Breaking News

Tuesday, January 05, 2021

Accountancy and Financial Management - Paper 1 | Solved Question Papers | November 2017 | Mumbai University

 Mumbai University Solved Question Papers
Accountancy and Financial Management – Paper I
November – 2017
Marks – 100
Time: Three Hours
Please check whether you have got the right questions paper.

1. (A) Choose the correct options from the bracket and rewrite complete sentences.                                    10

1)      ________ item of inventory is excluded from the scope of Accounting Standard-2. (Finished Goods/Goods for Resale/Spare Parts).

2)      Payment of loan is a ________ Expenditure. (Capital/Revenue/Deferred Revenue).

3)      Dividend is a reward received from investment in ________. (Gold/Shares/Real Estate).

4)      Outstanding Expenses are recorded on the ________. (Debit side of P & L A/c/Asset Side of Balance Sheet/Liability side of Balance Sheet).

5)      In Departmental Accounts, ________ is debited to General Profit & Loss A/c. (Salaries/Rent/Interest on loan).

6)      The title to goods sold on Hire Purchase passes on payment of ________. (Down payment/First instalment/Last instalment).

7)      Under Perpetual Inventory System, Closing Stock may be ascertained from quantity details recorded on ________. (Bin Card/Stock Ledger/Sales Ledger).

8)      Depreciation on the Asset taken on Hire Purchase is calculated on ________. (Full Cash Price/Hire Purchase Price/Installments paid).

9)      ________ factory should be considered while selecting and applying an accounting policy. (Dual Aspect/Prudence/Consistency).

10)   Stock reserve is ________ closing stock in the Balance Sheet under Departmental Accounts. (Added to/Deducted from/Not adjusted in).

11)   Inventories are generally valued at ________. (Cost/net Realizable Value/Lower of Cost or Net Realizable Value).

12)   ________ is the total amount payable by the hirer which is made up of cash price of the asset plus interest. (Hire purchase price/Down payment/Instalment).

(B) State whether the following statements are TRUE or FALSE and rewrite the same. (Any 10)                                 10

1.       Disclosure of Accounting Policy cannot be a remedy for a wrong or improper accounting policy. TRUE

2.       Hire vendor has a right to terminate the hire purchase agreement for non-payment of any installment. TRUE

3.       Wages paid to a carpenter for making furniture is a Revenue Expenditure. FALSE

4.       Revenue from Interest is recognized only when it is actually received. FALSE

5.       Weighted Average Method of stock valuation is not recognised by AS-2. FALSE

6.       Reserve for Doubtful Debts is deducted from Creditors in the Balance Sheet. FALSE

7.       Departmental Profit and Loss A/c are useful to managers for evaluating the performance of each department. TRUE

8.       Under FIFO method, Closing Stock is calculated at the latest Purchase Cost. TRUE

9.       Over valuation of inventory leads to higher profit and larger current assets. TRUE

10.   As per AS-1 if in a year method of charging depreciation is changed it need not be disclosed. FALSE

11.   Hire Purchase is an agreement between the vendor and the agent. FALSE

12.   Fixed Assets are stated at their Historical Cost less depreciation in the Balance Sheet. TRUE

6. Answer the following:

1)    Explain the Provisions of AS-9: Revenue Recognition.                             10

Ans: Accounting Standard – 9: Revenue Recognition

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends. In other words, revenue is charge made to customers/clients for goods supplied and services rendered. Accounting Standard 9 deals with the bases for recognition of revenue in the Statement of Profit and Loss of an enterprise but this standard does not deal with the following aspects of revenue recognition to which special considerations apply:

(i) Revenue arising from construction contracts;

(ii) Revenue arising from hire-purchase, lease agreements;

(iii) Revenue arising from government grants and other similar subsidies;

(iv) Revenue of insurance companies arising from insurance contracts.

Examples of items not included within the definition of “revenue” for the purpose of this Standard are:

(i) Appreciation in the value of fixed assets;

(ii) Unrealised holding gains resulting from the change in value of current assets

(iii) Realised or unrealised gains resulting from changes in foreign exchange rates.

(iv) Realised gains resulting from the discharge of an obligation at less than its carrying amount;

(v) Unrealised gains resulting from the restatement of the carrying amount of an obligation.

Timing of Revenue Recognition: Revenue from sale or rendering of services should be recognized at the time of sale or rendering of services. But in case of uncertainty of collection of the revenue, the revenue recognition is postponed and in such cases revenue should be recognized only when it becomes reasonably certain that ultimate collection will be made.

