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MBA

SAMESTER 1

SET 1 & 2

Subject Code: MB0041

Subject: FINANCIALManagement& Accounting

NAME: AJAY TIWARI

ROLL NO: 511034413

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Set- 1

1. What is accounting cycle? List the sequential steps

involved in Accounting cycle?

Ans.The Accounting Cycle is a series of steps which are repeated

every reporting period. The process starts with making accounting

entries for each transaction and goes through closing the books. Use

this tutorial for an overview of the accounting cycle, covering

activities required both during and at the end of the accounting

period.

Accounting Cycle Steps During the Accounting Period

These accounting cycle steps occur during the accounting period, as

each transaction occurs:

Identify the transaction through an original source document

(such as an invoice, receipt , cancelled check, time card, deposit

slip, purchase order) which provides:

a) date

b) amount

c) description (account or business purpose)

d) name and address of other party (if practical)

e) Analyze the transaction determine which accounts are

affected, how (increase or decrease), and how much

f) Make Journal entries record the transaction in the journal as

both a debit and a credit

g) journals are kept in chronological order

h) journals may include sales journal, purchases journal, cash

receipts journal, cash payments journal, and the general

journal

i) Post to ledger transfer the journal entries to ledger accounts

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j) ledger is kept by account

k) ledger accounts may be T-account form or include balances

l) (Learn more about the Chart of Accounts.)

m)Accounting Cycle: Steps at the end of the accounting period

These accounting cycle steps occur at the end of the

accounting period:

1. Trial Balance this is a calculation to verify the sum of the

debits equals the sum of the credits. If they dont balance, you have

to fix the unbalanced trial balance before you go on to the rest ofthe accounting cycle. (If they do balance you could still have a

problem, but at least it balances!)

2. Adjusting entries prepare and post accrued and deferred

items to journals and ledger T-accounts

3. Adjusted trial balance make sure the debits still equal the

credits after making the period end adjustments

4. Financial Statements prepare income statement, balance

sheet, statement of retained earnings, and statement of cash flows

(this can occur at other points in time with appropriate adjustments)

5. Closing entries prepare and post closing entries to transfer

the balances from temporary accounts (such as the revenue and

expenses from the income statement to owners equity on the

balance sheet).

6. After-Closing trial balance final trial balance after the closing

entries to make sure debits still equal credits.

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Q. 2. A. Bring out the difference between Indian GAAP and

US GAAP norms?

Ans. Some of these major differences between US GAAP and Indian

GAAP which give rise to differences in profit are highlighted

hereunder:

1. Underlying assumptions: Under Indian GAAP, Financial

statements are prepared in accordance with the principle of

conservatism which basically means Anticipate no profits and

provide for all possible losses. Under US GAAP conservatism is notconsidered, if it leads to deliberate and consistent understatements.

2. Prudence vs. rules : The Institute of Chartered Accountants

of India (ICAI) has been structuring Accounting Standards based on

the International Accounting Standards ( IAS) , which employ

concepts and `prudence' as the principle in contrast to the US GAAP,

which are "rule oriented", detailed and complex. It is quite easy for

the US accountants to handle issues that fall within the rules, while

the International Accounting Standards provide a general framework

of accounting standards, which emphasise "substance over form" for

accounting. These rules are less descriptive and their application is

based on prudence. US GAAP has thus issued several Industry

specific GAAP , like SFAS 51 ( Cable TV), SFAS 50 (Record and MusicIndustry) , SFAS 53 ( Motion Picture Industry) etc.

3. Format/ Presentation of financial statements: Under

Indian GAAP, financial statements are prepared in accordance with

the presentation requirements of Schedule VI to the Companies Act,

1956. On the other hand , financial statements prepared as per US

GAAP are not required to be prepared under any specific format as

long as they comply with the disclosure requirements of US GAAP.

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Financial statements to be filed with SEC include

4. Consolidation of subsidiary companies: Under Indian

GAAP (AS 21), Consolidation of Accounts of subsidiary companies is

not mandatory. AS 21 is mandatory if an enterprise presents

consolidated financial statements. In other words, the accounting

standard does not mandate an enterprise to present consolidated

financial statements but, if the enterprise presents consolidated

financial statements for complying with the requirements of any

statute or otherwise, it should prepare and present consolidated

financial statements in accordance with AS 21.Thus, the financialincome of any company taken in isolation neither reveals the

quantum of business between the group companies nor does it

reveal the true picture of the Group . Savvy promoters hive off

their loss making divisions into separate subsidiaries, so that

financial statement of their Flagship Company looks attractive

.Under US GAAP (SFAS 94),Consolidation of results of Subsidiary

Companies is mandatory , hence eliminating material, inter

company transaction and giving a true picture of the operations and

Profitability of the various majority owned Business of the Group.

5. Cash flow statement: Under Indian GAAP (AS 3) ,

inclusion of Cash Flow statement in financial statements is

mandatory only for companies whose share are listed on recognizedstock exchanges and Certain enterprises whose turnover for the

accounting period exceeds Rs. 50 crore. Thus , unlisted companies

escape the burden of providing cash flow statements as part of

their financial statements. On the other hand, US GAAP (SFAS 95)

mandates furnishing of cash flow statements for 3 years current

year and 2 immediate preceding years irrespective of whether the

company is listed or not .

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6. Investments: Under Indian GAAP (AS 13), Investments

are classified as Current and Long term. These are to be further

classified Government or Trust securities ,Shares, debentures or

bonds Investment properties Others-specifying nature. Investments

classified as current investments are to be carried in the financial

statements at the lower of cost and fair value determined either on

an individual investment basis or by category of investment, but not

on an overall (or global) basis. Investments classified as long term

investments are carried in the financial statements at cost.

However, provision for diminution is to be made to recognise a

decline, other than temporary, in the value of the investments, suchreduction being determined and made for each investment

individually. Under US GAAP ( SFAS 115) , Investments are

required to be segregated in 3 categories i.e. held to Maturity

Security ( Primarily Debt Security) , Trading Security and Available

for sales Security and should be further segregated as Current or

Non current on Individual basis. Debt securities that the enterprise

has the positive intent and ability to hold to maturity are classified

as held-to-maturity securities and reported at amortized cost. Debt

and equity securities that are bought and held principally for the

purpose of selling them in the near term are classified as trading

securities and reported at fair value, with unrealised gains and

losses included in earnings. All Other securities are classified as

available-for-sale securities and reported at fair value, withunrealised gains and losses excluded from earnings and reported in

a separate component of shareholders' equity

7. Depreciation: Under the Indian GAAP, depreciation is

provided based on rates prescribed by the Companies Act, 1956.

