Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
DESTINY TUITION CENTRE 1 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
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DESTINY TUITION CENTRE 2 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII “DESTINY FOR DESTINY�
DESTINY TUITION CENTRE SUKULDHOKHA, BHAKTPUR
ACCOUNTANCY HSEB TYPE QUESTION FOR 2070 Attempt all the questions:
What is Memorandum of association? Mention any three information contain in it. [2] Mention any three differences between private and public limited company. [3] What is ratio analysis? Mention its two importance. [3] State any four objective of financial statement analysis? [2] State any three limitation of cost accounting. [3] State the objective of inventory management. [2] Show the difference between piece rate system and time rate system of wage payment. [3] Differentiate between fixed cost and variable cost with suitable example. [2] Dabur Co. Ltd forfeited 1,000 shares issued at Rs. 100 each at 10% premium to Mr. shrestha who paid Rs. 40 on application failed to pay the amount therefore. Out of there forfeited shares subsequently, 800 shares were reissued at Rs.90 per share as fully paid. Required: Journal entries for (a) Forfeiture of shares (b) Reissue of shares (c) Transfer to capital reserve 3
10. Destiny Co. Ltd invited applications for 12,000 shares of Rs. 100 each payable at 10% premium as under: On application Rs. 25 On allotment Rs. 50 (including premium) On first & final call Rs. 35 Applications were received for 24,000 shares. The allotment was made as follows: To the applicant of 4,000 Nil To the applicant of 8,000 Full To the applicant of 8000 50% It was decided to utilize excess application money in part payment of allotment. All money were duly received except a holder who applied for 1,000 shares and was given 500 shares failed to pay the allotment and call money. The board of director decided to forfeiture these share. Required: (a) Share Allotment (b) Share first & final call (c) Share forfeiture [2+2+2] 11. Kathmandu Co. Ltd took over the following asset and Liabilities of Bhaktapur Co. Ltd. Plant and Machinery Rs. 4,00,000 Loan Rs. 2,50,000 Land & Building Rs. 6,50,000 Furniture Rs. 2,50,000 Sundry debtors Rs. 2,50,000 Creditors Rs.1,00,000 The company paid the purchase consideration amount by issuing 10,000 5% debentures at a premium of 20% .Besides, the company offered 5,000 shares for cash at 5% discount. Required: Journal Entries for purchase of business. [4] 12. Rosemary Co. Ltd issued 8,000, 10% debentures of Rs. 100 each at a discount of 10% to be redeemable at a premium of 10% after 10 years. Required: Journal entries at the time of issue and redemption [4] 13. The trial balance of Dev Co. Ltd as on 31st Ashad 2068 is as follows: Amount Amount Debit Credit (Rs.) (Rs.)
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
1. 2. 3. 4. 5. 6. 7. 8. 9.
2
DESTINY TUITION CENTRE 3 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII 1,50,000 4,50,000 50,000 25,000 2,50,000 1,05,000 68,000 50,000 20,000 22,000 50,000 40,000 65,000 30,000 25,000 15,000 20,000 25,000
Sales Revenue Discount P/L account Share Capital General reserve Creditors Transfer fees Purchase return 8% debenture Outstanding interest on debenture Interest on investment
8,00,000 6,000 68,000 10,00,000 50,000 80,000 24,000 15,000 1,50,000 2,000 5,000
5,000 10,000
2,00,000 2,80,000 25,000 2,20,00 22,00,000 22,00,000 Additional Information: Bad debt worth Rs. 5,000 and create provision for doubtful debt @ 5% Depreciate plant and furniture by 10% and appreciate land and building @ 5% Make a provision for tax 25,000 Outstanding rent Rs. 2,500 Interest on investment is due for 3 months. Directors proposed a dividend of 10% and transfer to general reserve Rs. 10,000 Required: (a) Trading a/c (b) Profit and loss a/c (c) P/L appropriation (d) Balance Sheet [2+4+2+4]
14. The following information of Rosiska Co. Ltd are provided: Share Capital Rs. 200,000 Debenture Rs. 80,000 Cash Rs. 30,000 Insurance Rs. 5,000 Advertisement Rs. 20,000 Furniture Rs. 50,000 Commission (cr) Rs. 5,000 Creditors Rs. 50,000 Revenue Rs. 150,000 Debtors Rs. 50,000 Land and building Rs.250,000 Rent Rs. 40,000 Salaries Rs. 30,000 Wages Rs. 10,000 Additional information: a) Depreciate furniture @ 10% b) Provide 10% dividend on paid up capital. c) Wages outstanding Rs. 5000. Required: i) Journal entries for adjustment ii) Work sheet [5+3] 15. The balance sheet of A Co. ltd as on Chaitra 31: Liabilities Rs Assets Rs
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Opening Stock Purchases Furniture Rent Plant and Machinery Debtors Wages Salaries Carriage Inward Preliminary expenses Sundry expenses Calls in arrears Cash Trade mark Goodwill Discount Advance salary Administrative expenses Bad debt Interest on debenture 10% investment Land and building Custom Duty Closing stock
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DESTINY TUITION CENTRE 4 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII 90,000 18,000 150,000 60,000 300,000
Sundry debtors Cash balance Short term loan Inventories Land and building Machinery Preliminary expenses Total
60,000 33,000 30,000 40,000 325,000 125,000 5,000
Total 618,000 618,000 Additional information: Debtors turnover ratio : 10 times Net profit margin : 15% Required: a)sales amount b) Liquid ratio c) Debt equity ratio d) Fixed Assets turnover ratio e) Earning per share [5] 16. Following information are provided to you: LIABILITIES 2067 2068 ASSETS 2067 2068 Share capital 400,000 500,000 Machinery 450,000 500,000 Retain Earnings 50,000 70,000 Debtors 70,000 60,000 8% Debenture 200,000 100,000 Goodwill 50,000 40,000 Sundry 25,000 30,000 Cash & 1,50,000 146,000 creditors bank Commission 15,000 11,000 received in advance Reserve fund 30,000 35,000 720,000 746,000 720,000 746,000 Additional information: During this year, depreciation charged on machinery Rs. 45,000 and addition to machinery worth Rs. 95,000. Fund from operation Rs. 80,000 Required: a) Schedule of change in working capital b) Fund flow statement [2+3] 17. The following information are provided to you: LIABILITIES 2008 2007 ASSETS 2008 2007 Share capital 7,00,000 5,00,000 Fixed asset 9,00,000 7,00,000 Share premium 1,20,000 1,00,000 Stock 50,000 1,50,000 Profit and loss 1,20,000 1,00,000 Bank 15,000 1,00,000 a/c 10% debentures 1,00,000 1,50,000 Debtors 1,00,000 50,000 Outstanding 40,000 50,000 exp. creditors 1,20,000 1,00,000 12,00,000 10,00,000 12,00,000 10,00,000 Additional information: a. Sales for the year Rs. 6,00,000 b. Cost of goods sold Rs. 4,00,000 c. Operating expenses Rs. 1,15,000 (including interest on debenture Rs 10,000 ad depreciation Rs. 25,000) d. Debenture were redeemed at 10% premium e. Plant cost Rs. 20,000(accumulated depreciation Rs. 8,000) was sold for Rs. 15,000 f. Depreciation for the year Rs. 80,000 g. Dividend distributed Rs. 80,000 h. Plant purchased Rs. 2,92,000 Required: cash flow statement using direct method [10]
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Bills payable Interest payable 12% debenture Reserve and surplus Equity shares of Rs.100 each
