1. Assure you have just started a Mobile store. You sell mobile sets and currencies of Airtel, Vodaphone, Reliance and BSNL. Take five transactions and prepare a position statement after every transaction. Did you firm earn profit or incurred loss at the end? Make a small comment on your financial position at the end.

We shall consider five transactions and show how they are accounted for in the books of the business.

1. Mr. Rajesh brings Rs.100000 cash as capital into his business.

2. He purchases Mobile Set to his shop Rs.10000

3. He buys currencies for cash Rs.50000

4. He sells currencies worth Rs.30000 for Rs.40000 on credit to Arjun

5. He pays wages to servants Rs.1000

Transaction 1: The business receives capital in cash. Capital is a liability and cash is an asset to the business.

Liability Asset

Capital 100000 Cash 100000

Transaction 2: Mobile Set is purchased for cash. This transaction can be reflected as under

Capital 100000 Cash Rs. (100000- 10000) 90000

Mobile Set 10000

Total 100000 Total 100000

Transaction 3: Purchased of currencies for cash. This can be reflected in the statement as under.

Capital 100000 Cash Rs. (90000- 50000) 40000

Mobile Set 10000

Stock of currencies

50000

Total 100000 Total 100000

Transaction 4: Sold currencies to Arjun on credit for Rs.40000, the cost of which is only Rs. 30000. In this transaction the affected accounts are Currencies account, Arjun account and Profit & Loss account. Since the profit belongs to the owner it is fair to add it to the owner’s capital. The effect of this transaction can appear on the statement as shown below:

Capital 100000 Cash 40000

Profit 10000 Mobile Set 10000

Stock of currencies(50000-30000)

20000

Arjun (Debtors) 40000

Total 110000 Total 110000

Transaction 5: Payment of wages Rs.1000.The cash balance gets reduced in the asset side and profit gets reduced as a result of the expenditure (wages account) on the liability side. This changes the statement as shown below:

Capital 100000 Cash (40000 – 1000)

39000

Profit (10000-1000)

9000 Mobile Set 10000

Stock of currencies

20000

Arjun (Debtors)

40000

Total 109000 Total 109000

According to above book keeping entry Mr. Rajesh brings Rs.100000 cash as capital into his business. And one end of 5 transection his capital is Rs 109000. so, it is clear that Firm earn profit of Rs 9000.

2 (A) List the accounting standards issued by ICAI

Accounting Standards (ASs) AS 1 Disclosure of Accounting Policies  AS 2 Valuation of Inventories AS 3 Cash Flow Statements AS 4 Contingencies and Events Occurring after the Balance Sheet Date  AS 5 Net Profit or Loss for the period, Prior Period Items and Changes in

Accounting Policies AS 6 Depreciation Accounting  AS 7 Construction Contracts (revised 2002)  AS 8 Accounting for Research and Development  AS 9 Revenue Recognition  AS 10 Accounting for Fixed Assets  AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003) AS 12 Accounting for Government Grants AS 13 Accounting for Investments  AS 14 Accounting for Amalgamations AS 15 Employee Benefits Limited Revision to Accounting Standard (AS) 15,

Employee Benefits  AS 15 (issued 1995) Accounting for Retirement Benefits in the Financial

Statement of Employers AS 16 Borrowing Costs  AS 17 Segment Reporting        AS 18, Related Party Disclosures  AS 19 Leases AS 20 Earnings Per Share  AS 21 Consolidated Financial Statements AS 22 Accounting for Taxes on Income.  AS 23 Accounting for Investments in Associates in Consolidated Financial

Statements  AS 24 Discontinuing Operations  AS 25 Interim Financial Reporting  AS 26 Intangible Assets  AS 27 Financial Reporting of Interests in Joint Ventures  AS 28 Impairment of Assets  AS 29 Provisions, Contingent` Liabilities and Contingent Assets AS 30 Financial Instruments: Recognition and Measurement and Limited

Revisions to AS 2, AS 11 (revised 2003), AS 21, AS 23, AS 26, AS 27, AS 28 and AS 29  AS 31, Financial Instruments: Presentation Accounting Standard (AS) 32, Financial Instruments: Disclosures, and limited revision to Accounting

Standard (AS) 19, Leases

2(B) Write short notes of IFRS

IFRS

The IFRS Foundation is an independent, not-for-profit private sector organization working in the public interest. Its principal objectives are: 

to develop a single set of high quality, understandable, enforceable and globally accepted international financial reporting standards (IFRSs) through its standard-setting body, the IASB; 

to promote the use and rigorous application of those standards;  to take account of the financial reporting needs of emerging economies and

small and medium-sized entities (SMEs); and  to bring convergence of national accounting standards and IFRSs to high

quality solutions. 