Higher depreciation provision based on estimated useful life of the

assets is permitted, but must be disclosed in Notes to Accounts.

( Guidance note no 49) . Depreciation cannot be provided at a rate

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lower than prescribed in any circumstance. Similarly , there is no

compulsion to provide depreciation at a higher rate, even if the

actual wear and tear of the equipments is higher than the rates

provided in Companies Act. Thus , an Indian Company can get away

with providing with lesser depreciation , if the same is in compliance

to Companies Act 1956. Contrary to this, under the US GAAP ,

depreciation has to be provided over the estimated useful life of the

asset, thus making the Accounting more realistic and providing

sufficient funds for replacement when the asset becomes obsolete

and fully worn out.

8. Foreign currency transactions: Under Indian

GAAP(AS11) Forex transactions ( Monetary items ) are recorded at

the rate prevalent on the transaction date .Year end foreign

currency assets and liabilities ( Non Monetary Items) are re-stated at

the closing exchange rates. Exchange rate differences arising on

payments or realizations and restatements at closing exchange

rates are treated as Profit /loss in the income statement. Exchange

fluctuations on liabilities incurred for fixed assets can be capitalized.

Under US GAAP (SFAS 52), Gains and losses on foreign currency

transactions are generally included in determining net income for

the period in which exchange rates change unless the transaction

hedges a foreign currency commitment or a net investment in a

foreign entity . Capitalization of exchange fluctuation arising fromforeign liabilities incurred for acquiring fixed assets does not exist.

Translation adjustments are not included in determining net income

for the period but are disclosed and accumulated in a separate

component of consolidated equity until sale or until complete or

substantially complete liquidation of the net investment in the

foreign entity takes place . US GAAP also permits use of Average

monthly Exchange rate for Translation of Revenue, expenses and

Cash flow items, whereas under Indian GAAP, the closing exchange

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rate for the Transaction date is to be taken for translation purposes.

9. Expenditure during Construction Period: As per the

Indian GAAP (Guidance note on Treatment of expenditure during

construction period' ) , all incidental expenditure on Construction of

Assets during Project stage are accumulated and allocated to the

cost of asset on completion of the project. Contrary to this, under

the US GAAP (SFAS 7) , such expenditure are divided into two

heads direct and indirect. While, Direct expenditure is

accumulated and allocated to the cost of asset, indirect expenditure

are charged to revenue.

10. Research and Development expenditure: Indian GAAP

( AS 8) requires research and development expenditure to be

charged to profit and loss account, except equipment and

machinery which are capitalized and depreciated. Under US GAAP

( SFAS 2) , all R&D costs are expenses except intangible assets

purchased from others and Tangible assets that have alternative

future uses which are capitalised and depreciated or amortised as

R&D Expense. Under US GAAP, R&D expenditure incurred on

software development are expensed until technical feasibility is

established ( SOP 81.1) . R&D Cost and software development cost

incurred under contractual arrangement are treated as cost of

revenue.

11. Revaluation reserve : Under Indian GAAP, if an enterprise

needs to revalue its asset due to increase in cost of replacement

and provide higher charge to provide for such increased cost of

replacement, then the Asset can be revalued upward and the

unrealised gain on such revaluation can be credited to Revaluation

Reserve ( Guidance note no 57). The incremental depreciation

arising out of higher book value may be adjusted against the

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Revaluation Reserve by transfer to P&L Account. However for

window dressing some promoters misutilise this facility to hoodwink

the shareholders on many occasions. US GAAP does not allow

revaluing upward property, plant and equipment or investment.

12. Long term Debts: Under US GAAP , the current portion of

long term debt is classified as current liability, whereas under the

Indian GAAP, there is no such requirement and hence the interest

accrued on such long term debt in not taken as current liability.

13. Extraordinary items, prior period items and changes inaccounting policies: Under Indian GAAP( AS 5) , extraordinary

items, prior period items and changes in accounting policies are

disclosed without netting off for tax effects . Under US GAAP (SFAS

16) adjustments for tax effects are required to be made while

reporting the Prior period Items.

14. Goodwill: Under the Indian GAAP goodwill is capitalized

and charged to earnings over 5 to 10 years period. Under US GAAP

( SFAS 142) , Goodwill and intangible assets that have indefinite

useful lives are not amortized ,but they are tested at least annually

for impairment using a two-step process that begins with an

estimation of the fair value of a reporting unit. The first step is a

screen for potential impairment, and the second step measures theamount of impairment, if any. However, if certain criteria are met,

the requirement to test goodwill for impairment annually can be

satisfied without a remeasurement of the fair value of a reporting

unit.

15. Capital issue expenses: Under the US GAAP, capital

issue expenses are required to be written off when incurred against

proceeds of capitals, whereas under Indian GAAP , capital issue

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expense can be amortized or written off against reserves.

16. Proposed dividend: Under Indian GAAP , dividends

declared are accounted for in the year to which they relate. For

example, if dividend for the FY 1999-2000 is declared in Sep 2000 ,

then the corresponding charge is made in 2000-2001 as below the

line item . Contrary to this , under US GAAP dividends are reduced

from the reserves in the year they are declared by the Board. Hence

in this case under US GAAP , it will be charged Profit and loss

account of 2000-2001 above the line.

17. Investments in Associated companies: Under the Indian

GAAP( AS 23) , investment in associate companies is initially

recorded at Cost using the Equity method whereby the investment is

initially recorded at cost, identifying any goodwill/capital reserve

arising at the time of acquisition. The carrying amount of the

investment is adjusted thereafter for the post acquisition change in

the investors share of net assets of the investee. The consolidated

statement of profit and loss reflects the investors share of the

results of operations of the investee.are carried at cost . Under US

GAAP ( SFAS 115) Investments in Associates are accounted under

equity method in Group accounts but would be held at cost in the

Investors own account.

