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financial accounting

Financial Accounting 1st Edition Dhanesh K. Khatri - Solutions

Write short notes on the following:(a) Going concern concept(b) Accrual concept(c) Separate entity concept(d) Convention of conservatism(e) Convention of consistency
Explain different concept related to profit calculation.
Differentiate between current and non-current assets. Are both desirable in a business enterprise?
A bank manager has to sanction a long-term loan. Suggest him/her which type of assets and liabilities he/she should opt for the long-term solvency and which one for the short-term liquidity of the borrower.
“Contingent liabilities do not fi nd any place in the balance sheet, yet these are the critical factor affecting the financial position of a business enterprise.” Explain.
“Property, plant and equipment are shown at historical cost, whereas for financial assets recoverable value and current market value are more important.” Why is it so? Explain.
“Agreeing of trial balance is the elementary proof of mathematical accuracy of books of account but not the final proof.” Discuss.
Write short notes on the following:(a) Capital account and drawings account(b) Trade discount vs cash discount(c) Petty cash book(d) Closing entries
Explain with reasoning why adjustments are necessary to be incorporated in the final accounts. Give suitable example.
‘Fixed assets, tangible as well intangible, are not charged directly to revenue for the year instead these are amortized over their useful life.’ Do you agree?
Explain liquidity preference and permanence preference of placing the items in the balance sheet.
Discuss the concept of deferred tax liability and deferred tax asset. Explain with the help of a suitableexample.
‘Income statement is based on flow concept, whereas balance sheet is based on static concept.’ Discuss.
‘Balance sheet conceals more than what it reveals.’ Explain.
Explain the term divisible profit. State the regulatory provisions relating to it.
“Although payment of managerial remuneration is subject to the availability of profits still a loss making company can pay remuneration to its managerial staff.” Discuss.
“Following consistent policy about revenue recognition is must to have true and fair view about the financial performance of a business enterprise.” Explain.
“One single rule cannot govern the revenue and expense recognition for all the type of business enterprises, even in the same business enterprises different rules are applicable at different times.” Do you agree? Discuss.
Bangla Cricket Association (BCA) organizes cricket matches and Tamil Patrika (TP), a state-level newspaper published in Telegu. During state-level cricket competitions, BCA provided space to put hoardings for advertisement of TP in the cricket ground in exchange for BCA advertisements to be
Financial statements are subject to certain limitations one should take sufficient precaution while using these for the purpose of financial analysis. Explain.
Explain the term ‘financial performance analysis’. What are the different ways in which it can be carried out?
Differentiate between common size statement and trend analysis.
Explain the FIFO and LIFO methods of inventory valuation. Under what circumstances, these areapplicable?
What do you understand by periodic system of inventory valuation and how it is different from continuous method of inventory valuation?
What are the different costs involved in the management of inventory? Explain.
Which of the following is the effect of outstanding expense on final accounts?(a) Net profit decreases and liabilities increase.(b) Net profit decreases and liabilities decrease.(c) Net profit increases and asset increase.(d) Net profit does not get affected but liabilities increase.
Which of the following is the effect of pre-paid expenses on final accounts?(a) Net profit decreases and liabilities increase.(b) Net profit decreases and liabilities decrease.(c) Net profit increases and asset increase.(d) Net profit does not get affected but liabilities increase.
Which of the following is the effect of accrued income on fi nal accounts?(a) Net profit decreases and liabilities increase.(b) Net profit decreases and liabilities decrease.(c) Net profit increases and asset increase.(d) Net profit does not get affected but liabilities increase.
Which of the following is the effect of unearned income on final accounts?(a) Net profit decreases and liabilities increase.(b) Net profit decreases and liabilities decrease.(c) Net profit increases and asset increase.(d) Net profit does not get affected but liabilities increase.