Conditions to recognised revenue in various cases:

a) Revenue from Sale of Goods: Revenue is recognized when all the following conditions are fulfilled:

a)      Seller has transferred the ownership of goods to buyer for a price.

b)      All significant risks and rewards of ownership have been transferred to buyer.

c)       Seller does not retain any effective control of ownership on the transferred goods

d)      There is no significant uncertainty in collection of the amount of consideration.

b) Sale on Approval: Revenue should be recognized when buyer confirms his desire to buy such goods through communication.

c) Guaranteed Sales: Revenue should be recognized as per the substance of the agreement of sale or after the reasonable period has expired.

d) Warranty Sales: Revenue should be recognized immediately but the provision should be made to cover unexpired warranty.

e) Consignment Sales: Revenue should be recognized only when the goods are sold to third party.

f) Special Order and Shipments: Revenue from such sales should be recognized when the goods are identified and ready for delivery.

f) Installment Sales: Revenue of sales price excluding interest should be recognized on the date of sale. Interest should be recognized proportionately to the unpaid balance.

Revenue from Rendering of Services: Revenue from rendering of service is generally recognized as the service is performed. The performance of service is measured by following two methods:

(i) Completed Service Contract Method: Completed service contract method is a method of accounting which recognises revenue in the Statement of Profit and Loss only when the rendering of services under a contract is completed or substantially completed.

(ii) Proportionate Completion Method: Proportionate completion method is a method of accounting which recognises revenue in the Statement of Profit and Loss proportionately with the degree of completion of services under a contract.

2)    Explain in brief the main features of Accounting for Hire Purchase and contents of the Hire Purchase Agreement. 10

Ans: Features and Characteristics of Hire Purchase System

The characteristics of hire-purchase system are as under

a)    Hire-purchase is a system of credit sale.

b)   The price under hire-purchase system is paid in installments.

c)    The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.

d)   Hire vendor continues to be the owner of the goods till the payment of last installment.

e)   The hire purchaser has a right to use the goods as a bailer.

f)     The hire purchaser has a right to terminate the agreement at any time in the capacity of a hirer.

g)    The hire purchaser becomes the owner of the goods after the payment of all installments as per the agreement.

h)   If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.

Important terms and provisions in Hire Purchase Agreement

Hire purchase agreement: it is an agreement between hire purchaser and hire vendor according to section 2(c) of the hire purchase act, 1972 for purchasing of goods according to agreement. Some of the important contents of hire purchase agreement are as follows:

1. Cash price: it is the price of goods which is sold under ‘contract of sale’

2. Down Payment: Initial Payment made by vendee to vendor on the date of entering into hire purchase agreement is known as down payment.

3. Deposit: it refers any sum payable by the hirer under the hire purchase agreement by way of initial payment or credited or to be credited to him under the agreement on account of any deposit.

4. Hire charges: it is an amount refers to the difference between hire purchase price and cash price (H P- C P= H C) it also referred to as interest.

5. Statutory hire charges: it is a hire charges according to the hire purchase act of, 1972.

6. Termination of hire purchase agreement: The hirer can terminate the agreement at any time by giving the 14 days notice to the owner. However whatever the amount is already paid by the hirer is considered as a hire charges.

7. Installment money: it is the part of the hire purchase price paid by hire purchaser, in periodic intervals.

Or

6. Write short notes on any four of the following:           20

a)    Manufacturing A/c.

Ans: Ans: Manufacturing account is prepared by factories who do not maintain separate cost accounts to find the cost of goods manufactured for a particular period. This account also helps to find profit or loss on goods manufactured. It is debited with opening stock of raw materials and work in progress, net purchase of raw materials, factory overheads and credited with closing stock of raw materials & work in progress and sale of scrap. The balance of this account is transferred to trading account.

b)   General Profit and Loss A/c, as prepared in Departmental Accounts.

Ans: General Profit and Loss A/c is a nominal account which is prepared to find overall profit or loss the departments. In this account those expenses and incomes are shown which are not shown in departmental trading & profit and loss account. For example: debenture interest, dividend paid, stock reserve, rent of the organisation as a whole, income from investment, profit or loss on sale of investments etc. This account is prepared after departmental trading & profit and loss account and balance of this account is transferred to capital account.

c)    Periodic Inventory System.