18. Preoperative expenses: Under Indian GAAP, (Guidance

Note 34 - Treatment of Expenditure during Construction Period),

direct Revenue expenditure during construction period like

Preliminary Expenses, Project related expenditure are allowed to be

Capitalised. Further , Indirect revenue expenditure incidental and

related to Construction are also permitted to be capitalised. Other

Indirect revenue expenditure not related to construction, but since

they are incurred during Construction period are treated as deferred

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revenue expenditure and classified as Miscellaneous Expenditure in

Balance Sheet and written off over a period of 3 to 5 years. Under

US GAAP ( SFAS 7) , the concept of preoperative expenses itself

doesnt exist. SOP 98.5 also madates that all Start up Costs should

be expensed. The enterprise has to prepare its balance sheet and

Profit and Loss Account as if it were a normal running organization.

Expenses have to be charged to revenue and Assets are Capitalised

as a normal organization. The additional disclosure include

reporting of cash flow, cumulative revenues and Expenses since

inception. Upon commencement of normal operations, notes to

Statement should disclose that the Company was but is no longer isa Development stage enterprise. Thus , due to above accounting

anomaly, Accounts prepared under Indian GAAP , contain higher

charges to depreciation which are to be adjusted suitably under US

GAAP adjustments for indirect preoperative expenses and foreign

currencies.

19. Employee benefits: Under Indian GAAP, provision for

leave encashment is accounted based n actuarial valuation.

Compensation to employees who opt for voluntary retirement

scheme can be amortized over 60 months. Under US GAAP,

provision for leave encashment is accounted on actual basis.

Compensation towards voluntary retirement scheme is to be

charged in the year in which the employees accept the offer.

20. Loss on extinguishment of debt: Under Indian GAAP, debt

extinguishment premiums are adjusted against Securities Premium

Account. Under US GAAP, premiums for early extinguishment of debt

are expensed as incurred.

Q. B. What is Matching Principle? Why should a business

concern follow this principle?

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Ans.Matching Principle

The Matching principle is a culmination of accrual accounting and

the revenue recognition principle. They both determine the

accounting period, in which revenues and expenses are recognized.

According to the principle, expenses are recognized when

obligations are incurred (usually when goods are transferred or

services rendered, e.g. sold), and offset against recognized

revenues, which were generated from those expenses (related on

the cause-and-effect basis), no matter when cash is paid out. In cashaccountingin contrastexpenses are recognized when cash is paid

out, no matter when obligations are incurred through transfer of

goods or rendition of services: e.g., sale.

If no cause-and-effect relationship exists (e.g., a sale is impossible),

costs are recognized as expenses in the accounting period they

expired: i.e., when have been used up or consumed (e.g., of spoiled,

dated, or substandard goods, or not demanded services). Prepaid

expenses are not recognized as expenses, but as assets until one of

the qualifying conditions is met resulting in a recognition as

expenses. Lastly, if no connection with revenues can be established,

costs are recognized immediately as expenses (e.g., general

administrative and research and development costs).Prepaid expenses, such as employee wages or subcontractor fees

paid out or promised, are not recognized as expenses (cost of goods

sold), but as assets (deferred expenses), until the actual products

are sold.

The matching principle allows better evaluation of actual profitability

and performance (shows how much was spent to earn revenue), and

reduces noise from timing mismatch between when costs are

incurred and when revenue is realized.

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Two types of balancing accounts exist to avoid fictitious profits and

losses that might otherwise occur when cash is paid out not in the

same accounting periods as expenses are recognized, because

expenses are recognized when obligations are incurred regardless

when cash is paid out according to the matching principle in accrual

accounting.

Cash can be paid out in an earlier or latter period than obligations

are incurred (when goods or services are delivered) and related

expenses are recognized that results in the following two types

of accounts:

1. Accrued expense: Expense is recognized before cash is paid

out.

2. Deferred expense: Expense is recognized after cash is paid

out.

Accrued expenses is a liability with an uncertain timing or amount,

but where the uncertainty is not significant enough to qualify it as a

provision. An example is an obligation to pay for goods or services

received FROM a counterpart, while cash for them is to be paid out

in a latter accounting period when its amount is deducted from

accrued expenses. It shares characteristics with deferred income (or

deferred revenue) with the difference that a liability to be covered

latter is cash received FROM a counterpart, while goods or servicesare to be delivered in a latter period, when such income item is

earned, the related revenue item is recognized, and the same

amount is deducted from deferred revenues.

Deferred expenses (or prepaid expenses or prepayment) is an

asset, such as cash paid out TO a counterpart for goods or services

to be received in a latter accounting period when the obligation to

pay is actually incurred, the related expense item is recognized, and

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the same amount is deducted from prepayments. It shares

characteristics with accrued revenue (or accrued assets) with the

difference that an asset to be covered latter are proceeds from a

delivery of goods or services, at which such income item is earned

and the related revenue item is recognized, while cash for them is to

be received in a later period, when its amount is deducted from

accrued revenues.

Examples

Accrued expense allows one to match future costs of products

with the proceeds from their sales prior to paying out such costs.

Deferred expense (prepaid expense) allows one to match costsof products paid out and not received yet.

Depreciation matches the cost of purchasing fixed assets with

revenues generated by them by spreading such costs over their

expected life.

Accrued expenses

Accrued expense is a liability usedaccording to matching principle

to enable management of future costs with an uncertain timing or

amount.

For example, supplying goods in one accounting period by a

vendor, but paying for them in a later period results in an accruedexpense that prevents a fictitious increase in the receiving

company's value equal to the increase in its inventory (assets) by

the cost of the goods received, but unpaid. Without such accrued

expense, a sale of such goods in the period they were supplied

would cause that the unpaid inventory (recognized as an expense

fictitiously incurred) would effectively offset the sale proceeds

(revenue) resulting in a fictitious profit in the period of sale, and in a

fictitious loss in the latter period of payment, both equal to the cost

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of goods sold.

Period costs, such as office salaries or selling expenses, are

immediately recognized as expenses (and offset against revenues of

the accounting period) also when employees are paid in the next

period. Unpaid period costs are accrued expenses (liabilities) to

avoid such costs (as expenses fictitiously incurred) to offset period

revenues that would result in a fictitious profit. An example is a

commission earned at the moment of sale (or delivery) by a sales

representative who is compensated at the end of the following

week, in the next accounting period. The company recognizes the

commission as an expense incurred immediately in its currentincome statement to match the sale proceeds (revenue), so the

commission is also added to accrued expenses in the sale period to

prevent it from otherwise becoming a fictitious profit, and it is

deducted from accrued expenses in the next period to prevent it

from otherwise becoming a fictitious loss, when the rep is

compensated.

