ADL 03 Accounting For Managers V4

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ADL 03 Accounting For Managers V4

Assignment – A

Problem 1:
Journalize the following transactions in the books of Mr. Walter:

a) Paid rent of building $ 12,000 half of the building is used by the
proprietor for residential use.
b) Paid fire insurance of the above building in advance $ 1,000.
c) Paid life insurance premium $ 2,000.
d) Paid income-tax $ 3,000.
e) Salary due to clerk $ 500.
f) Charge depreciation on furniture @ 10% p.a. for 1 month (furniture $
12,000).
g) Provide interest on capital ($ 60,000) at 15% p.a. for 6 months,
h) Charge interest on drawing (10,000) at 18% p.a. for 6 months.

i) Provide interest on loan to Ram ($ 100,000) at 18% p.a. for 2 months,

j) Charge interest on loan to Shyam ($ 200,000) at 18% p.a. for 2 months,

k) Received commission $ 1,000 half of which is in advance.

I) Brokerage due to us $ 500.

Problem 2:
From following figures extracted from the books of Mr. XYZ, you are required to
prepare a Trading & Profit & Loss Account for the year ended 31st March, 2008
and a Balance Sheet as on that date after making the necessary adjustments.

 

 

 

$

 

 

 

$
Mr. XYZ’s Capital
228,800
Stock 1.4.2007
38,500
Mr. XYZ’ Drawings
13,200
Wages
35,200
Plant & Machinery
99,000
Sundry creditors
44,000
Freehold property
66,000
Postage & Telegrams
1,540
Purchases
110,000
Insurance
1,760
Rtuens outwards
1,100
Gas & fuel
2,970
Salaries
13,200
Bad debts
660
Office Expenses
2,750
Office rent
2,860
Discount A/c (Dr.)
5,500
Loose tools
2,900
Sundry Debtors
29,260
Factory lighting
1,100
Loan to Mr. Krish @10% p.a.
44,000
Provision for doubtful debts
880
Balance on 1.4.2007

 

 

 

Interest on loan to Mr. Krish
1,100
Cash at bank
29,260
Cash in hand
2,640
Bills payable
5,500
Sales
231,440

 

 

 

 
Adjustments:

a) Stock on 31st March, 2008 was valued at $ 72,600
b) A new machine was installed during the year costing $15,400 but it is not
recorded in the books as on payment was made for it. Wages $ 1,100 paid for its
erection has been debited to the wages account.
c) Depreciate :
a. Plant & machine by 33.33%

b. Furniture by 10%

c. Freehold property by 6%

d) Loose tools were valued at $ 1.760 as on 31.3.2008
e) Of the sundry debtors Rs.660 are bad and should be written off.
f) Maintain a provision of 5% on sundry debtors for doubtful debts.
g) The manager is entitled to a commission of 10% of the net profits after
charging such commission.
Problem 3:
Following is the Trial Balance of M/s. Trinity Foods as on 30th June 2007 (after
closing Nominal Accounts). Prepare a Balance Sheet on the basis of this trial
balance.

 

 

Particulars

Debit (Rs.)
Credit (in Rs.)
Cash
10,000

 

 

 

 

Capital

 

 

 

100,000
Bank
77,000

 

 

 

 

Furniture
25,000

 

 

 

 

Ram

 

 

 

15,000
Rahim
50,000

 

 

 

 

Trading & Profit & Loss

 

 

 

47,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

162,000
162,000
Problem 4:
Given below are the financial statements of Safal Enterprises, using the tool of
ratio analysis comment on the profitability and liquidity position of the firm
for the year 2006-07. Total no. of shares outstanding for the firm is
2.69crores. In the view of growth opportunities in the near future the firm has
been maintaining a policy of 45% payout.
Summarized P & L of Safal Enterprises
For the year ended 31 March
Particulars
2006
2007
( Rs. In crores)
Sales
132.00
144.00
Other income
12.00
15.00
Cost of sales
102.96
110.02
Gross margin
29.04
33.98
Operating expenses

 

 

 

 

 

 

 

