratio. Define Activity Base Costing. 32. 25. Break . 6000 (c) Rs. Define absorption costing. angle of incidence and Margin of safety graphically with the help of an example. Contribution margin is also known as ____________. . 35000 (c) Rs. Define Cost Accounting. 31. 8000 (d ) Rs 7000 39. 36. Define Master Budget. When P/V ratio is 40% and Sales Value Rs 10000 the variable cost will be _____ (a) Rs. How is it different from Management Accounting and Financial Accounting? 23. Define Budget and Budgetary Control. 35. Give limitations of ZBB. How is Direct cost differ from indirect cost? 27. 26. 40. Give few examples of purely financial charges. Distinguish between LIFO and FIFO methods of inventory valuations. How Standard Costing differs from Historical Costing? 33. Programme Budget. Explain Out of Pocket Cost? 24. it results in (a). Assets . 2. Double entry system (b). The beginning retained earnings balance on the statement of retained earnings becomes the amount of retained earnings reported on the balance sheet. Debit (c). Accounting principles require that companies report assets on the income statement. (b). Retained earnings is added to total assets and reported on the balance sheet.Liabilities + Owners' Equity (b). (c). Assets = Liabilities + Owners' Equity 4. The process of recording the economic effects of business transactions in a book of original entry: (a). Understatement of Assets. There is no concern because the two amounts are not meant to be equal. Assets are measured using the cost concept. Overstatement of Capital (b). How is the balance sheet linked to the other financial statements? (a). (c). 5. Which of the following statements is true concerning assets? (a).Multiple Choice Question – Set 2 1. (d).Owners' Equity (c). If the sum of the debits and credits in a trial balance is not equal. Which of the following is a correct expression of the accounting equation? (a). Net income increases retained earnings on the statement of retained earnings. (b). then (a). (c). Journalizing 6. Assets + Owners' Equity = Liabilities (d). They are recorded at cost and adjusted for inflation. The chart of accounts also does not balance. Overstatement of Assets (d). There is no link between the balance sheet and the other statements. Credit (d). 3. (b). Understatement of Capital (c). When the concept of conservation is applied to the Balance Sheet. Assets = Liabilities . which ultimately increases retained earnings on the balance sheet. They are recorded at market value for financial reporting because historical cost is arbitrary. . (d). It is safe to proceed with the preparation of financial statements. Only transactions affecting fund accounts. Working capital (c). Literal cash on hand or on demand deposit. (d). (d). Transaction credits (d). Rs1. During 2006. Cash (b). Only cash transactions.made in posting journal entries to the general ledger or in preparing the trial balance. Supplies Expense. (c). Supplies. Depreciation expense (b). 800. All of the above . 300. All sources and uses of resources. Supplies. 8. 000. 7. Rs6. Z Ltd had Rs. 300.(d). Fund decreases 9. 2. Rs2. Most firms elected to define funds in the statement of changes in financial position as: (a). (c). 000. 900. Fund increases (c). Rs3. Gain from asset disposal (c). Only transactions affecting current assets. Quick assets (b).000 were purchased. the balances in the Supplies and Supplies Expense accounts will be: (a). (d). Which of the following is not an example of a non-fund adjustment to income required in preparing the statement of changes in financial position when funds were defined as working capital? (a). The funds flow statement included: (a). 1800 of supplies on hand at January 1. After the adjustments are recorded and posted at December 31. Amortization of premium on debt 12. Supplies Expense. Rs7. In the statement of changes in financial position.300. 11. (b). 500. plus marketable securities. At December 31. plus cash equivalents. Supplies Expense. cash is defined as: (a). (c). 2006. Transaction debits (b). 2006. Supplies Expense. (b). supplies with a cost of Rs. Rs2. Most likely an error was. uses of resources are defined as: (a). Supplies. Owners' Equity 10. 2006. Current assets (d). Rs7. Supplies. In the cash flow statement. Rs2. Literal cash on hand or on demand deposit. 300. the actual supplies on hand amounts to Rs. 7. Interest expense (d). 2006. Balance sheet and income statement. Increases working capital. Accommodate changes in the inflation rate. The increase offsets the decrease. (c). Income statement and statement of cash flows. . Statement of retained earnings and statement of cash flows. 