Solution to 2010 Year

8/11/2019 Solution to 2010 Year

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Ans 1.

1) Yes, its differ because The specific policies and procedures used by a company

to prepare its financial statements. These include any methods, measurement

systems and procedures for presenting disclosures. Accounting policies differ

from accounting principles in that the principles are the rules and the policies

are a company's way of adhering to the rules.

2) Purchases boo or purchases day bookis a book of original entrymaintained

to record credit purchases. You must note that cash purchases will not be

entered in purchases day boo because entries in respect of cash purchases must

ha!e been entered in the cash boo. At the end of each month, the purchases

boo is totaled. The total shows the total amount of goods purchased on credit.

Purchases boo is written up daily from the in!oices recei!ed. The in!oices are

consecuti!ely numbered. The in!oice of each number is noted in the purchasesboo.

") #oods taen by personal use id drawings and it$s implies the %tocoods taen

away by the proprietor or the partner for personal purposes. These goods are to

be !alued at cost and not at their selling prices.

) A budgetis a financial plan and a list of all planned e(penses and re!enues. t

is a plan for sa!ing, borrowing and spending.

n summary, the purpose of budgeting is to*

a) Pro!ide a forecast of re!enues and e(penditures, that is, construct a model of

how our business might perform financially if certain strategies, e!ents and

plans are carried out.

b) +nable the actual financial operation of the business to be measured against

the forecast.

c) +stablish the cost constraint for a proect, program, or operation.

-) Yes they both terms are different so Cost allocationis a process of pro!iding

relief to shared ser!ice organiation's cost centers that pro!ide a product or

ser!ice. n turn, the associated e(pense is assigned to internal clients' cost

centers that consume the products and ser!ices. /or e(ample, the 0 may

pro!ide all T ser!ices within the company and assign the costs bac to the

business units that consume each offering.


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identification of costs with cost obecti!es, also called cost apportionment, cost

assignment, cost distribution, and cost reapportionment. There are basically

three aspects of cost allocation* 1) choosing the obect of costing. +(amples are

products, processes, obs, or departments3 2) choosing and accumulating the

costs that relate to the obect of costing. +(amples are manufacturing

e(penses,selling and administrati!e e(penses etc.

Ans 2. Correct Trial Balance:

Particulars

4ebit

0redit

capital 155555

drawings 16555

buildings 1-555

/urniture and fittings 7-558otor !an 2-555

9oan 1-555

nterest paid :55

%ales 155555

purchase 7-555

%toc as at 1.5.5 2-555

%toc at "1.5".5- "2555

+stablishment e(pense 1-555

/reight inward 2555

/reight outward 1555

0ommission recei!ed 7-55%undry debtors 26155

;an balance 25555

%undry creditors 15555

Total 2"2-55 2"2-55


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IN THE BOOK OF KASTURI AGENCIESTRADING AND P&L A/C FOR THE YEAR ENDING MARCH 31,2005

PARTICULARS RS PARTICULARS RS

TO OPENIG STOCK 25000 By Sa!"100000TO PURCHESES #5000 BY CLOSING STOCK 32000TO FRT IN$ARD 2000

TO GROSS PROFIT 1320013200

P%'(/L"" A))*+(

TO INTEREST ON LOAN 00 1350 BY GROSS PROFIT 30000ADD-OUTSTANDING .50TO ESTB EP 15000 BY COM RECIED#500TO FRT OUT$ARD 1000TO DEPRICIATIONBUILDING 3#5FURNITURE & FITTING #50 #3#5MOTOR AN 250 12##5TO NET PROFIT 3#500

3#500


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KASTURI AGENCIES

BALANCE SHEET AS ON MARCH 31ST, 20055

LIABALITIES RS ASSETRSSUNDRY CREDITORS 10000 BANK BALANCE20000LOAN FROM HAR15000 SUNDRY DEBTORS24100ADD-INT O/S .50 15.50CAPITAL100000

ADD NET PROFIT12##5 CLOSING STOCK32000 FURNITURE ANDFITTINGSLESS DRA$INGS 14000 .##5 LESS DEPRICIATION #50#50 AN 25000 LESS DEPRICIATION250 14#50 BUILDING 15000 LESS DEPRICIATION 3#5

1.25120225

120225

OR

a) cash systemof accounting is a system in which accounting entries are made

only when cash is recei!ed or paid. nder cash basis, rent e(pense for the month of

4ecember will not be recorded as payment has not been made. #o!ernment

system of accounting is mostly on the cash system.

