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Accounting for Manager Problem 1: Journalize the following transactions in the books of Mr. Walter: a. Paid rent of building $ 12,000 half of the

Accounting for Manager

Problem 1:

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

a. Paid rent of building $ 12,000 half of the building is used by the proprietor for residential use.

b. Paid fire insurance of the above building in advance $ 1,000.

c. Paid life insurance premium $ 2,000. d) Paid income-tax $ 3,000.

d. Salary due to clerk $ 500.

e. Charge depreciation on furniture @ 10% p.a. for 1 month (furniture $ 12,000).

f. Provide interest on capital ($ 60,000) at 15% p.a. for 6 months.

g. Charge interest on drawing (10,000) at 18% p.a. for 6 months.

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

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

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

k. Brokerage due to us $ 500.

Problem 2:

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

$

$

Mr. XYZ's Capital

228,800

Stock 1.4.2007

38,500

Mr. XYZ ' Drawings

13,200

Wages

35,200

Plant & Machinery

99,000

Sundry creditors

44,000

Freehold property

66,000

Postage & Telegrams

1,540

Purchases

110,000

Insurance

1,760

Rtuens outwards

1,100

Gas & fuel

2,970

Salaries

13,200

Bad debts

660

Office Expenses

2,750

Office rent

2,860

Discount A/c (Dr.)

5,500

Loose tools

2,900

Sundry Debtors

29,260

Factory lighting

1,100

Loan to Mr. Krish @10% p.a.

44,000

Provision for doubtful debts

880

Balance on 1.4.2007

Interest on loan to Mr. Krish

1,100

Cash at bank

29,260

Cash in hand

2,640

Bills payable

5,500

sales

231,440

Adjustments:

a. Stock on 31st March, 2008 was valued at $ 72,600

b. A new machine was installed during the year costing $15,400 but it is not recorded in the books as on

payment was made for it. Wages $ 1,100 paid for its erection has been debited to the wages account.

c. Depreciate :

1) Plant & machine by 33.33%

2) Furniture by 10%

3) Freehold property by 6%

d. Loose tools were valued at $ 1.760 as on 31.3.2008

e. Of the sundry debtors Rs.660 are bad and should be written off.

f. Maintain a provision of 5% on sundry debtors for doubtful debts.

g. The manager is entitled to a commission of 10% of the net profits after charging such commission.

Problem 3:

Following is the Trial Balance of M/s. Trinity Foods as on 30th June 2007 (after closing Nominal Accounts). Prepare a Balance Sheet on the basis of this trial balance.

Particulars

Debit (Rs.)

Credit (in Rs.)

Cash

10,000

Capital

100,000

Bank

77,000

Furniture

25,000

Ram

15,000

Rahim

50,000

Trading & Profit & Loss

47,000

162,000

162,000

Problem 4:

Given below are the financial statements of Safal Enterprises, using the tool of ratio analysis comment on the profitability and liquidity position of the firm for the year 2006-07. Total no. of shares outstanding for the firm is 2.69crores. In the view of growth opportunities in the near future the firm has been maintaining a policy of 45% payout.

Summarized P & L of Safal Enterprises

For the year ended 31 March

Particulars

2006

2007

( Rs. In crores)

( Rs. In crores)

Sales

132

144

Other income

12

15

Cost of sales

102.96

110.02

Gross margin

29.04

33.98

Operating expenses

Administration

12.44

14.36

Selling & distribution

4.42

5.36

Profit before interest & tax (PBIT)

24.18

29.26

Interest

3

4.01

Profit before tax (PBT)

21.18

25.26

Provision for taxes

7.94

9.47

Profit after tax (PAT)

13.24

15.79

Balance Sheet of Safal Enterprises

Particulars

31/03/06

31/03/07

(Rs in crores)

(Rs in crores)

Assets

Fixed assets

31.25

37.5

Current assets

Inventory

14.56

16.64

Accounts receivable

13.2

15.43

Cash

1.5

1.75

Less: Current liabilities

8.55

11.25

Net current assets

20.71

22.57

Total Assets

51.96

60.07

Liabilities &owners equity

Share capital

27

27

Reserves & Surplus

4.96

6.36

Debt(long term)

20

26.71

Total

51.96

60.07

Problem 5:

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

Gloria Ltd.

