MB0025 - Set 1

FINANCIAL

AND

MANAGEMENT ACCOUNTING

MB0025

SET – 1

MBA – 1 SEM

Name Mohammed Roohul Ameen

Roll Number

Learning Center SMU Riyadh (02543)

Subject Financial and Management Accounting

Date of Submission 15th August 2009

Assignment Number MB0025

Mohammed Roohul Ameen Roll Number: Assignment MBA 1st Semester Subject: MB0025

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1. Explain the differences between Financial Accounting and Management Accounting.

Managerial accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be "future looking" and have forecasting value to those within the company.

Financial accounting is used primarily by those outside of a company or organization. Financial reports are usually created for a set period of time, such as a fiscal year or period. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company.

Differences

Confidentiality and type of information

Management Accounting is the branch of Accounting that deals primarily with confidential financial reports for the exclusive use of top management within an organization. These reports are prepared utilizing scientific and statistical methods to arrive at certain monetary values which are then used for decision making. Such reports may include:

Sales Forecasting reports Budget analysis and comparative analysis Feasibility studies Merger and consolidation reports

Financial Accounting, on the other hand, concentrates on the production of financial reports, including the basic reporting requirements of profitability, liquidity, solvency and stability. Reports of these natures can be accessed by internal and external users such as the shareholders, the banks and the creditors.

Regulation and standardization

While financial accountants follow Generally Accepted Accounting Principles (GAAP) set by professional bodies in each country, managerial accountants make use of procedures and processes that are not regulated by standard-setting bodies.


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However, multinational companies prefer to employ managerial accountants who have passed the Certified Management Accountant (CMA) certification. The CMA is an examination given by the Institute of Management Accountant, a professional organization of Accounting professionals. This certification is different and distinct from the CPA or Chartered Accountant certificate.

Time Period

Managerial Accounting provides top management with reports that are future-oriented, while Financial Accounting provides reports based on historical information. However, Management accountants based their reports on historical values, while employing statistical methods to arrive at future values.

There is no time span for producing managerial accounting statements but financial accounting statements are generally required to be produced for the period of 12 previous months.

Other differences

There is no legal requirement for an organization to use management accounting but publicly-traded firms (limited companies or incorporated companies whose shares are bought and sold on a open market) must, by law, prepare financial account statements.

In management accounting systems there is no requirement for an independent external review but financial accounting annual statements must be audited by an independent CPA firm.

In management accounting systems, management may be concerned about how reports will affect employee’s behavior whereas management concerns are about the adequacy of disclosure in financial statements.


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2. Hiran, a retailer, has prepared the following balance sheets for the years ending 31st March 2004 and 2005.

Balance Sheets as on 31st March, 2004 and 2005

Particulars 2004 2005

Freehold property at cost 200000 200000

Furniture 32000 Less depreciation 23200

8000 30000 20000

10000

Current Assets: Stock Debtors and prepayments Cash in hand and at bank

36000 50000

4000

34000 34000

2000

Liabilities: Capital Trade and accrued expenses Loan account

254800 24000 20000

260000 20000 -------

Total 298800 280000

Other data: The net profit for the year 2004 was Rs.40000. Hiran is paid a salary of Rs.16,000. His drawings amounted to Rs.45,200. You are required to prepare a statement of changes in financial position, on working capital basis.


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The layout for schedule of changes in Working Capital is as follows Balances as on Effect on Schedule of changes in Working Capital is as follows:

Year 2004 Year 2005 Increase Decrease

A .CURRENT ASSETS: Cash in hand & bank Sundry Debtors Stock or Inventory B. CURRENT LIABILITIES Trade and accrued expenses Net Working Capital Decrease in Working(A-B)

4000 50000 36000 - 24000

2000 34000 34000 - 20000

2000 16000 2000 4000 16,000

Statement of Profit and loss adjustment a/c:

Particulars Amount Particulars Amount

Salaries Funds from operations transferred to applications

16000 24000

Net profit for the year 2004

40000

Total 40000 40000


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Particulars Amount Particulars Amount

Increase in capital Decrease in Working capital

5200 16000

Funds from operations

24000

Total 40000 40000


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3. Enter the following transactions in proper subsidiary book. Find out the total of: Purchase book b) sales book c) purchase return book d) sales return book.