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18. The material purchased detail are given below: Annual requirement 4, 00,000 units Ordering cost per order Rs. 2,000 Carrying cost per unit 10% of unit value Purchasing price per unit Rs. 40 Required : (i) economic order quantity (EOQ) (ii) Number of order [1+1] 19. Prepare a whole ledger account from the following transactions asuuming that the issue of store has been proceed on the principal of first in first out: [5] Jan 1 opening stock 2000 units @ Rs. 20 each Jan 3 issued 1800 units Jan 4 purchased 1500 units @ Rs. 21 each Jan 5 issued 720 units Jan 6 purchased 1000 units @ Rs. 22 each Jan 7 issued 1400 units Jan 8 returned to vendor, purchased on 6th Jan 30 units Jan 9 received back from work order, issued on 5th Jan 210 units @ Rs. 21 each Jan 10 issued 500 units 20. The weekly working hours in a factory is 50 hours and a worker works 50 week during a year. The hourly output is 10 units. The wage rate per unit is Rs 10. Required: Wages payable to a worker for a year by using piece rate system [2] 21. Beginning and ending balances of a manufacturing company for a month are as under: Beginning Ending Raw materials 12000 10000 Work in progress 6000 8000 Finished goods Rs. 10000 Finished goods in unit 500 Information available from cost records for the month ended was as follows: Direct materials purchased Rs. 1,20,000 Indirect labour Rs. 18,000 Direct labour Rs. 32,000 Freight on materials purchased Rs. 6,000 Other factory expenses Rs. 30,000 Indirect materials Rs. 34,000 Selling and distribution overhead Rs. 10,000 Production unit 16,000 units Sales unit 15,000 units Profit 10% of cost Required: Cost sheet showing: a) Cost of materials consumed b) Prime cost c) Factory cost d) Cost of production e) cost of goods sold f) Cost of sale g) Sales value [2+1+2+1+2+2] 22. On compression cost and financial account the following facts were disclosed: a. Interest on investment received Rs. 2,000 b. Interest tax paid in financial account Rs. 8,000. c. Work overhead over charged in cost account Rs. 15,000 d. Administrative overhead over charged in financial account Rs. 12,500 e. Over valuation of opening stock in financial account Rs. 4,000 f. Under valuation of opening stock in cost account Rs. 3,000 g. Provision for doubtful debt in financial account Rs. 5000 h. Net profit as per cost account Rs. 52,500 Required: Cost Reconciliation Statement [5] Powered by Destiny Educational Materials
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
DESTINY TUITION CENTRE 5 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
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DESTINY TUITION CENTRE 6 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII “DESTINY FOR DESTINY” DESTINY TUITION CENTRE SUKULDHOKHA, BHAKTPUR
ACCOUNTANCY HSEB TYPE QUESTION [SET –A]
1. What is Memorandum of association? [2] 2. Write any three characteristics of a Company. [3] 3. Named the parties who are interested in the financial statement. [3] 4. What are the limitations of Ratio Analysis? [2] 5. State three objectives of cost accounting. [3] 6. Differentiate between direct & indirect expenses. [2] 7. Give the specimen of purchase requisition. [3] 8. Mention three differences between time rate and piece rate. [2] 9. Rose Co. Ltd. was registered with an authorized capital of Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each. The company issued 6,000 shares for public subscription at 10% premium. The amount was payable as Rs. 30 on application, Rs. 40 on allotment and balance on first and final call. The applications were received for 8,000 shares. The excess applications were rejected and refunded. Required: Journal entries for share application and allotment [2] 10. Surya Co. Ltd invited applications for 8,000 shares of Rs. 100 each payable as under: On application Rs. 20 On allotment Rs. 40 On first & final call Rs. 40 Applications were received for 16,000 shares. The allotment was made as follows: To the applicant of 4,000 Nil To the applicant of 4,000 Full To the applicant of 8000 50% It was decided to utilize excess application money in part payment of allotment. All money were duly received except a holder who applied for 200 shares and was given 100 shares failed to pay the allotment and call money. The board of director decided to forfeiture these share. Required: (a) Share Allotment, (b) Share first & final call, (c) Share forfeiture [6] 11. Gold Co. Ltd issued 15,000 shares of Rs. 10 each and cash Rs.60,000 to N. Co. Ltd purchasing the following assets and liabilities: Plant and Machine Rs.1,50,000 Debtors Rs. 50,000 Stock Rs. 50,000 Furniture Rs. 80,000 Creditors Rs. 40,000 Required: Journal entries for purchase of assets and liabilities [3] 12. K & K Co. Ltd issued 8,000, 10% debentures of Rs. 100 each at a premium 5% to be redeemable at the end of 10 year at a premium of 10% Required: Entries for (a) Issue of debenture [2] (b) Redemption of debenture [2] 13. The trial balance of ABC Co. Ltd as on 31st December is given below: Amount Amount Debit Particulars Credit Particulars (Rs.) (Rs.)
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Attempt all the queston:
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DESTINY TUITION CENTRE 7 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII Land and Building Salary Wages Preliminary expenses Purchases Debtors Prepaid Insurance Tax paid for last year Advertising Opening Stock Interest on debenture Furniture
1,00,000
Sales
5,40,000
10,000 20,000 20,000
Purchase return Share Capital Profit and loss app. a/c Interest on investment Provision for taxation 10% debenture
5,000 1,50,000 60,000
4,00,000 60,000 1,00,000 5,000
5,000 1,000 1,00,000
5,000 50,000 5,000 95,000 8,80,000
15. The trial balance of ‘C’ Co. Ltd as on 31st Chaitra is given below: Particulars Rs Particulars Rs Purchases 200,000 Share capital 200,000 Building 100,000 Loan 150,000 Salaries 30,000 Sales 350,000 Machinery 150,000 Creditors 50,000 Debtors 100,000 Cash 40,000 Rent 10,000 Investment 100,000 Wages 20,000 Total 750,000 Total 750,000 Additional information: a) Wages outstanding Rs. 4,000 b) Prepaid rent Rs. 1,000 c) Depreciate machinery by 10% d) Proposed dividend @ 10%. Required: i) Journal entries for adjustment ii) Work sheet [2+6] 16. The balance sheet of A Co. Ltd as on Ashadh 31,2066 is given below: Liabilities Rs Assets Rs Equity share 200,000 Fixed assets 250,000 capital (Rs 100 each)
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
8,80,000 Additional Information: - Closing stock was Rs. 3,00,000 at the end of year. - Write off 20% of preliminary expenses - Insurance was expired to the extent of Rs. 2,000 - Appreciate land & building by Rs. 10,000 and depreciate furniture by 5% - Directors proposed 20% dividend on paid-up capital Required: (a) Trading a/c [2] (b) Profit and Loss a/c [4] (c) P/L appropriation a/c [2] (d) Balance Sheet [4]
