Questions and Answers of Financial Accounting For Managers

Super Star Trading Limited is evaluating the effect of various inventory costing methods (FIFO, LIFO, Average Cost) on the financial statements of the company. The company expects moderate to high
The profit and loss statement of Ace Trading Limited for the years 2016 and 2017 is given below: While reviewing the numbers, it was revealed that the closing stock for the year 2016 was understated
Differentiate between periodic and perpetual method of keeping inventory records?
STU Electronics Limited is a trader in electronic items and maintains its inventory using periodic inventory system. The following data pertains to quarter ended 31st December 2017 for one of its
How is conservatism principle applied while valuing closing stock?
Explain different steps in inventory valuation?
Due to the introduction of the new model, STU Limited estimates that the remaining 170 units could be sold only at ₹ 12,200 per unit. The company also estimates that it will have to pay ₹ 500 per
Using the following information, determine the closing inventory to be shown in the financial statements: Item A B с D Number of units in stock 20 12 10 22 Cost Per Unit (2) 80 120 150 60 Market
Compare the impact on LIFO, FIFO and average cost method on the financial statements in case of an inflationary economy.
High Power Instruments Limited uses FIFO method for issue of components from its stores department. The details of purchases and issues in respect of a component HT1 during the quarter ended 31st
If High Power Instruments Limited uses LIFO or Weighted Average Method for valuation of inventory what will be the impact on the cost of material consumed and value of closing stock.
HCL Technologies Limited is a leading IT solution provider company with operations is 32 countries and 116,000 employees. The global revenue of the company exceeded USD 7.2 billion. HCL Technologies
‘All expenses necessary to be incurred to bring the asset to its intended use are capitalized’. Explain with suitable examples.
High Fashions Limited is a recognized export house. In the month of January 2017, it imported a highly sophisticated embroidery machine from US at a cost of $ 200,000. At the time of import, the
Sam Limited incurred the following expenditure during the year 2016–17. Please state whether each of them should be treated as operating expenses for the year or capitalized as an asset. 1. A
Differentiate between: 1. Operating expenses and capital expenses 2. Tangible and intangible assets 3. Depreciation, depletion and amortization 4. Repair and improvement 5. Finance lease and
Satluj Cements Limited purchased a machine costing ₹ 15 million. As per suppliers warranty, the physical life of the machine is estimated to be eight years. However, the management would like to
Biocon Limited is India’s largest and fully integrated biopharmaceutical company that develops, manufactures and supplies advanced, lifesaving biopharmaceuticals for diabetes, cancer and
King Kong Limited acquired a piece of land for setting up a factory for ₹ 50 million on 1st October 2016. It took a loan of ₹ 30 million from the State Bank of India at 10% for this purpose, the
Do you agree with the following statements? Give reasons. 1. A company may follow different methods and rates of depreciation for financial accounting and tax accounting.2. Fixed assets are normally
M P Precision Limited bought equipment for ₹ 14.50 million. The company estimates that the useful life of the equipment is 10 years with a residual value of ₹ 2.5 million. 1. Prepare the
GE Shipping is the largest shipping company in private sector in India. As on 31st March 2009, it had 39 ships in its fleet with a total tonnage of 2,881,624. The company reviews the carrying amounts
How is straight line method different from written down value method?
Patni Computers Limited, a leading company in IT sector in India, is engaged in consulting, software development and business process outsourcing. It has grown organically and also through
Pantaloon Retail (India) Limited is the leading retailer of India operating through multiple retail formats. The company was incorporated in the year 1987 and went public during 1992 through its
Prepare the depreciation schedule for Satluj Limited using SOYD method. 1. Compare the depreciation schedule of SOYD with WDV and SLM.2. Why are WDV and SOYD methods called accelerated methods of
Hind Alloy Limited follows straight line method of depreciation for plant and machinery. The company charges proportionate depreciation in the year of acquisition. It bought a machine for ₹ 5
How is the cost model different from revaluation model for the subsequent measurement of PPE?