And

mercantile/accrual systemof accounting means system in which

accounting entries are made on the basis of amount ha!ing become due for

payment or receipt. This system recognies the fact that if a transaction or an


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e!ent occurred, its conse?uences cannot be a!oided and therefore, should be

brought into boo in order to present a meaningful picture of profit earned or

loss suffered.

b) 8achinery A&04r. 0r.

4AT+ PA@T0>9A@ A8>9A@ A8>9Y 1 ;> 4+P A&0 1) 2"5

=>9Y 1 T ;A


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" C "6555 -2-65 " C 555 B555

4+0 "1 ;Y ;A9 0&4 B-65

280 280

Ans ". a) An annual reportis a comprehensi!e report on a company$s acti!ities

throughout the preceding year. Annual reports are intended to

gi!e shareholders and other interested people information about the company's

acti!ities and financial performance. 8ost urisdictions re?uire companies to

prepare and disclose annual reports, and many re?uire the annual report to be filed

at the company's registry. 0ompanies listed on a stoc e(change are also re?uired

to report at more fre?uent inter!als depending upon the rules of the stoc

e(change in!ol!ed).

Typically annual reports will include *

Accounting policies

;alance %heet

0ash flow statement

0ontents* nonEaudited information

Profit and loss account


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@e!enue nature because deprecation of building is a re!enue nature thing.

@

a)

There are se!eral differences between cost accounting and financial accounting, which are*

B) Audience. /inancial accounting in!ol!es the preparation of a standard set of reports for anoutside audience, which may includein!estors, creditors, credit rating agencies, and

regulatory agencies. 0ost accounting in!ol!es the preparation of a broad range of reports thatmanagement needs to run a business.

7) Format. The reports prepared under financial accounting are highly specific in their formatand content, as mandated by eithergenerally accepted accounting principlesor international

financial reporting standards.0ost accounting in!ol!es creating reports that can be in anyformat specified by management, with the intention of including only that information

pertinent to a specific decision or situation.

6) Level of detail. /inancial accounting primarily focuses on reporting the results and financialposition of an entire business entity. 0ost accounting usually results in reports at a much

higher le!el of detail within the company, such as for indi!idual products, product lines,

geographical areas,customers,or subsidiaries.

:) Product costs. 0ost accounting compiles the cost of raw materials, worEinEprocess, andfinished goodsin!entory, while financial accounting incorporates this information into its

financial reports primarily into thebalance sheet).

15) Regulatory framework. The structure of financial accounting reports are tightly go!ernedby either generally accepted accounting principles or international financial reporting

standards. There is no regulatory framewor go!erning cost accounting reports.

11) Report timing. /inancial accounting personnel issue reports only at the end of a reportingperiod. 0ost accounting staff may issue reports at any time and with any degree of fre?uency,

depending upon management's need for the information.

12) Time horizon. /inancial accounting is only concerned with reporting the results ofreporting periods that ha!e already been completed. 0ost accounting does this too, but also

can be in!ol!ed in a !ariety of proections for future periods.

b) 0


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To labour paid

155555

;y plant at

siteB5555Edep12555)

6,555

Accrued labour15555

1,15,555 ;y materials at site 15,555

To plant 65,555 ;y wor in progress*Ewor certified

55555

wor uncertified1-555

,1-,555

To e(penses 5,555

To profit

Dlossprofit)

2-55

To reser!e BB-55

,6:,555 ,6:,555

+%T8AT+4 09A@% A8>9A@% A8>


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:B still at contract site. %o, depreciated !alue of plant on "5E:E:B would be @s.B,

-55Ii.e.15,555E2,555F1,-55)J.the amount of profit will change accordingly.

GAccrued wages is paid so amount will be taen 1, 15,555 in 1::-.

Ans .

!"

Ans . a) =ob 0osting basically refers to the costs that are encountered in the businesses relatedto manufacturing goods. =ob 0osting ledgers, wherein such costs are recorded, form an integral

part of the final account statement of the manufacturers. This type of costing in!ol!es recording

the costs as per the specific obs rather than a particular process. Kowe!er, Process 0osting refersto the methodology in!ol!ed in calculating the costs that are incurred while performing a

particular tas or undertaing a specific process. This might in!ol!e the costs that are either

incurred directly or indirectly.=ob 0osting in!ol!es the costs of e!ery indi!idual unit of production. Kowe!er, Process 0osting

in!ol!es the costs that are a!eraged for each production unit. As per the definition, Process0osting is a method that is applied to the manufacture business that is held together by !arious

continuous or repetiti!e processes. Process 0osting wors efficiently for the industries that arenown to produce a single type of product. ;oth of these terms signify the costs related to labor,

material and o!erhead costs.