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DESTINY TUITION CENTRE 8 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII 10% Debenture 100,000 Debtors 40,000 General reserve 50,000 Inventory 100,000 Retain earning 20,000 Prepaid expenses 10,000 Creditors 30,000 Cash 30,000 Outstanding exp. 10,000 Preliminary exp. 10,000 Bills payable 30,000 Total 440,000 Total 440,000 Additional information: Cost of goods sold Rs. 400,000 and net profit after tax Rs. 40,000. Required: a) Current ratio b) Quick ratio c) Debt equity ratio turnover ratio e) Earning per share [1Ă—5=5]
d) Stock
17. The income statement and other details of a company are as follows: Particular Rs Rs Sales 750,000 Less: Cost of goods sold 450,000 Gross profit 300,000 Less: Administrative expense 90,000 Depreciation on machinery 75,000 Interest on debenture 15,000 Premium on redemption of 7,500 debenture 75,000 262,500 Provision for tax 37,500 Net income before sale of machine 15,000 Add: Profit on sale of machine Profit after sale of machine 52,500 Other details: Items
Previous Year (Rs) 120,000 60,000 15,000 75,000 225,000 75,000 525,000 75,000 700,000 50,000 180,000
Current Year (Rs) 75,000 105,000 7,500 90,000 150,000 75,000 900,000 150,000 975,000 75,000 75,000
Debtors Creditors Outstanding salary Inventory 8% debenture Provision for tax Machinery (net) Investment Share capital Share premium Bank balance Additional information: - Plant costing Rs. 510,000 was purchased during the year.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
16. The following figures are extracted from the two years balance sheet of a company: Items Last year (Rs) Current year (Rs) Current assets 140,000 170,000 Current liabilities 70,000 90,000 10% Debenture 100,000 80,000 Share Capital 70,000 100,000 -Fixed assets purchased in the current year were Rs. 25,000 and fund from operation is Rs. 25,000. Required: a) Schedule of change in working capital [2] b) Fund flow statement [3]
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DESTINY TUITION CENTRE 9 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII -Tax paid during the year Rs. 75,000. Required: Cash flow statement under direct method [10] 18. The following information are available relating inventory management: Re-order period 4 – 6 days Maximum consumption 3600 units Re-order quantity 14400 units Re-order level 21600 units Minimum consumption 1200 units Required: Maximum stock level [2] 19. Following receipts and issue of material were made during the month of April. Stock on 1 st April was 500 units @ Rs. 20 each. DATE QUANTITY COST PER QUANTITY PURCHASED UNIT ISSUED April 3 200 nits April 5 800 units 21 April 8 400 units April 10 300 units April 15 500 units 22 April 18 500 units April 25 200 units 22 Issued are to be priced under lst in first out method. On 18th april a physical verification was made when the verifier notified that there is storage of 20 units in stock. Required: store ledger account [5]
21. A food industry showed the following details of its production for the previous year: Direct materials 20,000 kgs of Rs 10 per kg Direct labour Rs.140,000 Factory overhead (based on direct labour) Rs.70,000 Administrative overhead (based on factory cost) Rs. 82,000 The industry wants to estimate the total cost and its selling price for next lot. The costing department estimated the direct cost as follows: i)he cost of materials Rs. 40,000 and direct labour Rs. 30,000 are required for the tender. ii) A profit of 20% on selling price isexpected. iii) The factory and administrative overhead will maintain the same relation as in the last year. Required: a) Cost sheet b) Tender price [5+5=10] 22. The net profit as per cost account is Rs. 30,000. On reconciliation of cost and financial account of a company the following differences are noticed: a) Work overhead under recovered in cost account Rs. 3,000 b) Bank interest credited in financial account Rs. 2,000 c) Value of opening stock cost account Rs. 50,000 and financial account Rs. 55,000. d) Provision for doubtful debt in financial account Rs. 1000 e) Loss of Rs. 2,000 on sale of old furniture was recorded in financial account. Required: Reconciliation statement [5]
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Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
20. The weekly working hour in a factory is 48 hours and a worker works 40 weeks, on an average, during a year. The wage rate per unit is Rs. 10 and production units per hour are 20. Required: Total wage of worker for a year under piece wage rate [2]
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DESTINY TUITION CENTRE 10 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
“DESTINY FOR DESTINY” DESTINY TUITION CENTRE SUKULDHOKHA, BHAKTPUR
ACCOUNTANCY HSEB TYPE QUESTION [SET –B] [3]
2. Define shares and name the types of shares. 3. Give any three limitations of ratio analysis. 4. What do you mean by financial statement?
[2] [3] [2]
5. What do you mean by bin card? Give a specimen of it.
[3]
6. What is prime cost? Give the items of expenses under it.
[2]
7. Differentiate between centralized and decentralized stores. 8. State three objectives of cost accounting.
[2] [3]
9. Dabur Co. Ltd forfeited 1,000 shares issued at Rs. 100 each to Mr. Thapa who paid Rs. 30 on application failed to pay the amount therefore. Out of there forfeited shares subsequently, 600 shares were reissued at Rs.80 per share as fully paid. Required: Journal entries for (a) Forfeiture of shares (b) Reissue of shares (c) Transfer to capital reserve [3] 10. ABC Company Ltd was registered with a share capital of Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each 4,000 shares were offered to public for subscription of Rs. 110 per share. The money were payable as follows: On Application Rs. 20 per share On Allotment Rs. 50 per share (including premium) On first call Rs. 20 per share On final call Rs. 20 per share Applications were received for 10,000 shares. No allotments were made to the applicant of 4,000 shares. Rest were allotted on pro-rata basis. All calls were duly made and received except: - A shareholder holding 200 shares paid the full value of shares on allotment - A shareholder holding 300 shares failed to pay the first call on due date Required: Journal entries for (a) Application, (b) Allotment, (c) First and final call [6] 11. Samrina Co. Ltd took over the following assets and liabilities of Khyati co. Ltd at an agreed price of Rs. 7,20,000 Machinery Rs. 6,10,000 Stock Rs. 1,50,000 Outstanding expenses Rs. 30,000 Furniture Rs. 80,000 Sundry creditors Rs. 1,00,000 The company paid the purchase price by issuing 8% debenture of Rs. 100 each at 10% discount. Required: Journal entries for purchase of assets and liabilities taken over [3] 12. K. Co. Ltd issued 10,000, 5% debentures of Rs. 1000 each at discount of 10% to be redeemable at a premium of 5% after 7 year. Required: Journal entries at the time of issue and redemption [4]
13. The trial balance of Ganapati Trading Co. Ltd. on Chaitra 30 is as follows: Particular Rs Particular Rs
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Attempt all the queston: 1. Write any three characteristics of a Company.