The governance and oversight of the activities undertaken by the IFRS Foundation and its standard-setting body rests with its Trustees, who are also responsible for safeguarding the independence of the IASB and ensuring the financing of the organisation. The Trustees are publicly accountable to a Monitoring Board of public authorities. Standard-setting 

The IASB (International Accounting Standards Board) 

The IASB is the independent standard-setting body of the IFRS Foundation. Its members (currently 15 full-time members) are responsible for the development and publication of IFRSs, including the IFRS for SMEs and for approving Interpretations of IFRSs as developed by the IFRS Interpretations Committee (formerly called the IFRIC).

All meetings of the IASB are held in public and webcast. In fulfilling its standard-setting duties the IASB follows a thorough, open and transparent due process of which the publication of consultative documents, such as discussion papers and exposure drafts, for public comment is an important component.

The IASB engages closely with stakeholders around the world, including investors, analysts, regulators, business leaders, accounting standard-setters and the accountancy profession. 

The IFRS Interpretations Committee 

The IFRS Interpretations Committee (formerly called the IFRIC) is the interpretative body of the IASB.

The Interpretations Committee comprises 14 voting members appointed by the Trustees and drawn from a variety of countries and professional backgrounds.

The mandate of the Interpretations Committee is to review on a timely basis widespread accounting issues that have arisen within the context of current

IFRSs and to provide authoritative guidance (IFRICs) on those issues.

Interpretation Committee meetings are open to the public and webcast. In developing interpretations, the Interpretations Committee works closely with similar national committees and follows a transparent, thorough and open due process.   

3.Prepare a Three-column Cash Book of M/s Thuglak & Co. from The following particulars:

20X1 Jan

1. Cash in hand Rs. 50,000, Bank Overdraft Rs. 20,000

2. Paid into bank Rs. 10,000

3. Bought goods from Hari for Rs, 200 for each4. Bought goods for Rs. 2,000 paid cheque for them, discount allowed 1%5. Sold goods to Mohan for each Rs. 1.1756. Received a cheque from Shyam to whom goods were sold for Rs.800.Discount allowed 12.5%7. Shyam’s cheque deposited into bank8. Purchased an old typewriter for Rs. 200 , Spent Rs. 50 on its repairs9. Bank notified that Shyam’s cheque has been returned dishonored and debited the account in respect of charges Rs. 10 10. Received a money  order Rs. 25 from Hari11. Shyam settled his account by means of a cheque for Rs. 820, Rs. 20 being for interest charged.12. Withdrew from the bank Rs. 10,00018. Discounted a B/E for Rs. 1,000 at 1% through bank20.  Honored our own acceptance by cheque Rs. 5,00022. Withdrew fir personal use Rs. 1,00024. Paid tread expenses Rs. 2,00025. Withdrew from bank for private expenses Rs. 1,50026. Purchased machinery from Rajiv for 5,000 and paid him by means of a bank draft purchased for Rs. 5,00527. Issued cheque to Ram Saran for cash purchased of furniture Rs. 1,57528. Received a cheque for commission Rs. 500 from R.& Co. and deposited into bank29. Ramesh who owned us Rs. 500 became bankrupt and paid us 50 paise in the rupee30. Received payment of a loan of Rs. 5,000 and deposited Rs. 3,000 out of into bank31. Paid rent to landlord “Mohan” by cheque of Rs. 22031. Interest allowed by bank Rs. 3031. Half-yearly bank charges Rs. 50 

4. Choose an Indian Company of your choice that has adopted Balance Score Card and detail on it.

Tata motors 

Tata Motors is the first Indian company to be inducted in the Balance Scorecard Hall of Fame. Joins the thirty-member elite club of organizations including Hilton Hotels, BMW Financial Services, US Army, Korea Telecom and Norwegian Air Force for achieving excellence in performance. 

The commercial vehicle business unit (CVBU) of Tata Motors, India's largest automobile manufacturer, received prestigious Balanced Scorecard Collaborative, The coveted Steuben crystal 'Rising Star' trophy was presented at Balanced Scorecard Asia Pacific Summit held at Australia. 

Tata Motors-CVBU has been recognized for having achieved a significant turnaround in its overall performance. The implementation of the Balanced Scorecard has enabled greater focus on different elements of operational performance. Defining, cascading and communicating strategies across the organisation have brought about transparency and alignment. 

The scorecard incorporates SQDCM (safety, quality, delivery, cost and morale) and VMCDR (volume, market share, customer satisfaction, dealer satisfaction and receivables).

Ravi Kant, executive director, CVBU, Tata Motors, said, "While we were conscious of the benefits of the Balanced Scorecard when we began implementing it three years back, we are extremely pleased that it has helped us achieve significant improvements in our overall performance. I am quite positive that the BSC will play an important part in our objective to become a world-class organization."Balanced Scorecard Collaborative president Dr David P Norton said, "We created the Hall of Fame to publicly acknowledge the hard work and remarkable results of implementing the Balanced Scorecard to create the strategy-focused organization.

The Balanced Scorecard Hall of Fame pays tribute to the success that each organization has attained. Tata Motors- CVBU shares the honor with the city of Brisbane and Korea Telecom (KT).