Victoria Ltd.

Assets

Cash and Bank balance

12.7

38.6

Marketable securities

10

21

Sundry debtors

22

23.7

Prepaid expenses

93.5

162.45

Stock

1.12

2.14

Current Assets

139.32

247.89

Fixed Assets (Net)

589

642

Total Assets

728.32

889.89

Liabilities and Owners Equit

Sundry creditors

6.75

26.45

Notes payable

6.56

6.44

Long term debt

130.01

345

Equity

585

512

Total

728.32

889.89

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

Assignment: B, mark10

Problem 1:

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

Particulars Rs.

Prime cost 200,000

Closing stock of raw material 20,000

Direct labour cost 100,000

Expenses on purchases' 10,000

Problem 2:

The product of a manufacturing concern passes through two processes A and B and then to finished stock. It is

ascertained that in process A normally 5% of the total input is scrap which realizes Rs. 80 per tone.

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

Materials 500 tonnes

Cost of materials Rs. 125 per tonne

Wages Rs. 14,000

Manufacturing overheads Rs. 4,000

Output 415 tonnes

Problem 3:

Ahmedabad Company Ltd. manufactures and sells four types of products under the brand name Ambience, Luxury,

Comfort and Lavish. The sales mix in value comprises the following:

Brand name Percentage

Ambience 33 1/3

Luxury 41 2/3

Comfort 16 2/3

Lavish 8 1/3

------

100

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

Ambience 60% of selling price Luxury

Luxury 68% of selling price Comfort

Comfort 80% of selling price Lavish

Lavish 40% of selling price

The fixed costs are $. 159,000 per month.

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

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

Brand Name Percentage

Ambience 25

Luxury 40

Comfort 30

Lavish 05

---

100

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

Case study:

Bajaj Auto Limited: The Unprecedented Growth Story

Bajaj Auto Limited is the flagship company of the Bajaj Group. The company manufactures two & three wheelers. Mr. Rahul Bajaj is the present Chairman of the company. The company was incorporated in the year 1945 as M/s Bachraj Trading Corporation Private Ltd. The promoters hold about 30% equity, whereas Indian public holds about 26% and institutional investors have more than 27% stake in the company. The products manufactured by Bajaj Auto are scooters, motor cycles, auto spares parts, machine tools, steel and engineering products. The company also produces three- wheelers as goods carriers such as pick-up or delivery vans and passenger carriers such as auto-rickshaws. Bajaj Auto has a network of 498 dealers, 1,500 authorized service centres and 162 exclusive three-wheeler dealers spread across the country. Bajaj Auto has also diversified into the general as well as life insurance business through its subsidiaries Bajaj Allianz General Insurance Company Ltd, respectively. The Bajaj brand has presence in many countries such as Sri Lanka, Mexico, Bangladesh, Columbia, Peru, Egypt, etc. The main competitors of the company in the two-wheelers and three- wheelers segment are- Hero Honda Motors Ltd, Kinetic Motor Co Ltd, LML ltd, Maharashtra Scooters Ltd, and TVS Motor Co. Ltd.

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

Table A Product-wise exports of Bajaj Auto Ltd

Product

2005-06

2004-05

Growth

( in numbers )

( in numbers )

(in percentage)

Motorcycles

165,288

123,946

33

Total two-wheelers

174,907

130,945

34

Three-wheelers

75,297

65,765

14

Total vehicles

250,204

196,710

27

Even more impressive has been the growth in company's operating EBITDA, which increased by 47% to touch Rs 1805 crore during 2005-06. Consequently the operating EBITDA margin grew by 220 basis points to 17.9% of the sales and operating income. Earnings per share have been risen from Rs 75.60 to Rs 111.00 in the current year. Dividend too has grown to Rs 40 per share (400%) for the year ended 31st March 2006 as against Rs 25 per share in 2005.