Deferred expenses

A Deferred expense (prepaid expenses or prepayment) is an asset

used to enable management of costs paid out and not recognized as

expenses according to the matching principle.

For example, when the accounting periods are monthly, an 11/12

portion of an annually paid insurance cost is added to prepaidexpenses, which are decreased by 1/12th of the cost in each

subsequent period when the same fraction is recognized as an

expense, rather than all in the month in which such cost is billed.

The not-yet-recognized portion of such costs remains as

prepayments (assets) to prevent such cost from turning into a

fictitious loss in the monthly period it is billed, and into a fictitious

profit in any other monthly period.

Similarly, cash paid out for (the cost of) goods and services not

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received by the end of the accounting period is added to the

prepayments to prevent it from turning into a fictitious loss in the

period cash was paid out, and into a fictitious profit in the period of

their reception. Such cost is not recognized in the income statement

(profit and loss or P&L) as the expense incurred in the period of

payment, but in the period of their reception when such costs are

recognized as expenses in P&L and deducted from prepayments

(assets) on balance sheets.

Depreciation

Depreciation is used to distribute the cost of the asset over its

expected life span according to the matching principle. If a machine

is bought for $100,000, has a life span of 10 years, and can produce

the same amount of goods each year, then $10,000 of the cost of

the machine is matched to each year, rather than charging

$100,000 in the first year and nothing in the next 9 years. So, the

cost of the machine is offset against the sales in that year. This

matches costs to sales.

3. Prove that the accounting equation is satisfied in all the

following transactions of Mr. X

(a) Commence business with cash Rs.50000

(b) Paid rent in advance Rs.1000(c) Purchased goods for cash Rs.18000 and Credit

Rs.20000

(d) Sold goods for cash Rs.25000 costing Rs.22000

(e) Paid salary Rs.5000 and salary outstanding is

Rs.3000

(f) Bought moped for personal use Rs.20000\

Ans.

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Accounting Equation = Liabilities + Capital

Transaction

Assets

Cash + Stock

= Capabilities +

Capital

= Creditor +

Salary + Capitala) Commenced

Business With

cash 50,000

50,000 + 0 = 0 + 0 + 50,000

c) Purchased

goods for cash

18000 and credit

20,000

New Equation

-18000 + 38000

32000 + 32000

= 20000 + 0 + 0

= 20,000 + 0 +

50,000d) Sold goods per

cash Rs. 25,000

Costing Rs.

22,000

New Equation

+ 25,000 22,000

57,000 + 16,000

= 0 + 0 + 3000

= 20,000 + 0 +

53,000b) Paid Rent in

advance 1,000

New Equation

- 11,000 + 0

56,000 + 16,000

= 20,000 + 0 +

53,000

= 20,000 + 0 +

52,000e) Paid Salary Rs.

5000 and Salary

outstand is Rs.

53,000

(-) 5000 + 0 = 0 + 0 (-) 5000

New Equation 51,000 + 16, 000 = 20,000 + 3000 +

44000f) Bought Miper

for Personal use

20000

(-) 20,000 + 0 = 0 + 0 20,000

31,000 + 16,000 = 20,000 + 3000 +

24,000

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Balance Sheet of X as at:

Liabilities Amount Assets Amount

Creditor 20,000 Cash in hand 31,000Salary

outstanding

3000 Stock 16,000

Capital 24,000

47,000 47,000

Q. 4. Following are the extracts from the Trial Balance of a

firm as on 31st March 20X7

Dr CrSundry Debtors 2,05,00

0Provision for Doubtful

Debts

10,000

Provision for Discount on

Debtors

1,800

Bad Debts 3,000Discount 1,000Additional Information:

1) Additional Bad Debts required Rs.4,000

2) Additional Discount allowed to Debtors Rs.1,000

3) Maintain a provision for bad debts @ 10% on debtors

4) Maintain a provision for discount @ 2% on debtors

Required: Pass the necessary journal entries and show the

relevant accounts including final accounts.

Ans. Journal Entry

Particular Dr. Cr.Bad Debts A/c Dr.

Discount AllowedDr.

To sundry Debtors

4000

1000

5000

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(Being Discount

Allowed Dr.)Profit shares A/c

Dr.

To Bad Debts

To discount

Allowed

(Being P X L for

Discount)

9000

7000

2000

P X L A/c Dr.

To provision for

Doubtful Debits

To provision for

discount on

debtors.

12,200

10,000

2200

Profit & Loss A/c

Particular Amount Particular AmountTo provision

for Doubtful

Debts

10,000

To provision

for discount 2200To Bed dobts

3000(+)

Additional

4000

7000

To Discount

Allowed 1000

(+)

Additional1000

2000

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Balance Sheet

Liabilities Amount Assets AmountProvision for

bad debts

10,000

(+)

Additional

10,000

20,000

Debtors

20,500

(-) Bad Debts

4000

(-) Discount

1000

200,000

Provision for

discount

1800

(+)

Additional

2200

4000

Q.5. A. Bring out the difference between trade discount and

cash discount.

Ans. The difference between trade discount and cash

discount.

Cash Discount Trade Discount

Is a reduction grantedby supplier from theinvoice price inconsideration of immediate or promptpayment

Is a reduction granted bysupplier from the list price ofgoods or services on businessconsideration re: buying in bulkfor goods and longer periodwhen in terms of services

As an incentive in creditmanagement toencourage prompt

payment

Allowed to promote the sales

Not shown in the Shown by way of deduction in the

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supplier bill or invoice invoice itself

Cash discount account isopened in the ledger

Trade discount account is notopened in the ledger

Allowed on payment ofmoney

Allowed on purchase of goods

It may vary with thetime period within whichpayment is received

It may vary with the quantity ofgoods purchased or amount ofpurchases made

Q. B. Explain the term (1) asset (2) liability with the help of

examples.

Ans.

(1) asset: assets are economic resources. Anything tangible or

intangible that is capable of being owned or controlled to produce

value and that is held to have positive economic value is considered

an asset. Simplistically stated, assets represent ownership of value

that can be converted into cash (although cash itself is also

considered an asset). The balance sheet of a firm records the

monetary value of the assets owned by the firm. It is money and

other valuables belonging to an individual or business. Two major

asset classes are tangible assets and intangible assets. Tangible

assets contain various subclasses, including current assets and fixed

assets. Current assets include inventory, while fixed assets include

such items as buildings and equipment. Intangible assets arenonphysical resources and rights that have a value to the firm

because they give the firm some kind of advantage in the market

place. Examples of intangible assets are goodwill, copyrights,

trademarks, patents and computer programs, and financial assets,

including such items as accounts receivable, bonds and stocks.