Fast Track Limited is a provider of cab services in New Delhi. The company purchased a new car with a list price of ₹ 800,000 in exchange of an old car and cash consideration of ₹ 680,000. The
Hero Moto Corp Ltd. (Formerly Hero Honda Motors Ltd.) is the world’s largest manufacturer of two-wheelers, based in India. In 2001, the company had achieved the coveted position of being the
Sona Software Limited acquired Mona Hardware Limited for a cash consideration of ₹ 300 million. The fair value of assets and liabilities taken over are as follows: 1. Ascertain the value of
Italian Ceramics Limited acquired Sonia Tiles Limited for a purchase consideration of ₹ 20 million. The fair value of assets and liabilities taken over are as follows: 1. Ascertain the value of
Briefly explain the accounting for revaluation of an item of PPE.
How is impairment different from depreciation?
‘Depreciation is a noncash expense’. Explain.
How are selfgenerated intangible assets—brand and goodwill—accounted for?
Clarity Printers Limited bought a printing press on 1st April 2008 at a cost of ₹ 3 million. The management estimated the useful life of the press to be 10 years with a residual value of ₹
What is the treatment of expenditure incurred on property, plant and equipment subsequent to its initial capitalization?
Please refer to the Problem 2 above. After depreciating the machine for three years using SLM, in the fourth year Satluj Cements decided to change the method of depreciation to WDV at 20% per annum.
PQR Limited invested ₹10 million in government bonds with coupon rate of 8% and maturity of 10 years. After one year, the fair value of the bonds has increased to ₹10.5 million. How would you
Super Invest Limited invested ₹15 million in government bonds with coupon rate of 8% and maturity of five years. After one year, the fair value of the bonds has declined to ₹1 million. How would
Briefly explain the classification of investments as per Ind AS, 109.
ABC Limited invested ₹2 million in the equity shares of another company. The current market price of the investment is ₹1.7 million due to a fall in market. What are the options available to ABC
Starfin Limited invested ₹1 million in the equity shares in the stock market. The management wants this investment to be measured at amortized cost as this is intended to be held for longterm.
What is the impact of subsequent measurement of investments on the financial statements of a company.
Finvest Limited investments in corporate bonds amounting to ₹12 million. These investments were classified as FVTOCI in line with the business model of the company. With the change in the business
From the following Balance Sheets and Profit and Loss Statement prepare the Cash Flow Statement for the year 2016–17 Balance Sheet as at 31st March (Amount in *) A. Assets Non-current
Mr. Know-It-All is the chairman and managing director (CMD) for New Age Limited that completed its first year of operations on 31st March 2018. Mr. Kuber is the chief financial officer (CFO) of
XXX Investment Limited invested ₹10 million in corporate bonds. These investments were classified as FVTPL in line with the business model of the company. With the change in the business model, the
On the basis of information given fill the missing entries:Comment upon the cash flows of the respective companies. Particulars Increase or decrease in cash Cash & cash equivalent At the end of the
Is it possible to reclassify an investment from one class to another? What would be the impact of such reclassification on carrying amount and profit or loss.
On the basis of the following information, prepare the cash flow statement for Seven Wonders Limited for the year 2016–17. Additional Information: 1. Shortterm investments represent investment
Calculate the cash flow from operating activities on the basis of the following information using indirect method: Profit and loss account for the year ended 31st December 2017
Container Corporation of India Ltd. (CONCOR) commenced operation from November 1989. It is now an undisputed market leader having the largest network of 68 inland containers depots (ICDs). In
The profit and loss statement for the year ended 31st March 2017 and the balance sheets as on 31st March 2016 and 2017 are given below. You are required to prepare the cash flow statement for the
Suzlon Energy Limited, founded in the year 1995, is a leading wind power company. It has presence in 21 countries in the continents of America, Asia, Australia and Europe. It has emerged as the third
What is the purpose of preparing cash flow statement?
YYY Investment Limited invested ₹6 million in corporate bonds. These investments were initially classified as ‘measured at the amortized cost’ in line with the business model of the company.
Pee Cee Limited sold some of its investments for a consideration of ₹40,00,000. These investments were purchased at ₹32,00,000 and initially were classified as FVTOCI. The carrying amount of this
From the following balance sheets of XYZ Limited, prepare the cash flow statement for the year ended 31st March 2018 and explain the reasons for the decline in the cash and cash equivalents:
Glaxo has a wholly owned subsidiary—Biddie Sawyer Limited (Biddie). Both the companies follow financial year as their accounting year. The summary of separate balance sheets of both the companies
‘The expression ‘‘cash’’ is used in a wider sense to include ‘‘cash equivalents’’ as well while preparing the cash flow statement’. What kinds of items are included in ‘cash
Avon Limited made a provision of ₹ 103 million towards income tax for the year 2016–17. The provision for income tax in the current year balance sheet is ₹ 108 million compared to ₹ 97
Explain the three broad headings under which cash inflows and cash outflows are reported while preparing cash flow statement?