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DESTINY TUITION CENTRE 11 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII 30,000 550,000 200,000 10,000 200,000 100,000 5,000 25,000 20,000 5,000 200,000 10,000 20,000 20,000 5,000 25,000 25,000 50,000 1,500,000
Sales Share Capital Creditors Reserve Fund P/L Appropriation A/c 6% Debentures General reserve Transfer fees
800,000 450,000 10,000 20,000 20,000 100,000 50,000 50,000
1,500,000 Additional information: a) Stock on 30th Chaitra 2063 was of Rs 30,000 b) Depreciation on Building at 5% c) Depreciation on Machinery at 10% d) Provision for doubtful debts to be maintained at 5% on sundry debtors e) Outstanding Salary was Rs 2,000 f) Wages was prepaid of Rs 3,000 g) Directors decided to pay 10% dividend on paid up capital h) Transfer Rs 10,000 to Reserve fund out of profit. i) Debenture interest is due Required: (a) Trading a/c (b) P/L a/c appropriation a/c (d) Balance Sheet [2+4+2+4] st 14. Following is a trial balance of a company as on 31 Chaitra, last year. Particulars Debit (Rs.) Credit (Rs.) Share Capital 1,00,000 Sales revenue 2,50,000 Purchse 1,30,000 Creditors 50,000 Debtors 40,000 Cash at band 20,000 Machinery 1,20,000 Sundry expenses 5,000 Wages 10,000 Interim dividend 4,000 Salaries 16,000 P/L appropriation 60,000 a/c Insurance 12,000 Advance rent 5,000 Building 1,43,000 General reserve 35,000 Total 5,00,000 5,00,000 Additional Information: - Depreciate building & machinery by 10%
(c) P/L
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Stock 1.1.2063 Purchase Building Salaries Machinery Debtors Fuel, Power Cash at Bank Wages Carriage Outward Investment Rent Stationery Goodwill Interest on Debenture Preliminary expenses Store consumable Royalities
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DESTINY TUITION CENTRE 12 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII - Outstanding salaries Rs. 10,000 - Provision for taxation Rs. 10,000 - Proposed dividend is 10% of the paid-up capital Required: (a) Adjustment entries (b) Worksheet [2+6] 15. The balance sheet of A Co. ltd is given below: Liabilities Rs Assets Rs Equity share capital 500,000 Inventory 200,000 Profit & loss a/c 100,000 Debtors 300,000 7% preference share 400,000 Preliminary 20,000 capital expenses Provision for tax 30,000 Bank balance 80,000 Creditors 170,000 Fixed assets 600,000 Total 1200,000 Total 1200,000 Additional information: a)Sales Rs. 1000,000 b) Net profit after tax Rs. 250,000 Required : a) Inventory turnover ratio b) current ratio d) Return on shareholders fund
c) Net profit ratio [1.5Ă—4]
17. Following were the comparative balance sheet of a company: LIABILITIES 2008 2007 ASSETS 2008 2007 Share capital 7,00,000 5,00,000 Fixed asset 9,00,000 7,00,000 Share premium 1,20,000 1,00,000 Stock 50,000 1,50,000 Profit and loss 1,20,000 1,00,000 Bank 15,000 1,00,000 a/c 10% debentures 1,00,000 1,50,000 Debtors 1,00,000 50,000 Outstanding 40,000 50,000 exp. creditors 1,20,000 1,00,000 12,00,000 10,00,000 12,00,000 10,00,000 Additional information: a. Sales for the year Rs. 6,00,000 b. Cost of goods sold Rs. 4,00,000 c. Operating expenses Rs. 90,000 d. Debenture were redeemed at 10% premium e. Plant cost Rs. 20,000(accumulated depreciation Rs. 8,000) was sold for Rs. 15,000 f. Depreciation for the year Rs. 80,000 g. Dividend distributed Rs. 80,000 h. Plant purchased Rs. 2,92,000 Required: cash flow statement using direct method [10] 18. The following information is available: Re-order period 10 to 14 days Daily consumption (Minimum) 100 units Re-order quantity 1800 units Maximum Level 3600 units Required: Re-ordering level [2] 19. The following are the details of receipts and issues of material in a factory during Magh.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
16. Following information are given: Net profit Rs. 200,000 Refund of tax Rs. 10,000 Transfer to general reserve Rs. 40,000 Dividend paid Rs. 30,000 Depreciation on machinery Rs. 30,000 Issue of share Rs.100,000 Purchased machinery Rs. 100,000 Redemption of debenture Rs. 75000 Required: a) Fund from operation b) Fund flow statement [2+3]
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DESTINY TUITION CENTRE 13 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII Magh1 opening balance 500 kgs at Rs. 30 per kg 3 Issue 250 kgs 13 received from vendor 200 kgs at Rs.28 per kg 14 refund of surlus from a work order 15 kgs at Rs. 25 prr kg 16 Issue of 180 kg 20 Received from vendor 240 kgs at Rs. 26 per kgs 24 Issue 305 kgs 27 Refund of suplus from a work order 12 kgs(issue on 16th Magh) Issue are to be priced on the basis of LIFO. The store verifier of the factory mortified than on 15th Magh he had found a shortage of 10 kgs. Required: store ledger account. [5] 20. The standard time allowed for one unit of production is 20 minutes. The hourly wage rate is Rs. 150 per hour. A worker produced 24 units in a day. Required: Total wage payable to a worker per day. [2]
22. The net profit of a company for the year was Rs. 60,000 as shown by the Cost Account. On an examination of financial account and cost account, the following facts were disclosed: (i) Selling Overhead Over-absorbed in Cost Account Rs. 1,000. (ii) Factory Overhead under Absorbed in Cost Account Rs. 2,000. (iii) Depreciation charged in Financial Account Rs. 6,000 and Recovered in Cost a/c Rs. 7,000. (iv) Interest on Investment not included in Cost Account Rs. 4,000. (v) Income Tax Paid Rs. 20,000. (vi) Loss in Stock shown only in Financial Account Rs. 3,000. Required: Reconciliation Statement [5]
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Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
21. The following cost information is available: Raw materials purchased Rs. 80,000 Direct wages Rs. 120,000 Freight on purchase Rs. 15,000 Factory overhead Rs. 60,000 Goodwill written off Rs. 5,000 Dividend received Rs. 8,000 Office overhead Rs. 32,000 Selling and distribution expenses Rs. 3 per unit Opening Closing Stock of materials Rs. 10,000 Rs. 5,000 Stock of finished goods (in unit) 1,000 1,200 The company sold 12,800 units during the year. The expected profit is 10% on sales. Required: A statement of cost and profit showing: a) Cost of materials consumed b) Prime cost c) Factory cost d) Cost of production e) cost of goods sold f) Cost of sale g) Sales value [1+2+2+2+2+1]
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DESTINY TUITION CENTRE 14 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
Write about economic order quantity? Economic order quantity refers to the quantity of materials to be purchased at a time, which reduces the total of inventory cost i.e. total of ordering cost and carrying cost . The cost is minimum at EOQ as ordering cost and carrying cost are equal at this level. Define perpetual inventory system. Write any two advantages of it. Perpetual inventory system is a technique of controlling stock items by maintaining up to date records with an objective of knowing the actual balance at any point of time. In order word, a system of keeping the records of yhe materials used in the business by showing the details of materials received, issued and balance regularly is known as perpetual inventory system. The main objective of this system is to make available details about the quantity and value of stock at all times The advantages of perpetual inventory system are as follows: a. Checking the physical balance of number of items every day systematically and by rotation. b. Perpetual inventory system makes store staffs responsible towards their duty. It also helps to prevent carelessness and other misbehavior.