(2) liability with the help of examples: a liability is defined as

an obligation of an entity arising from past transactions or events,

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the settlement of which may result in the transfer or use of assets,

provision of services or other yielding of economic benefits in the

future.

All type of borrowing from persons or banks for improving a business

or person income which is payable during short or long time.

They embody a duty or responsibility to others that entails

settlement by future transfer or use of assets, provision of services

or other yielding of economic benefits, at a specified or

determinable date, on occurrence of a specified event, or on

demand;

The duty or responsibility obligates the entity leaving it little or nodiscretion to avoid it; and,

The transaction or event obligating the entity has already occurred.

Liabilities in financial accounting need not be legally enforceable;

but can be based on equitable obligations or constructive

obligations. An equitable obligation is a duty based on ethical or

moral considerations. A constructive obligation is an obligation that

can be inferred from a set of facts in a particular situation as

opposed to a contractually based obligation.

The accounting equation relates assets, liabilities, and

owner's equity:

Assets = Liabilities + Owner's Equity

The accounting equation is the mathematical structure of the

balance sheet.

The Australian Accounting Research Foundation defines liabilities as:

"future sacrifice of economic benefits that the entity is presently

obliged to make to other entities as a result of past transactions and

other past events."

Regulations as to the recognition of liabilities are different all over

the world, but are roughly similar to those of the IASB.

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Examples of types of liabilities include: money owing on a loan,

money owing on a mortgage, or an IOU.

Liabilities are debts and obligations of the business they represent

creditors claim on business assests. Example of Liabilities All kinds

of payable 1) Notes payable - an written promise. 2) Accounts

Payable - an oral promise. 3) Interests Payable. 4) Sales Payable.

Q. 6. A fresh MBA student joined as trainee was asked to

prepare Trial balance. He was unable to submit a correct

trial balance. You, as a senior accountant find out the errors

and rectify them. After redrafting the trial balance preparetrading and Profit and loss account.

Particulars Deb

it

Credit

Capital 7,670Cash in Hand 30Purchases 8,990

Sales 11,060Cash at bank 885Fixtures and Fittings 225Freehold premises 1.500Lighting and Heating 65Bills Receivable 825Return Inwards 30Salaries 1.075Creditors 1890

Debtors 5,700Stock at 1st April 2007 3,000Printing 225Bills Payable 1,875Rates, taxes and insurance 190Discount received 445Discount allowed 200

21,175 21,705Adjustments:

1) Stock on hand on 31

st

March 2008 was valued atRs.1800

2) Depreciate fixtures and fittings by Rs.25

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3) Rs.35 was due and unpaid in respect of salaries

4) Rates and insurance had been paid in advance to the

extent of Rs.40

Ans.

Corrected Trial Balance as at 31st March 2008

Particulars Debit

Amount

Credit

AmountCapital 7,670Cash in Hand 30

Purchases 8,990Sales 11,060Cash at bank 885Fixtures and Fittings 225Freehold premises 1.500Lighting and Heating 65Bills Receivable 825Return Inwards 30Salaries 1.075Creditors 1890Debtors 5,700Stock at 1st April 2007 3,000Printing 225Bills Payable 1,875Rates, taxes and insurance 190Discount received 445Discount allowed 200

22,940 22,940

Trading And Profit and Loss Account for the year ended 31st

March 2008

Dr. Cr.Particular Amount Rs. Particular Amount Rs.

To Opening

Stock

3000 By Sales

11060To Purchase 8990 Less returns

30

11030

To Gross Profit 840 By Closing 1800

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c/d Stock12,830 12,830

To Salaries

1075

By Gross Profit

c/d

840

Add

Outstanding

35

1110 By Discount 445

To Lighting

and heating

65 By net loss

Transit and to

capital a/c

490

To Printing 225To Rates,

Taxes and

Insurance 190Less:

Insurance

Unpaid 40

150

To Discount

Allowed 200To

Depreciation of

furniture &

Fittings

25

1775 1775

Balance Sheet as at 31st March 2008

Liabilities Amount Assets AmountCurrent

Liabilities

Current Assets

Creditors 1890 Cash in Hands 30Bills Payable 1875 Cash at Bank 885Outstanding

Salary

35 Bill Receivable 825

Capital Debtors 5700

OpeningBalance 7670

Closing Stock 1800

Unexpired

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Rates and

Insurance

40

Fixed AssetsLess: Net less

490

7180 Furniture and

fittings 225Less:

Deprecation

25

200

Free hold

Promises

1500

10,980 10,980

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Set- 2

Q. 1. Uncertainties inevitably surround many transactions.

This should be recognized by exercising prudence in

preparing financial statement. Explain this concept with the

help of an example.

Ans. The last concept is about prudence or otherwise known as

conservatism. It is the inclusion of a degree of caution in the

exercise of the judgments needed in making the estimates required

under conditions of uncertainty. Its purpose is to avoid the instances

of overstatement of assets or income and understatement of

liabilities or expenses. Although the said practice does not allow the

creation of hidden reserves or the exercise of provisions, the

deliberate understatement of assets or income, nor the deliberate

overstatement of liabilities or expenses. Otherwise, it lacks the

quality of reliability due to the lack of neutrality of the financial

statements. The preparers of financial statements need to assume

the presence of inevitable uncertainties that surround many events

and circumstances. Examples of which are the collectivity of

doubtful receivables, the probable useful life of plant and

equipment, as well as the number of warranty claims that may

occur. Such uncertainties are recognized by the disclosure of their

nature and extent, as well as through the exercise of prudence in

the preparation of financial statements. The four different non-

management stakeholder groups interested in the financial

statements of an enterprise are the institutional shareholders

(investors or owners), the debt holders (also known as bondholders),

the government, and the employees.

The shareholders/debt holders are among the major recipients of the

financial statements of corporations. They range from individuals

with relatively limited resources to large, well-endowed institutions

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such as insurance companies and mutual funds. The decision made

by these parties includes shares to buy, retain, or sell, and the

timing of the purchase or sale of those shares. Typically, their

decisions have a focus either on investment or on stewardship,

although in some cases, it is both. If the emphasis is on the choice of

a portfolio of securities that is consistent with the preferences of the

investor for risk, return, dividend yield, liquidity and so on, it is said

to be investment focus. Otherwise, it is stewardship focus. The

required information for this choice varies significantly.