Process 0osting helps to eep a tight reign o!er the monthly e(penditures in a manufacturing

business. As an e(ample, =ob 0osting in!ol!es the costs that form salaries of labors woring in a

particular process whereas Process 0osting in!ol!es the costs of the processed or manufacturedgoods undertaen by different departments.

ne of the maor differences between =ob 0osting and Process 0osting is that the =ob 0osting

can be carried out while a particular ob is going on. Kowe!er, Process 0osting can be achie!edonly when all the processes are completed. 8oreo!er, when it comes to documentation, in case

of =ob 0osting, the ob cost sheet is important whereas in Process 0osting a document ha!ing

deposition and accumulation of !arious costs is important.

n summary, there are !arious differences between =ob 0osting and Process 0osting methods.

%ome of these are listed below*

1. =ob 0osting signifies the costs encountered for each and e!ery ob whereas Process 0ostingsignifies the costs encountered for different departments.

2. n case of =ob 0osting, a final !alue of the costs can be calculated beforehand whereas in

Process 0osting, the final !alue of the costs is calculated only at the end of the complete process.

". The important documents needed to carry out =ob 0osting are much different from those

needed for Process 0osting.


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!"

a) The master budget is a oneEyear budget planning document for the firm encompassing allother budgets. t coincides with the fiscal year of the firm and may be broen down into

?uarters and, further, into months. f the firm plans for the master budget to be an ongoingdocument, rolling from year to year, then normally a month is added to the end of the budget

to facilitate planning. This is called continuous budgeting.

The budget committee usually de!elops the master budget for each year, guided by the ;udget

4irector, who is usually the0ontrollerof the company.

%a$or &arts of the %aster 'udget(

4epending on the sie of the firm, the master budget is a comprehensi!e budget planningdocument. t usually has two parts, the operating budget and the financial budget. The operatingbudget shows the incomeEgenerating acti!ities of the firm, including re!enues and e(penses. The

result is a budgeted income statement.

The financial budget shows the inflows and outflows of cash and other elements of the firm's

financial position. The inflows and outflows of cash come from the cash budget. As such, theresult of the financial budget is the budgeted balance sheet. perating budgets are prepared first

as information from the operating budgets is needed for the financial budgets.

%teps in preparation of master budget

A. Preparation of the master budget includes the following steps*1. The starting point is the ending balance sheet for the prior budget period. >sually

this, too, is a forecasted balance sheet because budgeting for the ne(t period

would not wait for the actual end of the current period M that would be too late.

a. The beginning balance sheet shows the resources that the organiation will begin the periodwith cash, materials, wor in process, finished goods, plant and e?uipment, and so on).

b. To meet the period's obecti!es, these beginning balances may not be sufficient, so

subse?uent parts of the operating budget detail which additional resources the organiationmust ac?uire.

2. ther essential data for beginning the master budget are the !arious operating and

financial characteristics and policies of the organiation. Among others theseinclude*

a. %ales collection and bad debt e(pectations, including credit terms granted to customers

b. Payment policies for purchases, ac?uired ser!ices, and operating e(penses, including credit

terms granted by suppliersc. n!entory policies, including re?uired cash balance

d. %ources and terms of shortEterm financing

e. Planned additions or retirements of longEterm assets and debt
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#i!en the starting position and conditions, the sales forecast and forecasts of other basic

acti!ities dri!e the rest of the master budget.

f. These forecasts lead to sales budgets and other cost dri!er budgets. The sales budgetidentifies the e(pected pattern of sales during the budget periods).

g. The sales and cost dri!er budgets then lead to purchases and disbursements payments) for

purchases budgets for materials and for labour and ser!ices.h. +ach part of the operating budget is lined to the pre!ious part by the organiation's policies

and by simple budget relationships of the form*

Start4esired ending balance of in!entoried resource sip for nonEin!entoriable resources such

as labour and ac?uired ser!ices)Plus@esources re?uired for sales or cost dri!er acti!ity

!ualsTotal resources needed on hand during the period 9ess ;eginning balance of in!entoried

resource sip for nonEin!entoriable resources) +?uals Total resources to be ac?uired for the

period e?uals total resources needed on hand during the period for nonEin!entoriable resources)

i. Purchases budgets and cost dri!er acti!ity budgets then lead to operating e(pense budgets,which match costs of resources used to planned sales.