What is classification and codification of materials? The process of grouping of each material either on the basis of their nature or on the basis of their usage is known as classification. The procedure for assigning symbols for each item in accordance with a proper arrangement is known as codification. For example materials used in large business unit may be classified as raw materials, machinery and equipments and other materials. What is purchase requisition form? Give specimen of it. The document which authorizes and records the issue of materials is known s material requisition form.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
What is Bin or store card? Give specimen of it. A pace or cupboard where materials have been kept is denoted by bin and the card issued to identify and record the materials at the bin known as bin card. The physical movement of each material in store is shown by bin card. It show the quantity of materials received , issued and an balance at any time . Each bin a card is attached for identify and showing the stock position and that card is termed as bin card. A specimen of bin card is given below:
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Write two function, duties and responsibilities of store keeper. The store is headed by a competed authority known as storekeeper is responsible for store control. The main functions of storekeeper are: a. To prevent production stoppage due to shortage of materials b. To supply material required by the production department. c. To provide safety to materials in store. Duties of Storekeeper a. To prepare and issue purchase requisition note for materials which have reached to re-order level. b. To received purchased materials from receiving department. c. To enter the particulars of materials in the bin card. d. To store materials in their appropriate place for easy identification. Responsibilities of Storekeeper a. He is responsible for the timely issue of material. So, the storekeeper has to classify and codify the materials and store then at appropriate place. b. He is responsible for shortage of materials on account of theft, damage and spoilage. c. It is the responsibility of the storekeeper to work in close co-ordination for the smooth functioning of the factory. Cost Accounting What is cost accounting? Write any three objective of cost accounting. Cost accounting is practice and process of cost which determines the profitability of a business concern by controlling the cost with the application of cost accounting principles, process and rules. It is an art as well as science, and is a prime part of accounting system which records systematically the cost involved in raw materials and labour used in the process of production and at the same time determines the total cost and unit cost of product . It is the process of accumulating, classifying, analyzing cost and presenting them in logical manner for management control and decision making. The main objectives of cost accounting are
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
DESTINY TUITION CENTRE 15 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
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DESTINY TUITION CENTRE 16 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII i) To ascertaining cost of production ii) To determine the selling price of a product iii) To help to analyses cost iv) To control cost v) To minimize or reduce cost vi) To assist he management vii) To assist in preparation of final account Write any three importance of cost accounting. The cost accounting overcomes the limitations of financial accounting. The following are the advantages of cost accounting. i) The profitable and unprofitable activates of a business can be easily disclosed by the use of cost accounting. ii) Cost may be controlled effectively from cost accounting. iii) Cost accounting helps by providing information for decision making in the business. iv) It helps to fix the selling price at an acceptable rate. v) It plays a vary important role in the inventory control. vi) It provides detail information which are indispensable for formulating thefuture policies . vii) It helps to prepare a cost reduction plan and provides a guide line for how to achieve it. viii) It helps to identify the reasons of idle capacity. ix) With the introduction of cost accounting, accuracy of financial accounting can be checked indirectly.
1) Importance to management of manufacture Management or manufacturer is highly benefited with the introduction of cost accounting. It helps to: i) ascertain selling price of the product ii) form business policies iii) analyses and classify costs iv) control for the better utilization of resources v) submit tender and quotation vi) make decision regarding different problem 2) Important to investors Cost accounting provides a guide line to investors to take correct decision regarding whether to invest or not in specific industry. It provides necessary information regarding cost, price, profitability, financial strength and credit worthiness of the business. 3. Important to consumers The ultimate aim of costing is to minimize cost of production. Reduction in cost is usually passed onto the consumers in the form lower price. 4. Importance to employees
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Importance of Cost Accounting Cost accounting has many importunes , specially the following parties are benefited from it: i) Management or Manufacturers ii) Investors iii) General consumer of society iv) Employees v) Government
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DESTINY TUITION CENTRE 17 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII Cost accounting helps to fix the wages of workers. Efficient workers are rewarded for their efficiency. It helps to induce incentive wage plans in the business.
4.1.8 Difference between cost accounting and financial accounting. The followings are some of the most important differences between financial accounting and cost accounting: 1. Purpose: the purpose of financial accounting is reporting whereas the purpose of cost accounting is for external reporting. 2. Statutory requirement: financial account is compulsory by law but cost account is kept to meet the requirement of management and it is optional. 3. Duration if reporting : Financial account covers the transactions of whole form for a definite period but cost accounting furnishes cost data at frequent interval. Some reports are prepared daily, some are weekly and some monthly. 4. Efficiency: the information provided by financial accounts is not sufficient to evaluate the efficiency of departments and business , whereas cost accounting helps in evaluating the efficiency of the departments and entire organization. 5. Cost Control: Financial account lays importance to recording aspect instead of control. But cost accounting provides importance to control of cost with recording. 6. Basic: financial account is historical in nature while cost account is historical and futuristic as well. 7. Stock valuation: The stock is valued by financial account at cost or market privet whichever is less. But the stock is always valued of cost price by cost account. 8. Dealings: financial account deals with actual facets and figures and external transactions, whereas, cost accounting deals with internal transactions and also partly with estimates. 9. Dependability: the financial account is quite independent of cost accounting while cost accounting is depend up on financial accounting for basic data. 10. Analysis of Profit: financial accounting discloses profit for the entire business as a whole, whereas, cost accounts shows the profitability of otherwise of each products, process or operation so as to reveal the area of profitability. 11. Pricing: financial accounting fails to guide the formulation of pricing policy. But cost accounting provides adequate data for formulating pricing policy. 12. Usefulness: financial accounting is suitable to all types of business. Whereas cost accounting is useful specially to production and service industries. Method of cost accounting
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
5. Important to Government Cost accounting facilitates the government in assessment of excise duty, income tax and formulation of policies regarding industry, export and import. Features of cost accounting The following are the features of a cost accounting system: i) It is a basis for accumulating cost. It is the method of accumulating of manufacturing costs. Costs accumulation may be done by individual jobs or by manufacturing departments of processes. ii) Cost accounting system is complementary to financial account. It gives cost date regarding stock, work -in -progress and finished goods which are necessary for repairing financial statement. iii) It is a basis for ascertainment of product cost. It estimates costs which are desirable in addition to the actual or historical costs. Actual cost incurred for period is used to computer product cost. iv) The cost accounting system is simple and practical. v) It is flexible in nature. Expansion or contraction or contraction may be possible accounting to changed conditions and circumstances.
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DESTINY TUITION CENTRE 18 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII The concept and rules relating to determine the cost of a product or service is called cost accounting methods or costing. There are different methods of costing: i. Job order costing ii. Unit costing iii. Process costing iv. Operating costing v. Contract costing vi. Batch costing vii. Multiple costing
V. Contract Costing Organization engaged in construction work or contract generally adopt this method of costing . for each individual contract, separate accounts have to be kept. Basically this type of costing is similar to job costing, but differs on length of time. VI. Batch costing This method is used to determine the cost of group of identical of similar product called batch. It is an extension of job order costing where a firm receives number of orders for special nature and similar types of goods. In the method, a batch of similar products is treated as a job and the cost are accumulated in respect of a batch. VII. Multiple costing The application of two or more than two costing method for determination of cost of final product is known as multiple costing. This method is adopted in a manufacturing concerns where a variety of pars are produced separately and later on they are assembled into a final product. It is also known as composite costing. Brief introduction of cost Cost represents a sacrifice, a foregoing or a release of something for obtaining something. It is the amount of expenditure, actual (incurred) or notional ( attributable), relating to a specific thing or activity. The specific thing or activity may be a produce, job, service, process or any other activity.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
I. Job order costing: Job order costing is used in an organization where goods are produced according to specification or the order of the customers. In this method of costing goods are not produced at the producers will. Therefore, there is no similarity in production process. Each job involves different operation. The object of job costing is to ascertain the cost of each job separately. II. Unit Costing It is a method of costing by production, unit where manufacturing is continuous and units produced are identical in nature. This method is also called single or output costing. By preparing a COST SHEET, the cost per unit is arrived at by dividing the total cost by the number of units produced. III. Process costing It applies to industries where production is carried on through different stages of processes before coming a finished product . it is a method of costing where cost is ascertained at the stage of every process and also after completion of production process. IV. Operating Costing Operating costing is used by the organization which renders services like transport, electricity, hostels, canteens, etc. although they do not produce manufactured goods like manufacturing company, but do need to cost their unit of output i e. service as in the case of manufacturing industries.
