MBA Semister1 assignments

1. AssignmentonFinancial andManagementAccounting
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Ans1. Accounting convention:-
Definition-Accounting conventions are the rule based on which accounting
takes place and these rules are universally accepted. There are ten types of
accounting conventions namely, convention of income recognition, convention
of expense, convention of matching costand revenue, convention of historical
cost, convention of full disclosure, convention of double aspect, convention of
modifying, convention of materiality, convention of consistency and convention
of conservatism.
The Eight accounting conventions are explained briefly as follows:-
1. Convention of Income Recognition-According to this concept, revenue
is considered as being earned on the date on which it is realised, i.e., the
date on which goods and services are transferred to customers for cash or
for promise.
2. Convention of matching castand revenue- According to this concept,
revenue earned during a period is compared with the expenditure incurred
to earn that income, irrespective of whether the expenditure is paid during
that period or not. This is also called matching costand revenue principle.
While preparing the Final Accounts, adjustments are made for
outstanding expenses, prepaid expenses, outstanding income and income
received in advance.
3. Convention of Historical costs-this convention says that all transactions
must be recorded at a value at which they were incurred. Such a value is
called ‘Historical Cost’ and this principle is called the Convention of
‘Cost’.An assetor transaction may have many other values associated
with it like market value or replacement cost. But all assets are recorded
at the costof acquisition and this costis the basis for all subsequent
accounting for the assets. The expenses and the goods purchased are
shown at which they are incurred.
4. Convention of Full Disclosure-This convention requires a business to
disclose the following:
 All the accounting policies adopted in the preparation and presentation of
financial statement.
 If there is any change in the accounting policies in the current year as
compared to the previous years, the effect of suchchanges and the
reason’s there of.

2. AssignmentonFinancial andManagementAccounting
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 The implication’s (in terms of money value) on the financial statements
due to such changes.
5. Convention of Double Aspect- This conceptstates that every transaction
has two aspects. One is the receiving aspectand the other is the giving
aspect. In accounting language, these two aspects are called ‘Debit’ and
‘Credit’.
The claims on assets will always be equal to the assets. The claims on
assets may be of the owners or the outsiders (creditors). While the
claims of owners are called Equity or Capital, the claims of outsiders are
called Liabilities. Therefore, total liabilities are equal to total assets. This
concept gives rise to the balance sheet equation, i.e., Assets=Liabilities
+ Capital.
6. Convention of Materiality- This convention states that the benefits
derived from measuring, recording and processinga transaction should
justify the costof doing it.
7. Convention of consistency-This Convention requires that the
accounting policies must be constantly applied year after year.
Consistency is required to help comparison of financial data from one
period to another. One a method of accounting is adopted, it should not
be changed. A change in an accounting policy may be done only when:-
 It is required by law
 It is felt that the new policy reflects the financial performance or
position better than the old policy
Such changed policy must be consistently applied for the subsequent
periods. As stated under the full discloser convention, the change in
the accounting policy along with the reason’s and the financial
implications on the financial statements should be disclosed to the
users.
Ans2.
Analysis of Transactionunder Traditional Approach
Sl
No.
Accounts
Involved
Nature of
Account
Affects Debit/
Credit
a Cash a/c Real Cash is coming in Debit

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Capital a/c Personal Sunitha is the giver Credit
b Cash a/c
Loan from
Malathi
Real
Personal
Cash is coming in
Malathi is the giver
Debit
Credit
c Furniture a/c
Cash a/c
Real
Real
Furniture is coming in
Cash is going out
Debit
Credit
d Furniture a/c
Meenal a/c
Real
Personal
Furniture is coming in
Meenal is the giver
Debit
Credit
e Purchase a/c
Cash a/c
Nominal
Real
Purchase is an expense
Cash is going out
Debit
Credit
f Purchase a/c
Ram’s a/c
Nominal
Personal
Purchase is an expense
Ram is the giver
Debit
Credit
g Cash a/c
Sales a/c
Real
Nominal
Cash is coming in
Sales is revenue
Debit
Credit
h Shyam’s a/c
Sales a/c
Personal
Nominal
Shyam is the receiver
Sales is revenue
Debit
Credit
i Cash a/c
Shyam’s a/c
Real
Personal
Cash is coming in
Shyam is the giver
Debit
Credit
j Ram’s a/c
Cash a/c
Personal
Real
Ram is the receiver
Cash is going out
Debit
Credit
Ans3. The amount debited to P&L account towards RBD is computed as
follows:
Old RBD = Rs. 16,500
(-)Bad debts = Rs.9,000
Balance = Rs.7,500
New RBD @5% on 1,60,000 = Rs.8,000
RBD to be provided = Rs.500 (8000-7500)
The amount debited to P&L account towards Reserve for Discount on
Debtors is computed as follows:
Good Debtors = Rs.1,60,000-Rs.8,000
(New RBD)=Rs.1,52,000
Old Reserve for discount
on Drs = Rs.3,200
Less discount on Drs = Rs.1,800
Balance Reserve = Rs.1,400
New Reserve for discount
at 2% on good Drs 1,52,000 = Rs.3,040
Reserve for discount to be