Consider approaches that intend to detect the improper pricing of

securities by a fundamental analysis approach compared to atechnical analysis approach. The former approach examines firm,

industry and economy related information, where financial

statements play a major role. An important aspect is the prediction

of the timing, amounts, and uncertainties of the firms future cash

flows. In contrast, it is through the examination of the movement in

security prices, security trading volume, and other related variables

that the technical analysis is able to detect the improper pricing of

securities. Typically, financial statement information is not examined

in this approach.

When predicting the timing, amounts, and uncertainties of the firms

future cash flows, the past record of management in relation to the

resources under its control can be an important variable. The

analysis undertaken for decisions by shareholders and investors canbe done by those parties themselves or by intermediaries such as

security analysts and investment advisors. Employees, on the other

hand, are motivated by numerous factors. They might have a vested

interest in the continued profitability of their firms operations.

Therefore, financial statements for them serve as an important

source of information regarding the possible profitability and

solvency of their company at present, as well as in the future. They

may also need them in monitoring the viability of their pension

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plans.

The demand of the government or regulatory agencies can arise in a

diverse set of areas. These include revenue raising (for income tax,

sales tax, or value-added tax collection), government contracting

(for reimbursing suppliers paid on a cost-plus basis or for monitoring

whether the companies engaged in government business are

earning excess profits), rate determination (deciding the allowable

rate of return that an electric utility can earn), and regulatory

intervention (determining whether to provide a government-backed

loan agreement to a financially distressed firm.

However, due to the diverse interest of the said individuals to theinformation contained in the financial statements, conflicts may

arise. For the shareholders/debt holders, the interest of these parties

lies in the fact that the money invested in the firm is their own

money. They would like to ensure that they are getting a good

return on their investment. This is measured by looking at how much

profit the firm is making and whether their investment is increasing

in value. For shareholders in companies, this means they will get

good dividends and the market value of their shares will increase.

They can also make capital gains, in case these shares will be sold.

For the employees, they are part of the organization. As a part of the

organization, they also feel that their efforts contributed to the

profitability of the firm. They would therefore be delighted if they

will be given incentives to their participation to the companysachievement. They might prefer to be given bonuses, salary

increases, and other form of monetary benefits. They might also

prefer given stock options or promotions, depending on the

discretion of both parties. However, for the firms part, it means

increases in the expenses of the firm.

For the government, various ministries and departments have

different interest in the firms ability to pay taxes. They also see and

review the enactment of laws for the industry and the provision of

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social services to the public. The government may also want to

ensure that the firm complies with laws on, for example, wage

payments and employee benefits. These are for their benefit, as well

as the benefit of the society as a whole.

Q. 2. A. When is the change in accounting policy

recommended and what are the disclosure requirements

regarding the change in accounting policy?

Ans. Accounting Policy

Accounting policies are the specific principles, bases, conventions,

rules and practices applied by an entity in preparing and presenting

financial statements. When a Standard or an Interpretation

specifically applies to a transaction, other event or condition, the

accounting policy or policies applied to that item shall be

determined by applying the Standard or Interpretation and

considering any relevant Implementation Guidance issued by the

IASB for the Standard or Interpretation.

In the absence of a Standard or an Interpretation that specifically

applies to a transaction, other event or condition, management shall

use its judgement in developing and applying an accounting policy

that results in information that is relevant and reliable.

In making the judgement management shall refer to, and

consider the applicability of, the following sources in descending

order:

(a) the requirements and guidance in Standards and Interpretations

dealing with similar and related issues; and

(b) the definitions, recognition criteria and measurement concepts

for assets, liabilities, income and expenses in the Framework.

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An entity shall select and apply its accounting policies consistently

for similar transactions, other events and conditions, unless a

Standard or an Interpretation specifically requires or permits

categorisation of items for which different policies may be

appropriate. If a Standard or an Interpretation requires or permits

such categorisation, an appropriate accounting policy shall be

selected and applied consistently to each category.

To ensure proper understanding of financial statements, it is

necessary that all significant accounting policies adopted in the

preparation and presentation of financial statements should be

disclosed.Such disclosure should form part of the financial statements. It

would be helpful to the reader of financial statements if they are all

disclosed as such in one place instead of being scattered over

several statements, schedules and notes.

Examples of matters in respect of which disclosure of accounting

policies adopted will be required are contained in paragraph 14. This

list of examples is not, however, intended to be exhaustive.

Any change in an accounting policy which has amaterial effect

should be disclosed. The amount by which any item in the financial

statements is affected by such change should also be disclosed to

the extent ascertainable. Where such amount is not ascertainable,

wholly or in part, the fact should be indicated. If a change is made in

the accounting policies which has no material effect on the financialstatements for the current period but which is reasonably expected

to have a material effect in later periods, the fact of such change

should be appropriately disclosed in the period in which the change

is adopted.

Disclosure of accounting policies or of changes therein cannot

remedy a wrong or inappropriate treatment of the item in the

accounts.

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B. Explain IFRS.

International Financial Reporting Standards (IFRS) are Standards,

Interpretations and the Framework adopted by the International

Accounting Standards Board (IASB).

Many of the standards forming part of IFRS are known by the older

name of International Accounting Standards (IAS). IAS were issued

between 1973 and 2001 by the Board of the International

Accounting Standards Committee (IASC). On 1 April 2001, the new

IASB took over from the IASC the responsibility for setting

International Accounting Standards. During its first meeting the new

Board adopted existing IAS and SICs. The IASB has continued todevelop standards calling the new standards IFRS.

IFRS are considered a "principles based" set of standards in that

they establish broad rules as well as dictating specific treatments.

International Financial Reporting Standards comprise:

1. International Financial Reporting Standards (IFRS) -

standards issued after 2001

2. International Accounting Standards (IAS) - standards

issued before 2001 Interpretations originated from the

International Financial

3. Reporting Interpretations Committee (IFRIC) - issued

after 20014. Standing Interpretations Committee (SIC) - issued before

2001

Framework for the Preparation and Presentation of Financial

Statements IAS 8 Par. 11

"In making the judgement described in paragraph 10,

management shall refer to, and consider the applicability of,

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the following sources in descending order:

(a) the requirements and guidance in Standards and Interpretations

dealing with similar and related issues; and

(b) the definitions, recognition criteria and measurement concepts

for assets, liabilities, income and expenses in the Framework."