Jan 1 Purchase goods from Karthik 34000

5 Sold goods to Vinay 12000 7 Sold goods to Nagaraj 10000 10 Bought goods from Vikas 40000 12 Bought goods from Naveen 102000 14 Vinay returned goods 3000 15 Bought goods from Brinda 100000 18 Returned goods to Karthik 4000 19 Returned goods to Naveen 8000 20 Sold goods to Gururaj worth Rs. 20000 subject to a trade discount of 25% 22 Nagaraj returned goods 2000

25 Bought goods from Anand 45000

Purchase Book

Date Name of

Supplier

Ledger

Folio

Inward

Invoice No. Amount Rs.

Jan 1 Purchased

from Karthik 34000

Jan 10 Purchased from Vikas

40000

Jan 12 Purchased from Naveen

102000

Jan 15 Purchased from Brinda

100000

Jan 25 Purchased from Anand

45000

Total: 321000


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Sales book:

Date Name of

customer

Ledger

Folio

Out ward


Jan 5 Sold goods to

Vinay 12000

Jan 7 Sold goods to Nagaraj

10000

Jan 20 Sold Goods to Gururaj

16000

Total 38000

Sales returns Book:

Date Name of

customer/debtor

Ledger

Folio

Out ward

Invoice No.

Amount Rs.

Jan 14 Returned good

by Vinay 3000

Jan 22 Natraj returned goods

2000

Total: 5000

Purchase return book:

Date Name of

Supplier/Creditor

Ledger

Folio

Out ward


Jan 14 Returned good

to Karthik 4000

Jan 22 Returned goods to Naveen

2000

Total: 6000


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4a. On 01-04-2007 Mr. Gundu Rao stated business with Rs. 3, 00,000 cash and opened a bank account with Rs. 1,50,000. He purchased furniture for his business for Rs. 25000. Goods were bought from selvaraj for Rs. 50000 on credit. He sold goods for Rs. 27000 in cash and Rs. 30000 on credit. He paid Rs. 2500 for business expenses during April month. Rs. 10000 was withdrawn for office purpose form the back. Find out the closing balance of cash and bank.

Date Particulars Cash A/c

Dr

Bank a/c

Dr Date Particulars Cash A/c

Cr

Bank

A/c Cr

1-4-2007

31/04/2007

To capital a/c of Gundu

Rao

To bank

a/c C

To sales a/c To bank Office expenses

C

300000

27000

10000

150000

1-04-2007 31/04/2007

By Cash A/c C By Furniture a/c By Business Exp By Cash - Office expenses C By Balance

c/d

150000

25000

2500

160500

10000

140000

337000 150000 337000 150000

01/05/2007

To Bal B/d

160500 140000


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4b. Following are the extracts from the Trial Balance of a firm as on 31st December 1998: TRIAL BALANCE

As on 31st December 1998

Particulars Dr. Cr.

Salaries A/c 10,000

Rent a/c 5,000

Additional Information: Salary for the month of December Rs.2000 has not yet been paid. Rent amounting to Rs.1000 is still outstanding You are required to pass the necessary adjusting entries and show how the above items will appear in the Firm’s Account

Entry: Salary a/c Dr 2000 To Salary outstanding A/c 2000 Rent a/c Dr. 1000 To rent outstanding 1000 Trial balance Particulars Dr. Cr. Salaries 12000 A/c Rent a/c 6000


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5 From the following figures extracted from the book if Shri Govind, you are required to prepare a Trading and Profit & Loss Account for the year ended 31st March, 1999 and a Balance Sheet as on that date after making the necessary adjustment.

Particulars Amount Rs Particulars Amount Rs.

