When sum is paid to Anand, his history should hold been debited. On the other manus, his history was credited for a incorrect sum of Rs.34.37. Hence there has been extra recognition to the extent of Rs.78.74 ( 44.37 + 34.37 ) . To rectify this dual mistake we need to debit Anand ‘s history to the extent of Rs.78.74 and recognition suspense history.
2. Purchases account was over debited by Rs.9 ( Rs.154.50 – Rs.145.50 ) . To rectify this mistake we need to recognition purchase history to the extent of Rs.9 and debit suspense history.
3. Repairs spent on edifice are, by error debited to constructing history. This is mistake of rule. Repairs history is debited and edifices account is credited to rectify the mistake.
4. Discount received from B has non been taken to records. This is an mistake of skip. Therefore, it is now brought to histories. This has non affected the test balance.
5. When old furniture is sold, the furniture history should hold been credited. On the other manus, gross revenues account was credited against to the rule of accounting. To rectify the mistake, gross revenues account is debited and old furniture history is credited.
Q2. Distinguish between direction accounting and fiscal accounting.
Answer: Fiscal accounting is the readying and communicating of fiscal information to foreigners such as creditors, bankers, authorities, clients and so on. Another aim of fiscal accounting is to give complete image of the endeavor to stockholders. Management accounting on the other manus purposes at fixing and describing the fiscal information to the direction on regular footing. Management is entrusted with the duty of taking appropriate determinations, planning, public presentation rating, control, direction of costs, cost finding etc. , For both fiscal accounting and direction accounting the fiscal information is the same and the studies prepared in fiscal accounting are besides used in direction accounting But the followers are major differences between Financial accounting and Management accounting.
The primary users of fiscal accounting information are stockholders, creditors,
authorities governments, employees etc. ,
Top, in-between and lower degree directors use the information for planning and determination devising
Accounting information is ever expressed in footings of money
Management accounting may follow any measurement unit like labour hours, machine hours or merchandise units for the intent of analysis
Financial information is presented for a definite period, say one twelvemonth or a one-fourth
Reports are prepared on uninterrupted footing, monthly or hebdomadal or even day-to-day
Fiscal accounting focal points on historical informations
Management accounting is oriented towards hereafter
Fiscal accounting is a subject by itself and has its ain rules, policies and conventions
Management accounting makes usage of other subjects like economic sciences, direction, information system, operation research etc. ,
Q3. Draw the Balance Sheet for the undermentioned information provided by Sarawath Ltd..
a. Current Ratio: 2.50
B. Liquidity Ratio: 1.50
c. Net Working Capital: Rs.300000
d. Stock Turnover Ratio: 6 times
e. Ratio of Gross Net income to Gross saless: 20 %
f. Fixed Asset Turnover Ratio: 2 times
g. Average Debt aggregation period: 2 months
h. Fixed Assets to Net Worth: 0.80
I. Reserve and Surplus to Capital: 0.50
Hint: B/S total 1100000
Balance Sheet aˆ¦aˆ¦
Militias & A ; Surplus
If Current Liabilities = 1
Current Assets = 2.5
Working Capital ( 2.5 -1 ) = 1.5 = 300000
Therefore Current Assets ( 2.5/1.5 ) x 300000 = 500000
Current Liabilities ( 1/1.5 ) x 300000 = 200000
Liquidity Ratio = 1.5
Current Liabilities = 200000
Therefore Liquid Asset ( 200000 x 1.5 ) = 300000
Inventories ( Current plus – Liquid plus ) = 200000
Stock Turnover Ratio = 6 times
Cost of gross revenues ( 6 x 200000 ) = 1200000
Gross Profit Ratio = 20 %
Gross Net income
If Gross saless is 100 ; Gross Profit is 20
Hence cost of gross revenues is ( 100-20 ) = 80
Therefore Gross Net income is ( 20/80 ) x 1200000 = 300000
Gross saless ( Cost of Gross saless + Gross Profit ) = 1500000
Fixed Asset Turnover ratio = 2 times
( cost of sales/Fixed assets )
Therefore Fixed Assets ( 1200000/2 ) = 600000
Debtors Collection Period = 2 months
( Calendar months in a twelvemonth /Debtors turnover )
Debtors Turnover Ratio ( 12/2 ) = 6 times
( Sales/ Debtors )
Debtors ( 1500000/6 ) = 250000
Fixed Assets to Shareholders ‘ Net worth = 0.80
Share holders ‘ Internet worth ( 600000 /0.80 ) = 750000
Militias & A ; Surplus to Capital = 0.50
If capital is 1: militias & A ; Surplus is 0.5
Militias & A ; Surplus + Capital = Shareholder ‘s Internet
worth ( 0.5 +1 =1.5 )
Militias & A ; Surplus ( 7500000 x ( 0.5/1.5 ) = 250000
Therefore portion Capital = 500000
Q4. Following is the balance sheet for the period stoping 31st March 2006 and 2007. If the current twelvemonth ‘s net loss is Rs.38,000, calculate the hard currency flow from operating activities.