Q. 3. Journalise the following transactions:

01.01.09 Bought goods for Rs.10,00002.01.09 Purchased goods from X Rs.20,00003.01.09 Bought goods from Y for Rs.30,000 against a

current dated cheque04.01.09 Purchased goods from Z [price list price is

Rs.30,000 and trade discount is 10%]05.01.09 Bought goods of the list prce of Rs.1,25,000 from

M less 20% trade discount and 2% cash discount.

Paid 40% of the amount by cheque06.01.09 Returned 10% of the goods supplied by X07.01.09 Returned 10% of the goods supplied by Y

Ans.

Q. 4. Bring out the difference between Funds FlowStatement and Cash Flow Statement. Mention up to whatpoint in time they are similar and from where the differencesbegin.

Ans. Cash Flow Statement :

Statement showing changes in inflow & outflow of cash during theperiod.

Methods of cash flow:

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1.Direct Method : presenting information in Statement of

A. operating ActivitiesB. Investment ActivitiesC.Financial Activities

2.Indirect Method :uses net income as base & make adjustmentsto that income(cash & non-cash)transactions.

Funds Flow Statement :Statement showing the source &application of funds during the period.

Major Difference:

The Cash Flow S tatement allows investors to understand how a

company's operations are running, where its money is coming from,and how it is being spent.Fund Flow Statement is showing the fund for the future activites ofthe Company.

The main differences are as follows:

1. A cash flow statement is concerned only with the change incash position while a fund flow analysis/statement isconcerned the change in working capital position

2. Cash is part of working capital and an improvement in cashposition results in improvement in funds position but thereverse is not true.

3. A cash flow statement is merely a record of cash receipts anddisbursements. It does not reveal any important changesinvolving the utilization/disposition of resources.

Q. 5. A. Determine the sales of a firm with the following

financial dataCurrent Ratio 1.5Acid test ratio 1.2Current Liabilities 8,00,00

0Inventory Turnoverratio

5 times

Ans.Current Assets

current Ratio Current Liabilities=

http://basiccollegeaccounting.com/difference-between-cash-flow-analysisstatement-and-fund-flow-analysisstatement/http://basiccollegeaccounting.com/difference-between-cash-flow-analysisstatement-and-fund-flow-analysisstatement/

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= 1.5800,000

Current Assets=

= 1.5 x 800,000 = C.A

Current Assets = 1,200,000

=Current Assets Stock

Acid Test RatioCurrent Liablities

=

=1,200,000

1.2800,000

Stock=

= 1.2 x 800,000 = 1200, 000 Stock

Stock = 240,000

Average Stock = 1,20,000

=Cost of Goods Sold

Stock Turnover RatioAverageStock

=

=Sales- GrossProfit

51,20,000

=

Sales = 600,000

Q. B. What is Du-Pont chart?

Ans. DuPont Chart calculates the key components of any businessfor easy evaluation of performance.

Income Statement

Sales

Other Income

COGS

G&A

Depreciation

Other Expense

Gross Profit

OperatingExpenses

Earningsbeforeinterest& taxes(EBIT)

Interest Paid

Taxes

Net Profit

Sales

EBIT

Total Assets

Profit

Margin

EBIAss

Ret

http://www.businessplans.org/dupontchart.html#Sales%23Saleshttp://www.businessplans.org/dupontchart.html#OtherIncome%23OtherIncomehttp://www.businessplans.org/dupontchart.html#COGS%23COGShttp://www.businessplans.org/dupontchart.html#GA%23GAhttp://www.businessplans.org/dupontchart.html#Depreciation%23Depreciationhttp://www.businessplans.org/dupontchart.html#OtherExpense%23OtherExpensehttp://www.businessplans.org/dupontchart.html#GrossProfit%23GrossProfithttp://www.businessplans.org/dupontchart.html#OperatingExpenses%23OperatingExpenseshttp://www.businessplans.org/dupontchart.html#OperatingExpenses%23OperatingExpenseshttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#Interest%23Interesthttp://www.businessplans.org/dupontchart.html#Taxes%23Taxeshttp://www.businessplans.org/dupontchart.html#NetProfit%23NetProfithttp://www.businessplans.org/dupontchart.html#Sales%23Saleshttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#TotalAssets%23TotalAssetshttp://www.businessplans.org/dupontchart.html#ProfitMargin%23ProfitMarginhttp://www.businessplans.org/dupontchart.html#ProfitMargin%23ProfitMarginhttp://www.businessplans.org/dupontchart.html#EBITonAssets%23EBITonAssetshttp://www.businessplans.org/dupontchart.html#EBITonAssets%23EBITonAssetshttp://www.businessplans.org/dupontchart.html#ReturnonEquity%23ReturnonEquityhttp://www.businessplans.org/dupontchart.html#Sales%23Saleshttp://www.businessplans.org/dupontchart.html#OtherIncome%23OtherIncomehttp://www.businessplans.org/dupontchart.html#COGS%23COGShttp://www.businessplans.org/dupontchart.html#GA%23GAhttp://www.businessplans.org/dupontchart.html#Depreciation%23Depreciationhttp://www.businessplans.org/dupontchart.html#OtherExpense%23OtherExpensehttp://www.businessplans.org/dupontchart.html#GrossProfit%23GrossProfithttp://www.businessplans.org/dupontchart.html#OperatingExpenses%23OperatingExpenseshttp://www.businessplans.org/dupontchart.html#OperatingExpenses%23OperatingExpenseshttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#Interest%23Interesthttp://www.businessplans.org/dupontchart.html#Taxes%23Taxeshttp://www.businessplans.org/dupontchart.html#NetProfit%23NetProfithttp://www.businessplans.org/dupontchart.html#Sales%23Saleshttp://www.businessplans.org/dupontchart.html#EBIT%23EBIThttp://www.businessplans.org/dupontchart.html#TotalAssets%23TotalAssetshttp://www.businessplans.org/dupontchart.html#ProfitMargin%23ProfitMarginhttp://www.businessplans.org/dupontchart.html#ProfitMargin%23ProfitMarginhttp://www.businessplans.org/dupontchart.html#EBITonAssets%23EBITonAssetshttp://www.businessplans.org/dupontchart.html#EBITonAssets%23EBITonAssetshttp://www.businessplans.org/dupontchart.html#ReturnonEquity%23ReturnonEquity