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provided now = Rs.1,640 (3,040 – 1,400)
In the balance sheet, the Sundry debtors are reduced by bad debts shown
outside the trial balance, the new RBD, discount on debtors shown
outside the trial balance and the new Reserve for discount on debtors.
Ans4. Differences between Financial Accounting and Management Accounting
in various dimensions are as follows:
Dimension FinancialAccounting ManagementAccounting
Users The primary users of
financial accounting
information are external
users like shareholders,
creditors, government
authorities, employees, etc.
The primary users of
management accounting
are internal users like top,
middle and low level
managers.
Purpose Reporting financial
performance and financial
position to enable the user
to take financial decisions.
To help the management
in planning, decision
making, monitoring and
controlling.
Need It is a statutory requirement.
What to report, how to
report, how much to report,
when to report, in which
form to report, etc. are
stipulated by Law or
Standards.
It is optional. What to
report, how to report, how
much to report, when to
report, in which form to
report, etc. are decided by
the management as per the
needs of the company or
management.
Expression of
information
Accounting information is
always expressed in terms
of money.
Management accounting
may adoptany
measurement unit like
labour hours, machine
hours or productunits for
the purposeof analysis.
Reporting timing and
frequency
Financial data is presented
for a definite period, say
one year or a quarter.
Reports are presented on a
continuous basis, monthly,
weekly or even daily.
Time perspective Financial accounting
focuses on historical data.
Management accounting is
oriented towards the
future.

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Sources of principles Financial accounting is a
discipline by itself and has
its own principles, policies
and conventions.(GAAP)
Management accounting
makes use of other
disciplines like economics,
management, information
system, operation research
etc.
Reporting entity Overall organisation Responsibility centres
within the organisation.
Form of reports Income statement ( Profit
and Loss a/c)
Balance sheet
Cash flow statement
MIS reports
Performance reports
Control reports
Coststatements
Budgets
Estimate statements
Flowcharts.
Ans5. Balance Sheet
Liabilities Rs. Assets Rs.
Capital 5,00,000 Fixes Assets 6,00,000
Reserves and Surplus 2,50,000 Inventories 2,00,000
Long-term Debt 1,50,000 Debtors 2,50,000
Current Liabilities 2,00,000 Bank 50,000
Total 11,00,000 Total 11,00,000
Working Notes
If Current Liabilities = 1
Current Assets = 2.5
Therefore Current Assets (2.5/1.5) x 3,00,000
Current Liabilities (1/1.5) x 3,00,000
= 3,00,000
= 5,00,000
= 2,00,000
Liquidity Ratio = 1.5
Current Liabilities = 2,00,000
Therefore Liquid Assets (2,00,000 x 1.5)
Inventories ( Current assets-Liquid assets)
=3,00,000
=2,00,000
StockTurnover Ratio = 6 times
Costof sales (6x2,00,000)
Gross Profit Ratio = 20%
Gross Profit
If Sales is 100; Gross profit is 20
= 12,00,000

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Hence costof sales is (100-20) = 80
Therefore Gross Profit is (20/80) x 12,00,000
Sales ( Costof Sales + Gross Profit)
= 3,00,000
= 15,00,000
Fixed Assets Turnover Ratio = 2 times
(Costof Sales/Fixes assets)
Therefore Fixed Assets (12,00,000/2) = 6,00,000
Debtor’s Collection Period = 2 months
(Months in a year/Debtor’s turnover)
Debtor’s Turnover Ratio (12/2) = 6 times
(Sales/Debtor’s)
Debtor’s (15,00,000/6) =2,50,000
Fixed Assets to Shareholder’s Net worth = 0.80
Shareholder’s Net worth (6,00,000/0.80) =7,50,000
Reserves and Surplus to Capital = 0.50
If capital is 1 : reserves and surplus is 0.5
Reserves and Surplus + Capital = Shareholder’s Net worth
(0.5+1=1.5)
Reserve and Surplus ( 75,00,000 x (0.5/1.5)
Therefore share Capital
=2,50,000
=5,00,000
Ans6. Difference betweenCashFlow Analysis and Fund Flow Analysis are:
CashFlow Analysis Fund Flow Analysis
1. It is concerned only with the
change in cash position.
1. It is concerned with changes in
working capital position between two
balance sheet dates.
2.It is merely a record of cash
receipt and disbursements
2.Net effect of receipts and
disbursements are recorded
3.Cash is a part of working capital
and therefore an improvement in
cash position results in improvement
in funds position
3.An improvement in funds position
need not result in Improvement in cash
position
4.It is cash based 4.It is accrual based

7. AssignmentonFinancial andManagementAccounting
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Solution:
Statement Showing CashFlow from Operating Activities
Net Loss (38,000)
Add: Decrease in current assets
Decrease in stock 2,000
Decrease in prepaid expenses 200
Increase in current liabilities
Increase in outstanding expenses 200
Increase in bill payable 2,000 +4,400
(33,600)
Less:Increase in current assets
Increase in short-term loan to the employees 3,000
Increase in bills receivable 12,000
Decrease in creditors 22,000
Decrease in provision for doubtful debts 1,200 (38,200)
Net cashlostin operating activities (71,800)