"ote


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se!eral hundred million dollar budgeting error before the bills came due if it had. ne of the

assistant controller's new tass was to figure out how #8 could budget balance sheets.

;. There are se!eral things that must be considered to prepare budgets. These are the salesbudget, cash collections, and purchases budget.

1. )ales budget*A sales budget is the starting point for budgeting because in!entory

le!els, purchases, and operating e(penses are geared to the rate of sales acti!itiesand other cost dri!ers

2. Cash collections*0ash collections are the combination of the current month's

cash sales and the credit sales of the pre!ious month". &urchases budget*;udgeted purchases C desired ending in!entory F cost of

goods sold E beginning in!entory.b)

%TAT+8+


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(ii) The gesture of the 0ompany to pro!ide free a plastic tray with the toys would result in e(tra profit

of @s. 2."-,555. Kence it will be better to do so.

The management should also tae into account the cost of the tray. n case it is included in thestated additional costs, it is tine. Kowe!er, if tray would cost e(tra, the e(tra cost of the trayshould not e(ceed @s. 2,"-,555 in any case. therwise, it will be a losing proposition.

Ans -. a)

+istorical costing *

Actual cost adustment is delayed until after the completion of the operation and there is

no indication of efficient or inefficient performance.

The timeElag in reporting costs delays the introduction of correcti!e action

The necessary in!estigation is timeEconsuming

0ompared to*

)tandard Costing* %tandard costing is a system which introduces cost control and cost reduction

%tandard costs are carefully prepared estimates of the cost of operations, carried out under specified woring

condition.

8anagement is moti!ate and employees are gi!en an incenti!e. A yardstic is pro!ided to measure

performance

nly !ariances are in!estigated by use of the principle of e(ceptions.

0orrecti!e action can be taen at an early stage.

b)

@atio % % in

total

input

A %P AP

A;

nput

E) 9oss

utput

655

125

25

155

61.B5.6

122.

25.

152

655

125

75-5

125

16

152

2-

2.1.-

Total 8aterial 0ost Nariance C % Q %P) R A Q AP)

A C 61.B Q 2) R 75 Q 2.1) C 1B.2 /a!ourable); C 5.6 Q -) R -5 Q .-) C 21 Ad!erse)

.6 Ad!erse)


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8aterial Price Nariance C %P R AP)A

A C 2E2.1) 75 C 7 Ad!erse); C -E.-) -5 C 2- /a!ourable)

16 /a!ourable)

8aterial >sage !ariance C % R A) %P

A C 61.B R 75) 2 C 2".2 /a!ourable)

; C 5.6 R -5) - C B Ad!erse)22.6 Ad!erse)

8aterial 8i( Nariable C % in total input R A) %P

A C 65 R 75)2 C 25 /a!ourable); C 5 R -5)- C -5 Ad!erse)

"5 Ad!erse)

8aterial yield !ariance&%ub usage !ariance C % R % in total input)%P

A C 61.B R 65) 2 C ".2 /a!ourable); C 5.6 R 5) - C /a!ourable)

7.2 /a!ourable)

Price !ariance occurs at the time of purchase. t occurs on the entire ?uantity purchased.

Kowe!er, it may be calculated immediately at the time of purchase on ?uantity purchased or itmay be calculated later, as and when materials are used. f price !ariance is calculated at the time

of purchase,

8aterial price !ariance C %P R AP of purchases) A purchasedf price !ariance is calculated at the time of consumption,

8aterial price !ariance C %P R AP of consumption) A consumed

8aterial usage !ariance occurs at the time of usage i.e. consumption)and so it is always calculated at the time of consumption and is based

on ?uantity consumed.

!"a)

t is assumed that all cost&re!enue functions such as fi(ed cost, !ariable cost, sales, etc.)

are linear with respect to productionE!olume. Kowe!er, nonElinear functions may also beconsidered in special cases.

Another assumption in breaEe!enEanalysis is related to costE!olume information. All

information related to cost are assumed to be deterministic.

He also assume that the influence of a !ariety of nonE!olume factors on cost data is of no

significance in breaEe!enEanalysis.

,ssumptions in '-,


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1. 9inearity of cost&re!enue functions with respect to production !olume.

2. 4eterministic cost&!olume&re!enue information.

". /unctions other than !olumeEdependent cost or re!enue cost) are ignored.

. %ingle product firm.

-. 0onstant product mi(.

B. >nconstrained conditions.

Documents

Solution to 2010 Year