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DESTINY TUITION CENTRE 19 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII A cost is composed of four elements: i) Material ii) Labour iii) Expenses iv) Overhead i). Material: all types of goods used in the process of production are called material and the expenses incurred for material is termed as material cost. It also include all those cost associated with the purchase of material and its storing an handling costs. The example of which are excise duty, custom duty, dock charges, inspection cost, etc. Material costs are of two types. A. Direct Material cost B. Indirect Material cost (a) Direct Material cost: Those material cost which can be directly identified with each unit of finished product, is known as direct material. Direct material generally become a part of the finished product. (b) Indirect Material cost: Those material which necessary for production but cannot be traced as a part of the product produced is known as indirect material. Costs of these materials cannot be directly identified whit a particular unit of product. (ii) Lab our: cost paid for the work made by a person is known as labour cost . wages, salaries, commission, bonus, etc. are included in labour cost. There are two classes of lab our involve into production of goods. They are: (a) Direct Labour (b) Indirect Labour (a) Direct Lab our : The wages paid to the workers directly engaged in manufacturing process a goods in knows as direct lab our cost. Such wage can be conveniently identified with a particular, job or process.
(iii) Expenses: all other cost other than materials an lab our costs are termed as expenses for simplicity, Royalty, Hire charge, rent, cost of training of new employees, etc. are the example of expenses. These types of expenses may be sub-divided into two heads. (a) Direct Expenses (b) Indirect Expenses (a) Direct Expenses: Expenses other than direct material and direct lab our, which can be conveniently identified with an unit of output in known as direct expenses. Direct expenses are also known as chargeable expenses, prime cost , process expenses or productive expenses. Cost of hiring special plant, cost of designing or pattern of building, royalty, excise duty, cost of rectifying defective work, etc. are the examples of direct expenses. (b) Indirect Expenses: expenses other than indirect material and indirect lab our are indirect expenses. These expenses cannot be identified or traced out for a particular job or product. Rent of building, insurance premium, depreciation, repairs and maintenance, welfare and medical expenses, etc. are the examples of indirect expenses. (iv) Overheads:- The aggregate of indirect of indirect material cost, indirect lab our and indirect expenses is knows as overheads. Indirect cost refers to cost which cannot be allocated but which should be apportioned or
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
(b) Indirect Labour: Labour whose wage cannot be allocated, but that can be apportioned to a product is known as indirect lab our cost . Indirect labour be directly identified with a particular job or cost unit.
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DESTINY TUITION CENTRE 20 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII absorbed by cost centers or cost unit overheads. Overheads cost are also knows as 'burden'. Overheads may be sub-divided into the following groups. a) Production overhead b) Administrative Overhead c) Selling Overhead d) Distribution overhead Accountancy, Grade XII ...178 (a) Production overhead or works overhead or factory overhead or manufacture overhead: it represents all those costs other than direct material, direct lab our and direct expenses , which are incurred in the manufacturing process. They are: 1. Indirect materials in work 2. Indirect wages to workshop employees 3. Factory expenses like rent, rates, taxes, insurance, repairs etc. 4. Depreciation on plant, machinery and maintenance of factory building 5. Welfare and medical expenses of factory employees. (b) Administrative overhead or office overhead: The represent cost associated with the office and administration. It consists of all expense incurred in formulating the policies, directing. The organization and controlling he operation of and undertakings. Examples ate: 1. Office expenses including rent, taxes, lighting, printing, stationery, insurance, postage, telegram telephone, etc. 2. Salaries of office staff, accountant, directors etc. 3. Legal expenses, audit fees, etc. 4. Depreciation on office building and other assets used in the office.
(d) Distribution overhead: These are the expenses concerned with the delivery and dispatch of finished goods to customers. Cost of packing cases, upkeep of delivery vans, warehouse rent, warehouse insurance, loading expenses, carriage outward, etc. are the example of distribution overhead. (Notes: Selling overhead and distribution overhead can be combined together and which may be termed as selling and distribution overhead) Classification of costs Costs have been classified in different ways in accordance with their common characteristics. The following are the important ways of classification: i) On the basic of element of costs. ii) According to functions iii) According to variability iv) According to controllability i) on the basic of element : Under this basic costs can be classified into: a) Material cost b) Lab our cost c) Expenses
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
(c) Selling overhead: cost incurred in selling and distribution of product is termed as selling overhead. Sales department expenses, sales department salary, advertisement, expenses of sales promotion, gifts, samples, expenses on market research, etc. are the example of selling overhead.
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DESTINY TUITION CENTRE 21 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
(a) Fixed cost: fixed costs are those cost which will remain constant for all or different level of output costs which tend to remain constant tat the different level of output are called fixed cost . some important features of fixed cost. (i) The amount of fixed cost remain constant for varying level of output. (ii) Fixed cost per unit will decrease with increased output and vice- versa (iii) Fixed cost is controllable by the top level (iv) Some fixed costs ate controllable at the supervisory level and most are not controllable by the departmental supervisors. (b) Variable cost: cost that charges directly and proportionately with the change in level of output , therefore it tends to vary with the volume costs are: Important features of variable costs are: (i) Only total cost varies in direct proportion to volume of output or sales (ii) The variable cost per unit of product remains constant (iii) The cost incurred for any product of departments may be identified easily (iv) Control over variable cost lies in the hands of departmental heads. (c) Semi-variable cost: A cost containing both fixed as well as variable element is knows as semi – variable cost. The variable portion of semi-variable cost is affected by fluctuation in volume of output or turn over. Like variable cost the portion increases or decreases proportionately with the increases or decrease of volume of output, but the fixed portion of the semi-variable cost remains constant for all level of activities. Therefore a semi-variable cost increases with the increase in level of output, but the will not be proportionate as in the case of variable cost. (iv) On the basic of controllability: on the cost is classified into two types. Those are: a) controllable cost
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
(ii) on the basic of functions: according to function classification cost may be sub- divided into four parts. These are: a) production cost b) Administration cost c) Selling cost d) Distribution cost (a) Production cost: Those costs incurred in fabrication and assembling of units of output is knows as production cost. (b) Administrative cost: as has been defined by the terminology, the sum of those cost of general management and secretarial accounting and administrative services are called administrative costs. These cannot be directly related to the production, marketing, research or development functions of the enter prince. (c) Selling cost: This has been defined as cost of securing and execution of orders. (d) Distribution cost: distributions cost refers to those costs which are incurred to promote sale and also to facilitate the movement of goods into the hands of purchases. (iii) On the basis of Variability: Costs can also be classified according to variability or behavior of cost . they are: (a) Fixed cost (b) Variable cost (c) Semi- variable cost
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DESTINY TUITION CENTRE 22 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII b) non-controllable cost a) Controllable cost: cost which is influence by the action of management is controllable cost. Practically all variable costs are controllable. b) Non-controllable cost: cost which cannot be controlled bu management action is called uncontrollable cost. All fixed costs are non-controllable cost. E.g. depreciation of plant and machinery, rent of building. Financial statement The organized Summary of detailed information about financial position and the performance of the concern is known as Financial statement. The financial statements are prepared at the end of accounting period . The financial Statement includes profit and Loss Account or Income Statement and Balance Sheet . Importance i) The valuable information for decision making are provided by Financial statement ii) It also provide information relating to profitability and operating cost. iii) The financial statement shows true, clear and fair picture of the organization Limitations Limitation of Financial statement are: - Contain only quantitative but not the qualitative information. - Includes valueless assets such as goodwill, preliminary expenses, patent, discount on issue of shares and debentures, etc - Because of historical account it cannot represent the true position to date - Management may be biased and feed manipulated information to prove its point of view. - Can show the financial problems and operational inefficiency, but it cannot suggest definite remedies.