18. Y Ltd sold equipment for Rs4. The effect of changing inventory method does not need to be disclosed.200) and the sales price of the merchandise (Rs. 16. (b). Accommodate changes in activity levels. 6. Solid Co. on October 1. (c). The difference of Rs200 between the amount of the note (Rs.13. Use the information presented below to answer the questions that follow. This resulted in a Rs1. Tax advantages are valid justification for changing inventory methods. which of the following cone usions can be made? (a). by Co. Are used to evaluate capacity utilization. One place that the reader of an annual report would be able to identify that a company changed inventory methods is the footnotes to the financial statements. Is the interest explicitly included in the amount of the note. 200. (b). If a company's asset turnover rate increased from 2005 to 2006. 14. (c). 17. Flexible budgets (a). Will be recorded as interest revenue on October 1. 000. (b). Which of the following combination of financial statements would provide the most in-depth information to help under stand a company's liquidity? (a). The company produced more sales in 2006 for each dollar invested in assets. 2006. 6. What is the impact of this sale on the working capital? (a). Balance sheet and statement of cash flows. (c). The note is due in 3 months. The amount of the note due at the maturity date is Rs6. Which of the following statements regarding changing inventory methods is true? (a). (b). (d). (d). A change in inventory methods can be justified if the change is made to better match profits with revenue. Are static budgets that have been revised for changes in prices. 500 loss. (d). (d). (b). The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6. 000. Has no affect on working capital at all. (b). received a non-interest-bearing note from Y Ltd. (d). Is an error made in preparing the note. 15. (c). Discount on Notes Receivable. Will be recorded in a contra account. Reduces working capital.000) (a). The company was less efficient during 2006 in using its assets to produce profits. 030 unfavorable. help in fixing selling price (d). and production overheads (c). Standards simplify product costing. Imputed cost (c). 21. (d). (b). 170 unfavorable. (c). Provide information to management for decision making (c). Conversion cost is total of: (a). Standards can take into account expected changes planned to occur in the budgeted period. Explicit cost. 23.(c). Standards are usually expressed on a per unit basis. Are incurred because management can afford (c). Rs. 20.000 units of product monthly. Arise from yearly budget appropriations (b). A cost. 19. (c). Rs. None of the above. During the month of September. A performance report utilizing flexible budgeting would report a flexible budget variance for indirect labor of:(a). (d). The company is over-invested in assets in 2006. Direct material and direct wages (b). which does not involve cash outlay. The main purpose of cost accounting is to(a). Direct wages and production overheads. (b). 30.000 annually. 170 favorable. 24. The master budget includes indirect labor of Rs. 5. Out of pocket cost. All of above .600 units of product were produced. direct wages. (d). which: (a). 396. Historical cost (b). To watch cash flows 22. (b). Arise from additional capacity. Standards are developed using past costs and are available at a relatively low cost. 2. Committed fixed costs are those. Direct material. 2. X Ltd considers indirect labor to be a variable cost. and indirect labor costs of Rs. (d).970 were incurred. (d). Which of the following is not an advantage for using standard costs for variance analysis? (a).030 favorable. Maximize profits. X Ltd's master budget calls for the production of 6. Rs. Rs. (d). The company was more profitable in 2005. is called: (a). When the merchandise is ordered. 320 has been debited to Eknath's account at Rs. Rs. . (c). 30. (c). (b). As a contra entry (d). On the Receipt side of the Cash Book (b). 29. (d). 27. Temporary accounts. 11. Nowhere in the Cash Book. 26. (c). Liabilities of business are Rs. (d). An entry of Rs. Salaries due for the month of March will appear (a). Charged to selling overheads (c). (b). Unearned revenues are: (a). Income taxes refundable. (b). Liabilities. Commission. When the goods are transferred from the seller to the buyer. Principle. On the Payment side of the Cash Book (c). (c).220. Compensatory. 31. Omission.000. 11. (b). All of the following are "other receivables" except: (a). All of above 26. Prepayments. 15.780.000. (d). Advances to employees.25. Cost of research undertaken at the request of the customer should be: (a).220. 