When depreciation provided in financial accounts is ₹30,000 as compared to a depreciation of 50,000 in taxable income, and tax rate is 25%, then it will result into(a) Deferred tax asset of ₹ 5,000(b) Deferred tax liability of ₹ 5,000(c) Deferred tax liability of ₹
When depreciation provided in financial accounts is ₹ 80,000 as compared to a depreciation of 50,000 in taxable income, and tax rate is 30%, then it will result into(a) Deferred tax liability of ₹ 9,000(b) Deferred tax asset of ₹ 30,000(c) Deferred tax liability of ₹
If retained profit for the year is ₹ 30,000, securities premium received during the year is ₹ 20,000 and revaluation profit is ₹ 15,000, then what will be the amount of clean surplus and dirty surplus?(a) Clean surplus ₹ 50,000 and dirty surplus ₹ 35,000(b) Clean surplus ₹
Goods having cash sales price ₹20,000 with provision for installment payment in two equal installments of ₹11,000 to be paid at the end of six months and 12 months. The sales revenue to be recognized in books of accounts should be(a) ₹22,000(b) ₹20,000(c) ₹11,000 after six
Fee received by a college in the first year for five years is ₹10,00,000. It should be shown as revenue in the first by which of the following amounts?(a) ₹2,00,000(b) ₹10,00,000(c) ₹8,00,000(d) ₹None of these
For export of goods with free on board (FOB) sales the sales revenue is to be recognized at which point of time?(a) When goods are dispatched from the godown of seller.(b) When goods are handed over to the travel agent of buyer.(c) When payment is received from buyer.(d) None of the above.
In case of sale on approval basis when should revenue be recognized?(a) When goods have been delivered to customer.(b) When buyer has accepted to purchase or time for buyer’s response has expired.(c) When payment is received from buyer.(d) None of these.
How life membership fee and entrance fee are recognized in the books of accounts?(a) At the present value of the fee so received.(b) These are to be shown as revenue in the year in which these are received.(c) These are to be capitalized by adding to capital fund or capital reserve.(d) These
Revenue recognition in case of construction contracts is governed by(a) Cash basis of revenue recognition(b) Accrual basis of revenue recognition(c) Percentage of completion of work(d) None of these
Government grant of ₹1,00,000 received for the construction of cycle stand in the college utilized fully.Cycle stand is to be depreciated over five years. How much is to be added to the book value of building when direct deduction method of recognizing government grant is being
Government grant of ₹1,00,000 received for the construction of a cycle stand in the college utilized fully.Cycle stand is to be depreciated over five years. How much is to be added to the book value of building when deferred revenue method of recognizing government grant is being
Securities premium is shown under which heading in the balance sheet?(a) Share capital(b) Current liabilities(c) Provisions(d) Reserve and surplus
₹2,00,000 paid for preliminary expenses the expected benefit to be realized from these is over four years.How much is to be shown in the income statement and how much in the balance sheet of first year of expenses?(a) ₹50,000 in income statement and ₹1,50,000 in the balance
A firm sold its stocks in cash in order to meet its liquidity needs. Which of the following ratio would be affected by this?(a) Debt-equity ratio(b) Current ratio(c) Debt service coverage ratio(d) Quick ratio
A company is found to be carrying a high debt-equity ratio. To improve this, a bank may suggest the company to(a) Raise long-term interest free loans from friends and relatives(b) Raise long-term loans from Institutions(c) Increase the equity by way of bonus issue(d) Issue rights share to
Which of the following is not a fictitious asset?(a) Goodwill(b) Preliminary expenses(c) Pre-operative expenses(d) Book debts that have become doubtful of recovery
Under which of the following methods of depreciation on fixed assets, the annual amount of depreciation decreases?(a) Written-down value method(b) Straight line method(c) Annuity method(d) Insurance policy method
Which of the following is not considered a quick asset?(a) Cash and bank balances(b) Bank fixed deposits(c) Current book debts(d) Loans and advances
Which of the following accounting standards is applicable for inventory valuation?(a) AS-3(b) AS-4(c) AS-10(d) AS-2
From among the following, which one is not included in inventory?(a) Raw material(b) Loose tools(c) Work-in-process(d) Spare parts forming part of the machinery
According to ICAI rules, which of the following methods of pricing issues has been discontinued?(a) FIFO(b) LIFO(c) HIFO(d) Weighted average
While reporting inventory in the final accounts, which rule is used as accounting prudence?(a) Showing all inventory items at cost or market price, whichever is less(b) Showing inventory always at cost(c) Showing raw material at cost and finished goods at market price(d) Always showing both raw
As per income tax rules, which of the following Sections is applicable for inventory valuation?(a) Sec. 80HHC(b) Sec. 145(c) Both(d) Neither of these
An investor purchases 100 shares of a company at a price of ₹60. At the end of one year, he gets a dividend of ₹5 per share and sells the share in the market at a price of ₹67 per share after one year. Calculate the return on equity.