Ans:

d)   Importance of Accounting Standards.

Ans: Accounting  standard  seek to  describe the  accounting  principles, the valuation  techniques  and  the  methods  of  applying  the accounting  principles   in the  preparation  and  presentation of  financial  statements  so that  they  may  give  a true  and  fair   view  .

By setting the accounting standards, the accountant has following benefits:

a.       Standards  reduce  to a reasonable  extent or  eliminate  altogether  confusing   variations   in   the  accounting  treatments  used  to prepare  financial  statements.

b.      There are certain areas where important information is not statutorily required to be disclosed. Standards may call for disclosure beyond that required by law.

c.       The  application   of  accounting standards  would ,to  a  limited  extent, facilitate  comparison  of  financial  statements  of  companies  situated in  different parts  of  the  world  and also of  different   companies  situated  in  the  same  country. However, it  should  be  noted  in  this  respect  that  differences in the institutions, traditions  and  legal  systems  from  one  country  to  another give rise  to  differences   in  accounting   standards  adopted  in  different  countries.

 

e)   Inter departmental Transfer.

Ans: Transfer of goods or services by one department to another department are called inter departmental transfers. When one department transfers goods to another department, the transaction should be considered as a sale for the supplying department and a purchase for the receiving department. As such, the supplying department should be credited and the receiving department should be debited with the value of goods supplied.

Similarly, when one department renders service to another department, the department rendering the service should be credited and the department receiving the service should be debited with the value of service rendered.

Goods may be transferred either at cost price or at selling price. If goods are transferred at selling price by the transferor department and such goods are unsold at the end of the accounting year by the transferee department, then profit charged on such unsold goods by the transferor department is treated as unrealized profit and it should be debited to the general profit and loss account as stock reserve. In the balance sheet stock reserve should be deducted from closing stock. If unrealized profit is contained in the opening stock, such reserve should be credited to the general profit and loss account.

f)     Capital Expenditure and Revenue Expenditure.

Ans: Capital Expenditure: The transactions of capital expenditure give benefits for more than one accounting period, such as acquisition and improvement of assets, acquisition of special rights, increasing of earning capacity, and restoration of operating efficiency. It is non-recurring in nature. Therefore, they are shown on the assets side of the Balance Sheet.

Rules for Determining Capital Expenditure

Ø  Expenditure incurred to acquire long term assets (at least more than one accounting period).

Ø  Such Long term assets must be uses in business to earn profits and not meant for resale.

Ø  Expenditure incurred to keep the assets in working condition.

Ø  Expenditure is incurred to increase earning capacity of a business.

Ø  Preliminary expenses incurred before the commencement of business is considered capital expenditure.

Some examples of capital expenditure: (i) Purchase of land, building, machinery or furniture; (ii) Cost of leasehold land and building; (iii) Cost of purchased goodwill; (iv) Preliminary expenditures; (v) Cost of additions or extensions to existing assets; (vi) Cost of overhauling second-hand machines; (vii) Expenditure on putting an asset into working condition; and (viii) Cost incurred for increasing the earning capacity of a business.

Revenue Expenditure: It is incurred for generating revenue in the current accounting period and its benefit expires with such period. It helps to maintain the normal working condition of a business. It is charged as expenses in Trading / Profit & Loss Account on debit side.

Rules for Determining Revenue Expenditure

Any expenditure which cannot be recognised as capital expenditure can be termed as revenue expenditure. Revenue expenditure temporarily influences only the profit earning capacity of the business. Expenditure is recognised as revenue when it is incurred for the following purposes:

Ø  Expenditure for day-to-day conduct of the business.

Ø  Expenditure for the benefits of less than one year.

Ø  Expenditure on consumable items, on goods and services for resale.

Ø  Expenditures incurred for maintaining fixed assets in working order. For example, repairs, renewals and depreciation.

Some examples of Revenue Expenditure: (i) Salaries and wages paid to the employees; (ii) Rent and rates for the factory or office premises; (iii) Depreciation on plant and machinery; (iv) Consumable stores; (v) Inventory of raw materials, work-in-progress and finished goods; (vi) Insurance premium; (vii) Taxes and legal expenses; and (viii) Miscellaneous expenses. The accounting treatments of capital and revenue expenditure are as under:

Ø  Revenue expenditures – Debited to Profit and Loss Account.

Ø  Capital Expenditures – Shown as assets in the Balance Sheet.

-000-

 

Popular Posts for the Day