Objectives of Financial Statement Analysis Following are the main objectives of Financial Statement Analysis: i) To know the profitability of the business ii) To know the security & solvency of the business iii) To know the trend of business, sales, purchases, profit and earning Capacity, etc iv) To ascertain the financial strength and soundness of the business. v) To judge the efficiency of management. vi) To compare financial & operating efficiency of different organizations. vii) To help a great deal in forecasting for the future. Limitation of Financial Statement Analysis The limitations are: i) Financial analysis is based on financial statement. Hence the limitation of financial statement such as influence of accounting concept, personal, Judgement disclosure of monetary facts, etc are also the limitation of financial statement analysis. ii) Financial analysis fails to disclose current worth of the enterprise.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Concept of financial statement Analysis In order to make financial statement more meaningful, analysis of financial statement is made. A systematic process of analyzing and evaluating the relationship between the component parts of financial statement is known as financial statement Analysis. Analysis of financial statement is to classify the complex data in a convenient way and to present the information of financial statement in rational groups.
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DESTINY TUITION CENTRE 23 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
Ratio Analysis An arithmetical relationship between two accounting figures is known as Ratio. It is computed by dividing one item of relationship with the other. Ratio simply means one number expressed in terms of another. Ratio analysis is a technique of analysis and interpretation of financial statement . The evaluation of performances of an organization by creating the ratios from the different accounting figures consisting in Income statement and the Balance Sheet is Known as Ratio Analysis. Importance and advantages of ratio analysis The following are the main advantages of Ratio Analysis" i) helps in communicating financial information in a meaningful manner and also incenses the value of financial statement: ii) useful for making decision on any financial activity iii) useful for simple assessment of liquidity, profitability, solvency and efficiency of the firm. iv) Helps management in evolving future 'market strategies'. v) Helps in co-ordination.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Limitation of Ratio Analysis The following are the some limitations of Ratio Analysis: i) It is a means not an end. ii) Incorrect data gives false ratios. iii) Without adjustment for price level changes, Ratio analysis may not be correct. iv) Ratio calculated from the past year data may not be helpful in forecasting. v) Ratio may not be comparable where different firms follow different account policies. vi) Ratios based on past financial statement are not indications of future.
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DESTINY TUITION CENTRE 24 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
1. Define company/joint Venture Company / joint stock Company. Write three features or characteristics of company. A company is a voluntary association of group of people willing to carry out a business for which the major part of the capital is collected by selling the shares or debentures to the general public. It is artificial person which is created by the specific law with a perpetual succession. A company is a voluntary association of group of people which is created by specific law with a perpetual succession. According to L.H. Hankey, “A company is an artificial person created by law having separate entity with perpetual succession and a common seal.”
a. Artificial person A company is an artificial person created by law having separate existences of its own. If can conduct lawful business and enter into the contract with others. Like a real person, it can buy or sell properties in its own name. It can sue and sued by others. b. Perpetual succession The company has a continuous existence which is not affected by or interrupt by the death, insolvency, inability or lunacy or retirement of shareholders. It is created by law and only law can liquidate it. c. Transferability of shares The part of capital owned by shareholder is called shares. Ownership of the shares of is easily transferable. Thus any person can be the member of the company by purchasing the share and could withdraw his membership by transferring his shares. d. Common seal Being an artificial person, a company cannot act and sign itself. Other people do work on the behalf of using common seal. Common seal is the authorized signature of the company. All the acts of the company are authorized by its common seal. All the documents are affixed by the common seal for making valid documents. e. . Limited liability The liability of shareholders is limited to the value of shares subscribed to by each of them. Even if, the assets of the company aren’t sufficient to pay the claims of the creditors, no owners are bound to pay anything more than the face value or nominal value of shares hold by them. f. Representative management. 2. Differentiate between private company and public company: The difference between private company and public company are as follows: Basis of difference No. of members
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
The features of a company are as follows:
Private company Public company It needed at least one member for its It needs at least seven members for
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DESTINY TUITION CENTRE 25 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
Certificate commencement Issue of prospectus Transfer of share
Specific word
formation. The maximum number is its formation. The maximum number fifty. is not limited. of Not needed before starting transaction It required before commencement of transaction. No need to publish prospectus It is necessary The member of the company generally Shares of public company are easily transfers its share to anyone. transferable. It must use the word Pvt. Ltd at the end of its name.
It uses the word Ltd. at the end of its name.
3. What are the important documents of company? The important documents of a company limited are those documents that plays essential role in the company. They are as follows:
4. What is memorandum of the association? Write any three information contains on it. a. Right and duties of managing directors. b. Directors remuneration and allowance Matters relating to the procedure of calling company are meeting Memorandum of association is the important document and basic document of a company. The document which defines its objectives, power and its relationship with the outside world is called memorandum of association. The company works within the framework of the memorandum. The main contents of Memorandum of Association according to company Act 2063 are as follows: a. b. c. d. e. f.
Full name of the company Address of the head office of the company Objects of the company or objectives of the company Number of shares subscribed by functions Amount of authorized share capital of the company Other necessary particulars/ matters.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
a. Memorandum of association It is the important and basic document of a company. It contains the name and location of the company, states the fund it could raise and constitute the works it shall undertake. Company should undertake its every activity accordingly. Thus it limits the strength and defines the boundary of a company. b. Articles of association The internal rule and regulations framed for the purpose of business regulating activity properly is called Articles of Association of a company. It regulates the internal management of a company and is prepared and executed within the boundaries of memorandum. The articles must not violate any provision of the memorandum or any provision of the company. c. Prospectus It is a document that includes necessary information about the company to invite investment. Any circular, advertisement, offer or any other document by which a company gives invitation to the public to subscribe to its shares and debentures is known as prospectus.
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DESTINY TUITION CENTRE 26 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII Define article of association. Mention the main contents of memorandum of association. The memorandum which defines the rights, powers and duties of the management, the modes and manner of carrying the company’s business is called Article of Association. It shows the relation between the company and its members and relation among the members. The article of association shall contain the following particulars as indicated in Company Act 2063. c. Numbers of directors and their terms and condition d. and notice to be given for meeting. e. Minimum shares to be subscribed to quality to become director f. Other necessary matters. 5. What do you know about Company’s promoters? Promoters are those people, or group of people who actively takes part from the very beginning to establish a company and handles each and every activity related to formation of the company. In other words, the institutions or group who strive to convert a business dream into reality are company promoters. In other words founder member of the company who give birth to the company is called promoters. 6. Define share. Mention and explain the types of share. A share is a document that acknowledges the ownership of a company to the limit of amount contributed. It represents a unit of share capital reflecting the extent of interest of shareholder.