Administration
12.44
14.36
Selling & distribution
4.42
5.36
Profit before interest & tax (PBIT)
24.18
29.26
Interest
3.00
4.01
Profit before tax (PBT)
21.18
25.26
Provision for taxes
7.94
9.47
Profit after tax (PAT)
13.24
15.79

 

 

 

 

 
Balance Sheet of Safal Enterprises

 

 

 

 

 

Particulars

31/03/06
31/03/07
(Rs in crores)
Assets

 

 

 

 

 

 

 

Fixed assets
31.25
37.50
Current assets

 

 

 

 

 

 

 

Inventory
14.56
16.64
Accounts receivable
13.20
15.43
Cash
1.50
1.75
Less: Current liabilities
8.55
11.25
Net current assets
20.71
22.57
Total Assets
51.96
60.07
Liabilities &owners equity

 

 

 

 

 

 

 

Share capital
27.00
27.00
Reserves & Surplus
4.96
6.36
Debt(bng term)
20.00
26.71
Total
51.96
60.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Problem 5:

Given below are the balance sheets of the two firms- Gloria Ltd and Victoria Ltd
as on 31st March 2007.

 

 

 

Gloria Ltd.
Victoria Ltd.
Assets

 

 

 

 

 

 

 

Cash and Bank balance
12.70
38.60
Marketable securities
10.00
21.00
Sundry debtors
22.00
23.70
Prepaid expenses
93.50
162.45
Current Assets
1.12
2.14
Fixed Assets (Net)
139.32
247.90
Total Assets
589.00
642.00

 

 

 

 

728.323
889.895
Liabilities and Owners Equity

 

 

 

 

 

 

 

Sundry creditors
6.75
26.45
Notes payable
6.56
6.45
Long term debt
130.01
345.00
Equity
585.00
512.00

 

 

 

 

 

 

 

 

 

 

 

Total
728.323
889.895
Can the financial positions of the two firms be compared assuming that the two
firms fall in the same industry?

 

 

 
Assignment – B

Problem 1:
Find out the cost of raw material purchased from the data given below:

 

 

Particulars

Rs.
Prime cost
200,000
Closing stock of raw material
20,000
Direct labour cost
100,000
Expenses on purchases’
10,000
Problem 2:
The product of a manufacturing concern passes through two processes A and B and
then to finished stock. It is ascertained that in process A normally 5% of the
total input is scrap which realizes Rs. 80 per tone.

From the following information relating to process A for the month of August
2007, prepare process A account

Materials

500 tonnes
Cost of materials
Rs. 125 per tonne
Wages
Rs. 14,000
Manufacturing overheads
Rs. 4,000
Output
415 tonnes

 
Problem 3:

Ahmedabad Company Ltd. manufactures and sells four types of products under the
brand name Ambience, Luxury, Comfort and Lavish. The sales mix in value
comprises the following:

 

Brand name

Percentage

 

Ambience

33 1/3

 

Luxury

412/3

 

Comfort

16 2/3

 

Lavish

8 1/3

 

 

_____

 

 

100

 

The total budgeted sales (100%) are $ 600,000 per month.

The operating costs are:

Ambience 60% of selling price Luxury

Luxury 68% of selling price Comfort
Comfort 80% of selling price Lavish
Lavish 40% of selling price
The fixed costs are $. 159,000 per month.

A) Calculate the breakeven point for the products on an overall basis.

b) It has been proposed to change the sales mix as follows, with the sales per
month remaining at $. 6,00,000:

 

 

Brand Name

Percentage
Ambience
25
Luxury
40
Comfort
30
Lavish
05

 
——–

 
100

Assuming that this proposal is implemented, calculate the new breakeven point.
Case study:

Bajaj Auto Limited: The Unprecedented Growth Story
Bajaj Auto Limited is the flagship company of the Bajaj Group. The company
manufactures two & three wheelers. Mr. Rahul Bajaj is the present Chairman of
the company. The company was incorporated in the year 1945 as M/s Bachraj
Trading Corporation Private Ltd. The promoters hold about 30% equity, whereas
Indian public holds about 26% and institutional investors have more than 27%
stake in the company.