From the following balance sheets of WWF Ltd, prepare fund flow statement and draw inferences.Additional Information:(i) ₹30,000 income tax was paid during the year 2008–09.(ii) Depreciation of ₹10,000 and ₹1,20,000 have been charged on plant and machinery and on land and building,
Compare the financial ratios of the following companies and comment: Current ratio Liquid ratio Gross profit margin Operating profit margin Net profit margin Return on investment Fixed assets turnover ratio Debt: equity ratio Interest coverage ratio Inventory turnover
Taking data of Examples 7 and 8, calculate the following activity ratios:1. Inventory turnover ratio2. Average inventory holding period3. Average debt collection period4. Average payables period5. Fixed assets turnover ratioData from Example 7The following is the profit and loss account and balance
Calculate as many ratios as many possible from the following details:Sales for the year was ₹10,00,000, gross profit for the year ₹2,50,000, operating expenses ₹70,000, nonoperating expenses ₹30,000, non-operating income ₹70,000. Tax rate applicable for company is 30%. Particulars Equity
Prepare common size statement from the following information: L & T Balance Sheet Fixed Assets Investments Current Assets Stock S. Debtors Pre-paid Expenses Marketable Sec. Cash & Bank Balance Loan & Advances Accrued Interest Facts Extracted From Annual Report of L & T Ltd 2007-08 Intangible &
Carry out trend analysis using the following facts: Carry out trend analysis using the following facts: Facts Extracted from Annual Report of SAIL Balance Sheet ( in crore) Sources of Funds Owner's fund Equity share capital Share application money Preference share capital Mar '09 4,130.40 0 0 Mar'
The following is the profit and loss account and balance sheet of Sach International Ltd. Redraft these for the purpose of ratio analysis. The following is the profit and loss account and balance sheet of Sach International Ltd. Redraft these for the purpose of ratio analysis. Particulars To
The following are the ratios of two companies ABC and XYZ belonging to the same industry: Ratio Current ratio Quick ratio Gross profit margin Operating profit margin Net profit margin ABC 3.20: 1 1.45:1 40% 22% 10% 12% 6 times 8 times 3 times 3:1 Return on investment Inventory turnover Debtors
Calculate ratios from the following details:Balance Sheet of Company X and Company Y Balance Sheet Fixed Assets Investments Current Assets Stock S. Debtors Pre-paid Expenses Marketable Securities Cash & Bank Balance Intangible & Fictitious Assets Total Assets Equity Share Capital Preference Share
Calculate ratios from the following details: Liabilities Equity Share Capital Preference share capital General Reserve P & L Account Debentures Long-Term Loan Sundry Creditors Bank Overdraft Proposed Tax Proposed Dividend Balance Sheet as on March 31, 2008 and
The following transaction has been extracted from the annual accounts of a retail chain store. Identify these as items of fund flow and cast their effect also.(i) Purchased machinery for cash ₹2,50,000.(ii) Purchased furniture of ₹80,000 on two month-credit.(iii) Long-term debenture of
Prepare fund flow statement from the following details:Additional information:(i) Investments costing ₹18,000 were sold during the year 2009–10 for ₹18,500.(ii) Provision for tax made during the year 2009–10 was ₹90,000.(iii) During the year part of the fixed asset costing (book
Prepare schedule of changes in net working capital.Additional Information:(i) Dividend paid during the year was ₹2,90,000 and tax paid during the year was ₹85,000.(ii) Depreciation provided on fixed assets was ₹70,000. A. Sources of Funds Share capital Proposed dividend Bank overdraft Sundry