a. Authorized or registered or nominal capital The maximum amount of capital a company can raise as mentioned in the memorandum of association at the time of a company registration is called Authorised capital. This amount of capital cannot be increased or decreased without necessary legal procedure filled. For example, if a company has been registered with 5,00,000 shares of Rs. 100 each, then its authorized capital is Rs. 50, 00,000. b. Issued capital A part of authorized capital is offered to public for subscription is issued capital. Companies usually do not issue the whole of its aauthorised capital for public subscription. For example: the company is registered with 5,00,000 shares of Rs 100 each and company issued 2,50,000 shares, then the issued capital is Rs 25,000,000. c. Subscribed capital It is that part of capital issued capital, which is actually taken by the investors. For example, the company issued 2,50,000 shares @ Rs. 100 each and application were required for 2,00,000 shares, the subscribed capital is Rs. 2,00,00,000. d. Called-up capital Company issuing shares can called the amount of share in full with application or in different installments. It can be received with application, allotment, first call, second call and other call as per the requirement of the company. For example: if Rs. 80 per share has been demanded or called so far from a share of Rs. 100 then called up capital will be Rs. 1,60,00,000. Therefore it is that
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
There are five types of share capital. They are explained as below:
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DESTINY TUITION CENTRE 27 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII portion of subscribed capital which is actually called up by the company to pay the shares subscribed by them. e. Paid-up capital Amount of capital received from the shareholders out of called-up capital is paid-up capital is paidup caoital. If the called up capital is 2,00,000 shares @ Rs. 80 each and a shareholder holding 1000 shares fails to pau the second installment of Rs 20 per share, the paid-up capital will be Rs. 15980000 since Rs. 20000 due on 1000 shares @ Rs. 20 per share fail to pay. Differentiate between equity share and preference share. The difference of equity share and preference share are as follows: Basis of difference Rate of dividend Redeemable Arrears of dividend Facility of conversion Voting right
Equity share
Preference share
It is not fixed. Equity shares are irredeemable It cannot be accumulated
It is fixed. It may be redeemable. It may be accumulated.
It is not convertible
It can be converted into equity shares or debentures. Equity shareholders enjoy voting right Preference shareholders have no such on general meeting voting rights.
7. What is forfuture of share? The cancellment and withdrawal of share certificates ones issued by the company if a shareholder fails to pay the amount due on his shares as called by the directors is called forfuture of share. State the types of preference of share.
a. b. c. d. e. f. g. h.
Cumulative preference of share Non-cumulative preference of share Redeemable preference of share Irredeemable preference of share Convertible preference share Non- convertible preference share Participating preference share Non- participating preference share
6. Define share capital. Capital may be defined as a minimum amount of fund to run the business. Share capital is the ownership capital of a company raised by the issue of its share to finance its activities. State the meaning of debenture and write any two features of it. State the type of debenture.
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
The types of preference shares are as follows:
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DESTINY TUITION CENTRE 28 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII A debenture is a loan certificate issued by the company to its holder under the company seal acknowledging that it has borrowed loan from the holder with a promise to pay certain rate of interest annually and the principle sum at maturity. The features of debenture are: a. b. c. d.
Long term source of capital Fixed rate of dividend Specific maturity period It is issued under the company seal.
Types of debentures: a. Redeemable debenture b. Irredeemable debenture c. Bearer debenture d. Registered debenture e. Secured debenture f. Unsecured debenture g. Convertible debenture h. Non- convertible debenture 8. Differentiate between share and debenture.
Voting right Conversion
A shareholder can excerase voting right Equity share is not convertible
Debenture Debenture is a loan or borrowed capital Debenture holders are the creditors of the company Debenture holder has no voting right It is convertible
9. What is financial statement? What are the techniques of financial statement analysis? Financial statement are organized summary written report of financial affairs of a company which shows the result of its business operation for a particular period of time and its financial position at the end of that period. The contents of financial statement are income statement, statement of retain earning, balance sheet, cash flow etc. The major techniques of financial statement analysis are as follows: a. Ratio analysis: It is the analysis of the interrelationship between two financial figures. It is used for analyzing strength and weakness of the firm. b. Fund flow statement: It is the analysis of the change in fund position during a period. c. Cash flow statement: It is the analysis of the change in cash position during a period. d. Trend analysis: It is the analysis of trend of financial statement of the company over the years. 10. Mention the items of expenses included in financial account only. Items of expenses or loss shown only in financial account are:
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Basis of difference Share capital Capital Share capital is owned capital Ownership Shareholders are owner of the company
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DESTINY TUITION CENTRE 29 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII a. b. c. d. e. f.
Loss on sale of fixed assets or investment. Interest on debenture, loan etc. Discount on issue of share or debenture written off and share or debenture issue expenses. Preliminary expenses written off Income tax or provision for tax and provision for bad debt, discount and commission Dividend, transfer to general reserve, fund, general reserve etc.
9. Mention items of income or gain shown in financial accounting only. Items of income or gain shown only in financial accounting are: a. Dividend received b. Refund of tax c. Interest received from bank deposit or investment d. Gain or sale of assets or investment e. Discount or commission received f. Transfer fee on share and debenture. 11. What is prime cost? What are component of prime cost? Prime cost of product are the sum of direct costs, which varies in proportion to volume of production like cost of material, direct labour and direct expenses. The major components of direct cost are: a. Direct material cost b. Direct labour cost c. Direct expenses
Combination of indirect expenses is called overhead. Allocation of overhead is the process of distributing indirect costs among the products of a particular department or cost centre. It is important for ascertaining the product cost, fixing a competitive selling price and maintaining a strict control over indirect costs. Appointments of overhead: It is the process of sharing/distributing the amount of overhead (indirect costs) to the different departments or cost centre. It is applicable when the overhead cost is associated with two or more departments or cost centers.
Absorption of overhead The process of allotment of overhead to cost unit is known as absorption. In other words the process of ascertaining the total overhead cost of each unit of output or job by using overhead rate is known as absorption of overhead. 13. What is overhead?
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
12. Allocation of overhead
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DESTINY TUITION CENTRE 30 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII It refers to the expenses or costs which cannot be directly charged or attributed with any particular cost centre or cost unit. In other words overheads are all expenses other than direct expenses such as indirect materials, indirect wages and other indirect expenses. Differentiate between piece rate system and time wage system. The difference between piece rate system and time wage system are as follows: Basis of difference Meaning
Nature of payment Emphasis Idle time Supervision
Piece rate system It is a method of wage payment to workers based on the quantity of output they have produced. It pays the workers according to the unit of output produced. Quantity of output It doesn’t pay for idle time. It requires strict supervision to get required quality output.
Time rate system It is a method of wage payment to workers based on time spent by them for the production of output. It pays the workers according to time spent in the factory. Quality of output It pays for idle time. It requires strict supervision to get the required quantity of output.
14. Write any four advantages and disadvantages of piece rate system. Advantages: a. b. c. d.
It helps to reduce idle time It requires less supervision cost It pays wages according to the output produced by the workers. It encourages efficient workers. It helps the management to determine the exact labour cost per unit for submitting quotation.
a. It may adversely affect the worker’s health as well. b. It doesn’t help in producing quality output as the workers are concentrated more on quantity instead of quality. c. It is very difficult to fix an acceptable and reasonable piece rate for each item of output or job. d. It creates greater chances of ineffective use of materials, tools and equipments due to more concentration on increasing output. e. 15. Write any two four advantages and disadvantages of time rate system. Advantages: a. b. c. d.
It is simple to understand and easy to calculate. It is quite useful for organizations that use costly inputs for quality output. It is beneficial for average and below average workers. It assures regular income and creates the feeling of economic security among the workers.
Disadvantages:
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
Disadvantages:
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DESTINY TUITION CENTRE 31 AN CAPSULE TO THE ACCOUNTANCY FOR CLASS XII
Chapter: AN CAPSULE OF ACCOUNT TO CLASS XII
a. It doesn’t help in increasing output and improving efficiency as there is no correlation between effort and reward. b. It is not justifiable to differentiate between efficient and inefficient workers and skilled and unskilled workers. c. It pays for idle time which increases the cost of production. d. It requires strict supervision to get the required quantity of output.
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