The products manufactured by Bajaj Auto are scooters, motor cycles, auto spares
parts, machine tools, steel and engineering products. The company also produces
three-wheelers as goods carriers such as pick-up or delivery vans and passenger
carriers such as auto-rickshaws. Bajaj Auto has a network of 498 dealers, 1,500
authorized service centres and 162 exclusive three-wheeler dealers spread across
the country.

Bajaj Auto has also diversified into the general as well as life insurance
business through its subsidiaries Bajaj Allianz General Insurance Company Ltd,
respectively. The Bajaj brand has presence in many countries such as Sri Lanka,
Mexico, Bangladesh, Columbia, Peru, Egypt, etc. The main competitors of the
company in the two-wheelers and three-wheelers segment are- Hero Honda Motors
Ltd, Kinetic Motor Co Ltd, LML ltd, Maharashtra Scooters Ltd, and TVS Motor Co.
Ltd.

The company sold close to 23 lakh vehicles in 2005-06, which is a record
performance in its history. The sales of motorcycles manufactured grew by 32% in
2005-06 compared to a market growth of below 19%. For the fifth successive year,
the company raised its market share in the motorcycle segment. Today it stands
at almost 31%. Sales increased by almost 31% to an all-time high of Rs 9,285
crore in 2005-06. the export of the company in all its product categories has
also been unprecedented during the FY 2005-06 as is reflected in the figures
given below:

Table A Product-wise exports of Bajaj Auto Ltd

Product

2005-06
2004-05
Growth
(in numbers)
(in percentage)
Motorcycles
165,288
123,946
33
Total two-wheelers
174,907
130,945
34
Three-wheelers
75,297
65,765
14
Total vehicles
250,204
196,710
27
Even more impressive has been the growth in company’s operating EBITDA, which
increased by 47% to touch Rs 1805 crore during 2005-06. Consequently the
operating EBITDA margin grew by 220 basis points to 17.9% of the sales and
operating income. Earnings per share have been risen from Rs 75.60 to Rs 111.00
in the current year. Dividend too has grown to Rs 40 per share (400%) for the
year ended 31st March 2006 as against Rs 25 per share in 2005.

Over the past few years, Bajaj Auto has focused on his technology development,
and product development in anticipation of market needs, scaling up its
manufacturing facilities, implementing best-in-class production systems,
rationalizing vendors, slashing costs while upgrading quality, restructuring
dealerships, and distribution channels. These capabilities enabled the company
to create exciting new products, which have set benchmarks in styling, design,
and technology. The company’s products are creating a customer pull at all price
points and the company has now transformed from being a price warrior to a price
leader. The results of these strategies are reflected in its financial
statements as follows (refer Table B and C):

Table B Profit and Loss Account for Bajaj Auto Ltd for the year ended

 

March 2003
March 2004
March 2005
March 2006

 

 

 

 

(Rs in crore)
Sales
4987.05
5721.44
7078.06
9284.84
Other income
297.10
507.04
516.41
602.52
Change in stocks
32.92
10.87
-11.57
50.10

 

 

 

 

5317.07
6239.35
7582.90
9937.46
Expenditure
4335.16
5017.92
6286.91
8131.87
Profit & Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PBDIT

981.91
1221.43
1295.99
1805.59
Interest
1.12
0.94
0.67
0.34
Depreciation
171.42
184.32
185.66
191.28
PBT
809.37
1036.17
1109.66
1613.97
Tax provision
274.44
285.41
349.32
509.37
PAT
534.93
750.76
760.34
1104.60
Dividends
159.81
285.37
288.64
461.50

 

Table C Assets and Liabilities of Bajaj Auto Ltd as on 31 March 2006

 

 