Which one of the following is not applicable when provision for tax is considered an appropriation?(a) It is shown in schedule for change in net working capital.(b) Provision for tax made during the year is adjusted while calculating funds from operations.(c) Payment of tax is shown as an
Which one of the following is applicable when proposed dividend is considered current liability?(a) Payment of dividend is shown as an application.(b) Provision for dividend made during the year is adjusted while calculating funds from operations(c) It is shown in schedule for change in net
Prepare schedule of changes in NWC by taking the data of Example 2 by considering proposed dividend and provision for tax as an appropriation of profits.Data from Example 2Prepare schedule of changes in net working capital.Additional Information:(i) Dividend paid during the year was ₹2,90,000
Sigma International Ltd (SIL) provides the following balance sheet for the year ending March 31, 2009:During the year 2009–10, the following transactions took place:(i) Cash sales ₹5,00,000 and credit sales ₹2,56,000.(ii) Bad debts written off during the year were ₹2,300 and discount
From the following details, prepare statement showing funds from operating activities using direct method and indirect method. Particulars To Opening stock To Purchase of goods ■ In cash ■ On credit To Direct Expenses To Sales return To Gross Profit c/d To Depreciation To Preliminary Expenses
From the following details, prepare fund flow statement:During the year, a machine costing ₹20,000 accumulated depreciation on it ₹13,000 was sold for ₹15,000. The opening and closing balance, respectively of provision for depreciation was ₹35,000 and ₹50,000. Net profit for the year was
Which of the following is not a spontaneous source of finance?(a) Trade creditors(b) Outstanding expenses(c) Tax refund(d) Lag in payment
From the following balance sheets of WWW Ltd, prepare fund flow statement:Additional Information:(i) 15% debentures of ₹30 crore were redeemed during the year 2009–10.(ii) An old plant costing ₹50 crore was sold for ₹8 crore at no profit no loss during the year 2009–10.(iii) During the
From the following details, prepare a statement showing funds from operating activities for the year ending March 2010: (i) Preliminary expenses written off (ii) Loss on sale of plant (iii) Provision for bad debts (iv) Provision for tax (v) Depreciation on fixed assets (vi) Profit on sale of
Purchase of machinery settled by the issue of debentures is(a) Current item(b) Non-current item(c) Non-current item not considered in funds flow statement(d) Current item but not considered in funds flow statement
From the following balance sheets and additional information, prepare fund flow statement:Additional Information:(i) During the year depreciation charged to Profit and Loss Account was ₹1,00,000.(ii) Tax paid during the year was ₹87,000 (iii) Interest paid on debentures ₹38,500.(iv) During
The following is the comparative balance sheet of X Ltd:Additional Information:(i) Depreciation of 10,000 and 20,000 has been provided on plant and land and building, respectively. (ii) An interim dividend of 5,000 was paid during the year and the final dividend for the year was 15,000. (iii)
Which of the following is an effect of the payment of outstanding expenses in cash?(a) Only current liabilities are decreased.(b) Only current assets are decreased.(c) Current liabilities as well as current assets are reduced.(d) None of these.