Shri Govind’s Capital 228800 Stock 1.4.1999 38500

Shri Govind’s Drawings 13200 wages 35200

Plant and Machinery 99000 Sundry Creditors 44000

Freehold Property 66000 Postage and Telegrams 1540

Purchases 110000 Insurance 1760

Returns Outwards 1100 Gas and Fuel 2970

Salaries 13200 Bad Debt 660

Office Expenses 2750 Office Rent 2860

Office Furniture 5500 Freight 9900

Discounts A/c (Dr.) 1320 Loose Tools 2200

Sundry Debtors 29260 Factory Lighting 1100

Loan to Shri Krishna @ 10% p.a. –balance on 1.4.1999

44000 Provision for D/D 880

Interest on loan to Shri Krishna 1100

Cash at Bank 29260 Cash in Hand 2640

Biils Payable 5500 Sales 231440

Adjustments 1. Stock on 31st March, 1999 was valued at Rs. 72,600 2. A new machine was installed during the year costing Rs. 15,400, but it was not recorded in the books as no payment was made for it. Wages Rs. 1,100 paid for its erection has been debited to wages account. 3. Depreciate: Plant and Machinery by 33 1/3 % Furniture by 10% Freehold property by 5% 4. Loose tools were valued at Rs. 1,760 on 31.3.1999. 5. Of the Sundry Debtors Rs. 600 are bad and should be written off. 6. Maintain a provision of 5% on Sundry Debtors for doubtful debts. 7. The manager is entitled to a commission of 10% of the net profits after charging such commission.


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Trading A/c for the year ended 31st March, 1999:

Particulars Amount Total Amount Dr.

Particulars Amount Total Amount Cr.

Purchases Less Purchase return Wages Less erection Factory Lighting Gas & Fuel Freight To gross profit transferred to P/L a/c

110000 1100 35200 1100

108900 34100 1100 2970 9900

Sales Closing Stock

231440 72600

Total

304040 304040


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Profit & Loss A/c for the year ended 31st March, 1999

Particulars Amount Total Amount Dr.

Particulars Amount Total Amount Cr.

Salaries Office exp Discount Postage & telegram Insurance Office rent Bad debts Provision for Bad debts Depreciation on Furniture Depreciation on Plant & machinery Depreciation on Free hold property Manager’s Commission To Net profit transferred to B/S

1463-880 NP*10/110

13200 2750 1320 1540 1760 2860 1260 583 550 38130 3300 13470 80723

By Balance b/d from Trading A/c Interest Received

147070 1100

Total 148170 148170


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Balance Sheet for the year ended 31st March, 1999

LIABILITIES Details AMOUNT ASSETS Details AMOUNT Shri Govind’s Capital Shri Govind’s Drawings Add net Profit Sundry Creditors Biils Payable

228800 -13200 +80723

296323 44000 5500

Cash at Bank Cash in Hand Plant and Machinery Less Dep Freehold Property Less Dep Office Furniture Less Dep Loose Tools Sundry Debtors Less provision for BD Closing Stock

99000+15400 38130 66000 5500 550 29260 583

29260 2640 76270 62700 4950 2200 72,600

Total 345823 250620


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6 Differentiate between Standard Costing & Budgetary Control

Standard Costing is estimated or predetermined cost of performing an operation or producing a good or service, under normal conditions (where special or extraordinary factors, that may affect performance, are absent).

Standard costs are used as target-costs (or basis for comparison with the actual costs), and are developed from historical data analysis or from time and motion studies.

They almost always vary from actual costs, because every situation has its share of unpredictable factors.

Budgetary control The process by which financial control is exercised within an organization. Budgets for income and expenditure for each function of the organization are prepared in advance of an accounting period and are then compared with actual performance to establish any variances. Individual function managers are made responsible for the controllable costs within their budgets, and are expected to take remedial action if the adverse variances are regarded as excessive.

1) The scope of budgetary control is wider. It is integrated plan of action, a coordinated plan in respect of all functions of an enterprise the scope of standard costing, on the other hand, is limited to the operating level. Here too, it is further linked to costs. Budgetary control is extensive whereas standard costing is intensive in its application

2) Costing scope and utility is limited to only operating level of the concern

3) Budget is projection of final accounts. Standard costs are projection of only cost accounts.

4) Budgetary control deals with costs and revenues. But standard costing restricts only with costs.

5) Budgetary control takes into account all activities such as production, sales, purchase3s,

finance, capital expenditure, personnel whereas standard costing is restricted to deal with only costs.

http://www.businessdictionary.com/definition/actual-cost.html

http://www.businessdictionary.com/definition/developed.html

MB0025 - Set 1

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