Liabilities
Mar 05
Mar 06
Assets
Mar 05
Mar 06
Rs in crore
Rs in crore
Net Worth
4447.16
5349.79
Gross fixed assets
2870.02
3092.28
Paid up Equity capital
101.18
101.18
Capital WIP
9.14
25.26
Bonus Equity capital
114.17
114.17
Less: cumulative depreciation
1660.32
1834.19
Minority interest
89.46
148.79
Net fixed Assets
1205.64
1230.77
Reserves & Surplus
4256.52
5099.82
Investments
5273.83
6865.43
Free reserves
4233.28
5076.58
Deferred tax assets
9.20
6.43
Share premium reserves
87.07
285.78
Inventories
224.70
274.47
Other free reserves
4146.21
4790.80
Receivables
3116.05
5799.11
Specific reserves
23.24
23.24
Sundry debtors
176.97
302.54
Borrowings
1229.17
1469.44
Debtors exceeding 6 months
0.20
1.13
Deferred tax liabilities
139.90
87.58
Advances/loans to corporate bodies
62.29
33.66
Current liabilities & provisions
4284.64
7773.20
Group/associate companies
34.44
19.41
Sundry Creditors
833.86
1404.40
Other companies
27.85
14.25
Other current liabilities
1169.04
3674.37
Advance payment of tax
1823.60
1869.40
Provisions
2281.74
2694.43
Other receivables
1053.19
3593.51

 

 

 

 

 

 

 

 

 

 

Cash & Bank balance
266.88
476.48

 

 

 

 

 

 

 

 

 

 

Intangible/DRE not written off
4.57
27.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities
10100.87
14680.01
Total Assets
10100.87
14680.01

 

 
Notwithstanding its excellent financial performance in the years following its
major strategic shift, the management of the firm believes in the philosophy
that the quest for perfection is eternal.

To preclude the complacency from setting in, the management not only sets higher
standards it also continuously monitors its performance and benchmarks with the
industry performance in general and their closest competitors’ results in
particular.

Discuss
1. Is the profitability performance of the firm satisfactory? If not, how
can it be improved?
2. How attractive is the firm from the short-term and long-term lenders,
perspective? Does the firm appear to be the favorite destination in the
automobile sector (two-wheelers and three-wheelers segment) for the lenders?
3. How efficient is the firm been in utilizing the resources at its
disposal? How do you think the company can improve upon its efficiency?

 

 

Assignment – C
Mark ‘True’ or ‘False’:
1. Accounting is a language of business.
2. Accounting is a service function.
3. Accounting records only those transactions and events which are
financial character.
4. Drawings reduce capital.
5. Capital is increased by profit and decreased by losses.
6. The system of recording transaction on the basis of their two
old aspects is called double entry system.
7. Purchases made from B for cash should be debited to B.
8. Earnings of revenue means increase in Cash/Bank balance
9. The balance of an account is always known by the side which is
shorter.
10. The return of goods by a customer should be debited to Returns Inwards
Account.
11. Goods bought for resale are referred to as Stocks
12. If the business has any liability, the proprietor’s capital must be
more than the total assets.
13. Withdrawal of money by the owner is an expense for the business.
14. Ledger is called the book of final entry.
15. Cash book is used to record all receipts and payments of cash.
16. Sales book is used to record all credit sales.
17. The journal is not a book of original entry.
18. Goodwill is an intangible asset.
19. Salaries & Wages appearing in the trial balance are shown on the
liabilities side of the balance sheet.
20. The profit & loss account is one of the financial statements.

 

 

 

 

21. Share having preferential right as to dividend and repayment of
capital are termed as equity share capital.

 
22. Shares which are not preference shares are called equity shares.

 
23. The amount of share premium received by the company is shown under the
heading reserves & surplus in the company’s balance sheet.

 
24. Debenture holders are not the member of the company.

 
25. There are no legal restrictions, similar to shares, for issue of
debentures at discount.

 
26. Fixed cost per unit remains constant.

 
27. Direct cost is that cost which can not be easily allocated to cost
units.

 
28. Selling overheads form a part of cost of production.

 
29. Manufacturing and administrative overheads are different.

 
30. Total fixed cost remains unaffected by the change in volume of output.

 

 

31. Variable cost per unit remains fixed.

 
32. In chemical industries unit costing is used.

 
33. The output of a process is transferred to next process.

 
34. Good units bear the abnormal loss arising in the process costing.

 
35. Excess of pre-estimated loss over actual loss is known as abnormal
loss.

 
36. Marginal costing is a method of ascertaining cost.

 
37. A firm earns no profit or incurs no loss at BEP.

 
38. Margin of Safety implies ‘Break Even Point’.

 
39. In marginal costing, stock is valued at fixed costs.

 
40. Sales below BEP mean profit.

 
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