From the following balance sheets and additional information, prepare fund flow statement:Additional Information:(i) Depreciation of ₹10,000 and ₹30,000 has been provided on plant and land and building, respectively.(ii) An interim dividend of ₹15,000 was paid during the year and the final
From the following information, prepare cash from operating activities using the direct method. Particulars To Opening stock To Purchase of goods In cash On credit To Direct Expenses To Sales return To Gross Profit c/d To Depreciation To Preliminary Expenses written off To Goodwill written off To
Prepare fund flow statement.Additional Information:(i) During the year assets of another company were purchased for which consideration was discharged by issue of equity shares of 40,000. The assets purchased included Stock 5,000, fixed assets 35,000.(ii) Depreciation for the year was 75,000. (A)
Long-term debentures issued five years ago with a maturity of six year from the date of issue should be considered as(a) Current item in the latest balance sheet(b) Appropriation of funds(c) Non-current item in the latest balance sheet(d) None of these
From the following details, prepare statement showing cash flow from operating activities using direct method and indirect method:From the following details, prepare cash flow statement and analyse it: Particulars To Opening stock To Purchase of goods In cash ■ On credit To Direct Expenses To
The managing director of Sigma Co-operative Bank has received the following facts from one of its clients.The bank is considering to sanction a working capital loan to this client.Additional Information:(i) Investments costing ₹ 80,000 were sold during the year 2009–10 for ₹ 85,000.(ii)
Taking the data of Example 1, compute cash flow from operating activities using the indirect method.Data from Example 1Taking the data of Example 1, compute cash flow from operating activities using the indirect method. From the following information, prepare cash from operating activities using
Which one of the following is not appropriate with regard to cash flow statement?(a) Cash flow from operating activities(b) Cash flow from recurring activities(c) Cash flow from investing activities(d) Cash flow from financing activities
From the following details, prepare cash flow statement and analyse it:Additional Information:From the following details, prepare cash flow statement and analyse it:(i) During the year, depreciation on fixed assets charged to Profit and Loss Account was ₹30,000.(ii) Tax paid during the year was
‘Liquidity does not mean profitability and profitability does not mean liquidity.’ Elaborate this statement.
From the following details, prepare cash flow statement and analyse it:Additional Information:(i) Depreciation of ₹10,000 and ₹20,000 has been provided on plant and land and building, respectively.(ii) An interim dividend of ₹5,000 was paid during the year and the final dividend for the year
Cash flow statement is not useful for which one of the following stakeholders?(a) Customers of the business enterprise(b) Suppliers of the business enterprises(c) Debenture holders of the business enterprises(d) Banker to the business enterprises
From the following details, prepare cash flow statement.Additional Information:Balance of accumulated depreciation account as on previous year was ₹16,000 and as at the end of current year was ₹19,000. A. Assets Fixed Assets (net) Debtors Inventory Pre-paid rent Cash Balance Total
Cash flow statement is useful not only for business executives but also for several other stakeholders. Do you agree with this? Explain.
The following additional information and balance sheet are of Sigma Ltd.Additional Information:(a) During the current year, dividend paid was ₹52,000 tax paid was ₹24,000.(b) During the current year, one machine having original cost ₹20,000 and accumulated depreciation ₹7,000 was sold for
Which one of the following is done if tax payable is considered as current liabilities?(a) Tax paid is shown as an application in the operating activities.(b) Provision made for tax is shown in the operating activities.(c) Change in the tax payable as reflected in the balance sheet is shown in
The following is the summary of cash account of Deepak Agro Ltd for the year ending March 31, 2009.Prepare cash flow statement using direct method as discussed in AS-3. Particulars To Balance as on 1-04-2008 To Issue of equity shares To Receipt from debtors To Sale of investment Summary Cash
Write a short note on foreign currency cash flow.
From the following balance sheets of WWW Ltd, prepare cash flow statement and draw inferences:Additional Information:(i) ₹35,000 income tax was paid during the year 2008–09.(ii) Depreciation of ₹10,000 and ₹20,000 have been charged on plant and machinery and on land and building,
Which one of the following is not done when dividend payable is considered as an appropriation of profits?(a) Dividend paid is shown as an application in the financing activities.(b) Provision made for dividend is shown in the operating activities.(c) Change in the dividend payable as reflected
From the following balance sheets and additional information, prepare cash flow statement.Additional Information:(i) Depreciation of ₹10,000 and ₹20,000 has been provided on plant and land and building, respectively.(ii) An interim dividend of ₹5,000 was paid during the year and the final

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