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on

Assets

Cash

Receivables

Inventory

Other Assets

Fixed Assets

Current

Assets

CurrentLiabilities

Sales

Total Assets

WorkingCapital

AssetsTurnover

Liabilities & Equity

Payables

Notes Payables

Other Liability

Current

Liabilities

Non-CurrentLiabilities

Capital

Retained

Earnings

TotalLiabilities

EndingNet Worth

Total

BeginningNet Worth

Leverage

Q. 6. From the following data calculate the: 1. Break-even point expressed in terms of saleamount/revenue

2. Number of units that must be sold to earn a profitof Rs.60,000 per year

Sales price (per unit) Rs.20Variable manufacturing

cost per unit

Rs.11

Variable selling cost perunit

Rs.3

http://www.businessplans.org/dupontchart.html#ReturnonEquity%23ReturnonEquityhttp://www.businessplans.org/dupontchart.html#Cash%23Cashhttp://www.businessplans.org/dupontchart.html#Receivables%23Receivableshttp://www.businessplans.org/dupontchart.html#Inventory%23Inventoryhttp://www.businessplans.org/dupontchart.html#OtherAssets%23OtherAssetshttp://www.businessplans.org/dupontchart.html#FixedAssets%23FixedAssetshttp://www.businessplans.org/dupontchart.html#CurrentAssets%23CurrentAssetshttp://www.businessplans.org/dupontchart.html#CurrentAssets%23CurrentAssetshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#Sales%23Saleshttp://www.businessplans.org/dupontchart.html#TotalAssets%23TotalAssetshttp://www.businessplans.org/dupontchart.html#WorkingCapital%23WorkingCapitalhttp://www.businessplans.org/dupontchart.html#WorkingCapital%23WorkingCapitalhttp://www.businessplans.org/dupontchart.html#AssetsTurnover%23AssetsTurnoverhttp://www.businessplans.org/dupontchart.html#AssetsTurnover%23AssetsTurnoverhttp://www.businessplans.org/dupontchart.html#Payables%23Payableshttp://www.businessplans.org/dupontchart.html#Notes%23Noteshttp://www.businessplans.org/dupontchart.html#OtherLiabilities%23OtherLiabilitieshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#NonCurrentLiabilities%23NonCurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#NonCurrentLiabilities%23NonCurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#Capital%23Capitalhttp://www.businessplans.org/dupontchart.html#RetainedEarnings%23RetainedEarningshttp://www.businessplans.org/dupontchart.html#RetainedEarnings%23RetainedEarningshttp://www.businessplans.org/dupontchart.html#TotalLiabilities%23TotalLiabilitieshttp://www.businessplans.org/dupontchart.html#TotalLiabilities%23TotalLiabilitieshttp://www.businessplans.org/dupontchart.html#EndingNetWorth%23EndingNetWorthhttp://www.businessplans.org/dupontchart.html#EndingNetWorth%23EndingNetWorthhttp://www.businessplans.org/dupontchart.html#TotalAssets2%23TotalAssets2http://www.businessplans.org/dupontchart.html#BeginningNetWorth%23BeginningNetWorthhttp://www.businessplans.org/dupontchart.html#BeginningNetWorth%23BeginningNetWorthhttp://www.businessplans.org/dupontchart.html#Leverage%23Leveragehttp://www.businessplans.org/dupontchart.html#ReturnonEquity%23ReturnonEquityhttp://www.businessplans.org/dupontchart.html#Cash%23Cashhttp://www.businessplans.org/dupontchart.html#Receivables%23Receivableshttp://www.businessplans.org/dupontchart.html#Inventory%23Inventoryhttp://www.businessplans.org/dupontchart.html#OtherAssets%23OtherAssetshttp://www.businessplans.org/dupontchart.html#FixedAssets%23FixedAssetshttp://www.businessplans.org/dupontchart.html#CurrentAssets%23CurrentAssetshttp://www.businessplans.org/dupontchart.html#CurrentAssets%23CurrentAssetshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#Sales%23Saleshttp://www.businessplans.org/dupontchart.html#TotalAssets%23TotalAssetshttp://www.businessplans.org/dupontchart.html#WorkingCapital%23WorkingCapitalhttp://www.businessplans.org/dupontchart.html#WorkingCapital%23WorkingCapitalhttp://www.businessplans.org/dupontchart.html#AssetsTurnover%23AssetsTurnoverhttp://www.businessplans.org/dupontchart.html#AssetsTurnover%23AssetsTurnoverhttp://www.businessplans.org/dupontchart.html#Payables%23Payableshttp://www.businessplans.org/dupontchart.html#Notes%23Noteshttp://www.businessplans.org/dupontchart.html#OtherLiabilities%23OtherLiabilitieshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#CurrentLiabilities%23CurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#NonCurrentLiabilities%23NonCurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#NonCurrentLiabilities%23NonCurrentLiabilitieshttp://www.businessplans.org/dupontchart.html#Capital%23Capitalhttp://www.businessplans.org/dupontchart.html#RetainedEarnings%23RetainedEarningshttp://www.businessplans.org/dupontchart.html#RetainedEarnings%23RetainedEarningshttp://www.businessplans.org/dupontchart.html#TotalLiabilities%23TotalLiabilitieshttp://www.businessplans.org/dupontchart.html#TotalLiabilities%23TotalLiabilitieshttp://www.businessplans.org/dupontchart.html#EndingNetWorth%23EndingNetWorthhttp://www.businessplans.org/dupontchart.html#EndingNetWorth%23EndingNetWorthhttp://www.businessplans.org/dupontchart.html#TotalAssets2%23TotalAssets2http://www.businessplans.org/dupontchart.html#BeginningNetWorth%23BeginningNetWorthhttp://www.businessplans.org/dupontchart.html#BeginningNetWorth%23BeginningNetWorthhttp://www.businessplans.org/dupontchart.html#Leverage%23Leverage

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Fixed factory overheads(per year)

5,40,000

Fixed selling cost (peryear)

2,52,000

Ans.

Sales Price = 20Variable Cost = 14Contribution = 6

Contribution/

SalesP V =

=6

/ 100 30%20

P V = =

Fixed CostBreak EvenPoint =

/ P V Ratio

79,2000=

30%

BEP = 2,640,000

Fixed Cost + Desired ProfitSales in Unit at Desired Profit = / P V Ratio

79,2000 + 60,000=

30%

2,84,0000=

20

= 14,2000 Units