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

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

Mar-03

Mar-04

Mar-05

Mar-06

(Rs in crore)

(Rs in crore)

(Rs in crore)

(Rs in crore)

(Rs in crore)

Sales

4987.05

5721.44

7078.06

9284.84

Other income

297.1

507.04

516.41

602.52

Change in stocks

32.92

10.87

-11.57

50.1

5317.07

6239.35

7582.9

9937.46

Expenditure

4335.16

5017.92

6286.91

8131.87

Profit & Loss

PBDIT

981.91

1221.43

1295.99

1805.59

Interest

1.12

0.94

0.67

0.34

Depreciation

171.42

184.32

185.66

191.28

PBT

809.37

1036.17

1109.66

1613.97

Tax provision

274.44

285.41

349.32

509.37

PAT

534.93

750.76

760.34

1104.6

Dividends

159.81

285.37

288.64

461.5

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

Liabilities

5-Mar

6-Mar

Assets

5-Mar

6-Mar

Rs in crore

Rs in crore

Rs in crore

Rs in crore

Net Worth

4447.16

5349.79

Gross fixed assets

2870.02

3092.28

Paid up Equity capital

101.18

101.18

Capital WIP

9.14

25.26

Bonus Equity capital

114.17

114.17

Less: cumulative depreciation

1660.32

1834.19

Minority interest

89.46

148.79

Net fixed Assets

1205.64

1230.77

Reserves & Surplus

4256.52

5099.82

Investments

5273.83

6865.43

Free reserves

4233.28

5076.58

Deferred tax assets

9.2

6.43

Share premium reserves

87.07

285.78

Inventories

224.7

274.47

Other free reserves

4146.21

4790.8

Receivables

3116.05

5799.11

Specific reserves

23.24

23.24

Sundry debtors

176.97

302.54

Borrowings

1229.17

1469.44

Debtors exceeding 6 months

0.2

1.13

Deferred tax liabilities

139.9

87.58

Advances/loans to corporate bodies

62.29

33.66

Current liabilities & provisions

4284.64

7773.2

Group/associate companies

34.44

19.41

Sundry Creditors

833.86

1404.4

Other companies

27.85

14.25

Other current liabilities

1169.04

3674.37

Advance payment of tax

1823.6

1869.4

Provisions

2281.74

2694.43

Other receivables

1053.19

3593.51

Cash & Bank balance

266.88

476.48

Intangible/DRE not written off

4.57

27.32

Total Liabilities

10100.87

14680.01

Total Assets

10100.87

14680.01

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

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

Discuss

1. Is the profitability performance of the firm satisfactory? If not, how can it be improved?

2. How attractive is the firm from the short-term and long-term lenders, perspective? Does the firm

appear to be the favorite destination in the automobile sector (two-wheelers and three-wheelers segment) for the lenders?

3. How efficient is the firm been in utilizing the resources at its disposal? How do you think the company can improve upon its efficiency?

assignment C

State whether the following are true or false:

1. Accounting is a language of business.

2. Accounting is a service function.

3. Accounting records only those transactions and events which are financial character.

4. Drawings reduce capital.

5. Capital is increased by profit and decreased by losses.

6. The system of recording transaction on the basis of their two old aspects is called double entry system.

7. Purchases made from B for cash should be debited to B.

8. Earnings of revenue means increase in Cash/Bank balance

9. The balance of an account is always known by the side which is shorter.

10. The return of goods by a customer should be debited to Returns Inwards Account.

11. Goods bought for resale are referred to as Stocks

12. If the business has any liability, the proprietors capital must be more than the total assets.

13. Withdrawal of money by the owner is an expense for the business.

14. Ledger is called the book of final entry.

15. Cash book is used to record all receipts and payments of cash.

16. Sales book is used to record all credit sales.

17. The journal is not a book of original entry.

18. Goodwill is an intangible asset.

19. Salaries & Wages appearing in the trial balance are shown on the liabilities side of the balance sheet.

20. The profit & loss account is one of the financial statements.

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

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

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