The Balanced Scorecard (BSC) concept-created by Dr Robert S Kaplan and Dr David P Norton in 1992, has been implemented in thousands of corporations, organizations, and government agencies worldwide. Based on the simple premise that "measurement motivates," the BSC puts strategy at the centre of the management process, allowing organizations to implement strategies rapidly and reliably.

Balanced Scorecard Collaborative, Inc. is a new kind of professional services firm dedicated to the worldwide awareness, use, enhancement, and integrity of the Balanced Scorecard as a value-added management process.

Tata Motors range of commercial vehicles spans over 135 models and can haul loads ranging from 2 to 40 tones. The product portfolio also includes 12 to 60-seater buses, tippers and tractor-trailers.

Tata Motors vehicles meet the stringent Euro emission norms. The company currently has an export base in most parts of South Asia, Africa, Middle East and Europe. Tata Motors recently crossed the 3-million production milestone.

5.From the following data of Jagdish Company prepare (a) a statement of source and uses of working capital (funds) (b) a schedule of changes in working capital

Assets 2008 2007

Cash 1,26,000 1,14,000

Short-term investment 42,400 20,000

Debtors 60,000 50,000

Stock 38,000 28,000

Long term Investment 28,000 44,000

Machinery 2,00,000 1,40,000

Building 2,40,000 80,000

Land 14,000 14,000

Total 7,48,400 4,90,000

Liabilities and Equity

Accumulated depreciation 1,10,000 60,000

Creditors 40,000 30,000

Bills Payable 20,000 10,000

Secured loans 2,00,000 1,00,000

Share capital 2,20,000 1,60,000

Share premium 24,000 Nil

Reserves and surplus 1,34,400 1,30,000

Total 7,48,400 4,90,000

Income statement

Sales 2,40,000

Cost of goods sold 1,34,600

Gross Profit 1,05,200

Less Operating expenses:Depreciation – machinery       20,000Depreciation – building         32,000Other expenses                     40,000 92,000Net profit from operation

13,200Gain on sale on long-term investment 4,800

Total 18,000

Loss on sale of machinery 2,000

Net Profit 16,000

Adjustments:1)   Machinery worth Rs.70000 was purchased and worth Rs.10000 was sold during the

year [Accumulated depreciation on machinery is Rs.18000 after adjusting depreciation on machinery sold]. Proceeds from the sale of machinery were Rs.6000

2)Dividends paid during the year Rs.11600  

Answer:

Schedule of change in working capital

6. What is a cash budget? How it is useful in managerial decision making?

Cash budget is an estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess

whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities.

A cash budget is extremely important, especially for small businesses, because it allows a company to determine how much credit it can extend to customers before it begins to have liquidity problems.

For individuals, creating a cash budget is a good method for determining where their cash is regularly being spent. This awareness can be beneficial because knowing the value of certain expenditures can yield opportunities for additional savings by cutting unnecessary costs.

For example, without setting a cash budget, spending a dollar a day on a cup of coffee seems fairly unimpressive. However, upon setting a cash budget to account for regular annual cash expenditures, this expenditure comes out to an annual total of $365, which may be better spent on other things. If you frequently visit specialty coffee shops, your annual expenditure will be substantiallymore. 

The importance of cash budget may be summarized as follow:-

Helpful in Planning.

Cash budget helps planning for the most efficient use of cash. It points out cash surplus or deficiency at selected point of time and enables arrange for the deficiency before time or to plan for investing the surplus money as profitable as possible without any threat to the liquidity.

Forecasting the Future needs.

Cash budget forecasts the future needs of funds, its time and the amount well in advance. It, thus, helps planning for raising the funds through the most profitable sources at reasonable terms and costs. 

Maintenance of Ample cash Balance.

Cash is the basis of liquidity of the enterprise. Cash budget helps in maintaining the liquidity. It suggests adequate cash balance for expected requirements and a fair margin for the contingencies.

Controlling Cash Expenditure.

Cash budget acts as a controlling device. The expenses of various departments in the firm can best be controlled so as not to exceed the budgeted limit. 

Evaluation of Performance.

It acts as a standard for evaluating the financial performance. 

Testing the Influence of proposed Expansion Programme.

Cash budget forecasts the inflows from a proposed expansion or investment programme and testify its impact on cash position.

Sound Dividend Policy.

Cash budget plans for cash dividend to shareholders, consistent with the liquid position of the firm. It helps in following a sound consistent dividend policy. 

Basis of Long-term Planning and Co-ordination.

Cash budget helps in  co-coordinating the various finance functions, such as sales, credit, investment, working capital etc. it is an important basis of long term financial planning and helpful in the study of long term financing with respect to probable amount, timing, forms of security and methods of repayment.

Master of Business Administration- MBA Semester 1

MB0038 –Financial Management Accounting–4 Credits

(Book ID:B1127)

Assignment Set- 1 (60 Marks)