3. (a). When cash is received. 230. 28. Petty cash. The revenue recognition principle requires that sales revenues be recognized: (a). (d). If is an error of (a). (d). Charged to costing profit and loss account (b). (b). (c). 15. The assets of the business will be. Rs. Rs. (d). Both a and b above. Recovered from the customer. Interest receivable. None of the above.220 and owner's equity is Rs. Rs. 33. Outstanding Expenses are the examples of (a). in the current year. Both (a) and (b) above. Current income statement. Additional information. to prior periods. (b). (b). Operating activities. (b). Obsolescence. Prepaid Expenses. (d). Inventories. When a change in an estimate is required. Depreciation is result of (a). (c). (c). (c). the change is ma (a). 34. Real Accounts. Liquid Assets are inclusive of all current assets except (a). Usage. (c). (d). None of the above. (d). Cash. All of the following are used in preparing a statement of cash flows except: (a). in the future year. Comparative balance sheet. All of the above. A trial balance. Financing activities. Investing activities. (d). 38. (c). (c). (b). the board of directors must declare a dividend. (b). (c). (b). (d). Personal Accounts. Time. 37. (d).32. (b). 36. 35. both a and b above. In order to pay a dividend: (a). All of the above. Nominal Accounts. Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income are referred to as: (a). . the corporation must have adequate retained earnings. the corporation must have adequate cash. Depreciation is depsndent on a number of estimates. Budgeted Figures. 6. 8. The system of recording transaction on the basis of their two old aspects is called double entry system. Accounting records only those transactions and events which are financial character. 7. Purchases made from B for cash should be debited to B. Capital is increased by profit and decreased by losses. Presentation of Figures from Financial Accounting. Benchmarks (d). (b). (b). 10. All of the above. Drawings reduce capital. 4. The return of goods by a customer should be debited to Returns Inwards Account. Accounting is a service function. Management Accounting is mainly related to (a). . True or False. Accounting is a language of business. Presentation of Figures from Cost Accounting.Set 1 Mark 'True' or 'False': 1. Earnings of revenue means increase in Cash/Bank balance The balance of an account is always known by the side which is shorter. (b). 9. Standards. Both (a) and (b) above. Variance Analysis is done with regards to actuals with(a). 40. (c).39. Principles (c). 5. 2. 3. Sales book is used to record all credit sales. 18. 16. Shares which are not preference shares are called equity shares. 24. The profit & loss account is one of the financial statements. 22. 19. Debenture holders are not the member of the company. Goodwill is an intangible asset. Direct cost is that cost which can not be easily allocated to cost units. 23. Ledger is called the book of final entry.11. 17. Fixed cost per unit remains constant. 13. 20. Withdrawal of money by the owner is an expense for the business. 26. The amount of share premium received by the company is shown under the heading reserves & surplus in the company's balance sheet. similar to shares. Cash book is used to record all receipts and payments of cash. 14. Share having preferential right as to dividend and repayment of capital are termed as equity share capital. Goods bought for resale are referred to as Stocks 12. Salaries & Wages appearing in the trial balance are shown on the liabilities side of the balance sheet. the proprietor's capital must be more than the total assets. If the business has any liability. 27. 21. There are no legal restrictions. 15. The journal is not a book of original entry. for issue of debentures at discount. . 25. Total fixed cost remains unaffected by the change in volume of output. Good units bear the abnormal loss arising in the process costing. Selling overheads form a part of cost of production. In chemical industries unit costing is used. 36. 37. 29. 40.28. Excess of pre-estimated loss over actual loss is known as abnormal loss. 31. 32. Instant Downloadable Solution from AiDLo. 39. Manufacturing and administrative overheads are different. 38.com . 35. 30. Margin of Safety implies 'Break Even Point'. Variable cost per unit remains fixed. 33. In marginal costing. Sales below BEP mean profit. 34. The output of a process is transferred to next process. Marginal costing is a method of ascertaining cost. stock is valued at fixed costs. A firm earns no profit or incurs no loss at BEP.