Short-run loan to employees
Provision for dubious debts
Stock in trade
Hint: Net hard currency lost in operating activities ( 69800 )
Answer: Statement demoing Cash flows from Operating Activities
Net Loss ( 38,000 )
Attention deficit disorder: Decrease in Current Assetss
Decrease in Stock 2,000
Decrease in Prepaid disbursals 200
Increase in current liabilities
Increase in Outstanding disbursals 200
Addition in Bills collectible 2,000 + 4,400
( 33,600 )
Less: Addition in current assets
Addition in Short term loan to the employees 3,000
Addition in Bills receivable 10,000
Decrease in Creditors 22,000
Decrease in Provision for dubious debts 1,200 ( 36,200 )
Net hard currency lost in operating activities ( 69,800 )
Q5. The undermentioned informations are related to the industry of a standard merchandise during the month of July 2009.
Natural stuffs consumed
Machine hours worked
Machine hours rate
Administrative operating expenses
20 % of plants cost
Selling operating expenses
Re.0.50 per unit
Unit of measurements produced
Unit of measurements Sold
16,000 @ Rs.4 per unit
Fix a cost sheet from the above to demo:
a. The cost per unit
B. The net income per unit sold and net income for the period
Hint: Net income = 24000
Answer: Unit of measurements produced 17,100
Natural stuffs consumed
Direct Expense ( 900 x 5 )
Attention deficit disorder: Factory operating expenses
Factory /WORKS COST
Attention deficit disorder: Admn. operating expenses ( 20 % of plants
Cost OF PRODUCTION
Attention deficit disorders: Selling operating expenses ( 0.50 per unit )
16000 ten 0.50 = 8,000
Attention deficit disorder: op. stock of F. goods
Less: Chlorine. Stock of F. Goods ( 1100 units )
1100 x 2.00 = 2200
( 2,200 )
Cost of Gross saless ( sold 16,000 units )
Net income 1.50 ten 16,000 = 24,000
Gross saless 16,000 ten 4.00 = 64,000
Q6. Write the differences between soaking up costing and direction costing.
It is known as full costing. Both fixed and variable are included to determine the cost
Merely variable costs are included. Fixed costs are recovered from part.
Different unit costs are obtained at different degrees of end product because of fixed disbursals staying the same
Fringy cost per unit remain same at different degrees of end product because variable disbursals vary in the same proportion in which end product varies
Difference between gross revenues and entire cost ( fringy cost and fixed cost ) is net income
Difference between gross revenues and fringy cost is part and difference between part and fixed cost is net income or loss
A part of fixed cost is carried frontward to the following period because shuting stock of work-in-progress and finished goods is valued at cost of
production which is inclusive of fixed cost
Stock of work-in-progress and finished goods are valued at fringy cost. Fixed cost of a peculiar period is charged to that really period and is non carried over to the following period.
The allotment of fixed disbursals on an arbitrary footing gives rise to over or under soaking up of operating expenses
Merely variable cost are charged to merchandises therefore fringy costing does non take to over or under soaking up of fixed operating expenses.
It affects managerial determinations in the countries such as whether to accept the export order or non, whether to purchase or fabricate etc
It is really helpful in taking managerial determinations because it takes into consideration the extra cost involved merely presuming fixed disbursals staying changeless.
Costss are classified harmonizing to functional footing such as production cost, office and administrative cost and merchandising and distribution costs
Costss are classified harmonizing to the behaviour of costs – fixed costs and variable costs.
It fails to set up relationship of cost, volume and net income
CVP relationship is an built-in portion of fringy costing.