Identify the main reasons for difference between cash flow from operating activities and reported profit for the year.
Differentiate between direct and indirect method of calculating cash flow from operating activities.
How do we treat the income tax paid in the cash flow statement?
What are noncash transactions? Give three examples.
‘Intragroup transactions and intragroup transactions need be eliminated while consolidating’. Explain the statement with suitable examples.
The equity share capital of Black Pearl Limited as on 31st December 2017 stood at ₹ 250 million. The company has been in losses for the last few years and the accumulated losses in the balance
Big Bull Limited acquired 70% of equity shares of Small Cow Limited for a total consideration of ₹ 435.45 million. At the time of acquisition the equity share capital of Small Cow Limited stood at
What is the purpose behind preparation of consolidated financial statements?
HR Limited holds 100% equity of SR Limited. At the year end, in addition to presenting their separate financial statements, HR Limited presents consolidated financial statements as well. During the
How do we define the expression ‘group’ for the purpose of consolidation?
Satya Limited acquired 80% of equity capital of Sundra Limited on 1st April 2016 for ₹ 575 million in an allcash deal. The balance sheets of the two companies immediately before the transaction
S Limited, a 100% subsidiary company of H Limited, sold goods costing ₹ 120 million to H Limited for ₹ 160 million during the year. Out of these, 40% of the goods are still unsold and are
From the following balance sheets of H Limited and S Limited and additional information prepare the consolidated balance sheet of H Limited. Additional Information1. The face value of shares of both
After one year of acquisition both the companies presented their respective balance sheets as on 31st March 2017 as follows: Additional Information 1. During the year Sundra Limited sold goods
Hero Limited acquired the entire equity share capital of Zero Limited on 1st January 2017 for a consideration of ₹ 600 million. At the time of acquisition the share capital of Zero Limited
How is the cost of investment in the subsidiary company treated?
Define the expression ‘minority interest’. How is minority interest disclosed in the consolidated financial statements?
On the basis of the following information and assumption, determine which of the two companies have a higher economic value added: The applicable tax rate is 30%. Particulars Earnings before
What are the different sources of disclosures in the annual reports of companies?
Engineers India Limited was set up in 1965 to provide engineering and related technical services for petroleum refineries and other industrial projects. Its range of services includes project
What are the different types of audit reports?
How is ‘segment reporting’ helpful in understanding the financial performance of a company?
How is Economic Value Added different from the reported profit?
Value added statement has a stakeholders’ focus rather than stock holders’ focus’. Do you agree?
Human resources are the most valuable assets for a knowledge based business, still they are not treated as assets in the balance sheet. Why?
ACC Limited has prepared its financial statements using the calendar year as its accounting period. The last financial statements were prepared for the year ended 31st December 2013. The Companies
What is the need for accounting standards?
Free Flow Oil Limited, an Indian company set up an office in Sri Lanka for executing a specific contract. Due to some reasons, the Sri Lankan government put a ban on the company to operate in the
P T Jewelers bought 1 kg of gold during the year at the rate of ₹ 18,000 per ten grams. At the end of the year, half of the gold is still unsold. The current market price of the gold is ₹ 21,000
Describe the process followed by the Accounting Standard Board for laying down new accounting standards.
Straight Bank of India invests in debt securities issues by the Government of India. Some of these investments are long term in nature and are expected to be ‘held till maturity’ whereas some
Briefly discuss the requirements of Ind AS 8 relating to accounting policies.
Pee Tee Limited so far has been following the LastinFirstOut (LIFO) method for valuation of inventory. The management would like to change the method of valuation of inventory and adopt
What is the rationale of convergence of Indian accounting standards with IFRS?
Describe various stages in accounting process.
Analyze the following transactions and pass necessary journal entries: 1. 1st October 2016: Goods sold on credit to SM & Sons for ₹ 1,250,000. 2. 1st December 2016: Payment received from SM &

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