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Examination Details

Seat No. / Enrollment No.: ___
University: Gujarat Technological University
Course: MBA-Semester-I-Examination-Winter-2024
Subject Code: 4519201
Date: 09/01/2025
Subject Name: Management Accounting
Time: 10:30 AM to 01:30 PM
Total Marks: 70

Instructions

Attempt all questions.
Make suitable assumptions wherever necessary.
Figures to the right indicate full marks.
Use of simple calculators and non-programmable scientific calculators are permitted.

Question 1: Definitions

Equity Share Capital: Represents the ownership interest of shareholders in a company and is obtained by issuing shares to investors.
Assets: Economic resources owned by a business that are expected to provide future economic benefits.
Debtors: Individuals or entities that owe money to the company, typically as a result of credit sales.
Accrual Concept: An accounting principle whereby revenue is recognized when earned and expenses when incurred, regardless of the payment timing.
Marginal Costing: A costing technique that includes only variable costs in product costing and treats fixed costs as period costs, influencing decision-making based on contribution margin.
Expenditure: An amount spent or incurred in the course of business operations, which can be categorized as capital or revenue expenditure.
Opportunity Cost: The cost of forgoing the next best alternative when making a decision, serving as a key principle in economics and decision-making.

Question 2: Journal Entries

(a) Journalize Transactions for A Ltd:

Started Business with Stock:
- Stocks: Rs. 20,000
- Cash: Rs. 1,00,000
- Journal Entry:
- Debit: Stock Account Rs. 20,000
- Debit: Cash Account Rs. 1,00,000
- Credit: Capital Account Rs. 1,20,000
Bought Machinery on Credit:
- Machinery: Rs. 25,000
- Journal Entry:
- Debit: Machinery Account Rs. 25,000
- Credit: X Ltd. Account Rs. 25,000
Paid Office Electricity Bill:
- Amount: Rs. 1,000
- Journal Entry:
- Debit: Electricity Expense Account Rs. 1,000
- Credit: Bank Account Rs. 1,000
Paid Son's Tuition Fees from Company's Bank Account:
- Amount: Rs. 10,000
- Journal Entry:
- Debit: Tuition Expense Account Rs. 10,000
- Credit: Bank Account Rs. 10,000
Purchased Goods:
- Amount: Rs. 23,000
- Journal Entry:
- Debit: Purchases Account Rs. 23,000
- Credit: Bank Account Rs. 23,000
Sold Goods:
- Amount: Rs. 1,10,000
- Journal Entry:
- Debit: Bank Account Rs. 1,10,000
- Credit: Sales Account Rs. 1,10,000
Distributed Free Samples of Goods:
- Value: Rs. 11,000
- Journal Entry:
- Debit: Sales Promotion Expense Account Rs. 11,000
- Credit: Stock Account Rs. 11,000

(b) Short Note on Activities Covered Under Accounting

Accounting activities encompass a wide range of tasks that provide a reproduction of the business’s financial condition, such as recording transactions, classifying financial data, summarizing account information, preparing financial statements, and ensuring regulatory compliance. They aim to provide stakeholders with clear insights into the operational efficiency, financial health, and profitability of the organization.

OR (b) Differences between Financial Accounting and Cost Accounting

Financial Accounting:
- Focuses on reporting financial information to external parties (stakeholders).
- Follows standardized formats and generally accepted accounting principles (GAAP).
- Produces statements like the income statement and balance sheet.
Cost Accounting:
- Primarily aimed at internal management for decision-making.
- Not bound by strict legal requirements or external reporting structures.
- Facilitates cost control, budgeting, and performance evaluation.

Question 3: Cost Analysis and Examples

(a) Fixed, Variable, and Semi-Variable Costs:

Fixed Cost:
- Definition: Costs that do not change with the level of production or sales within a certain range.
- Example: Rent, salaries of permanent staff.
- Numerical Example: If rent is Rs. 50,000/month, it remains the same regardless of whether 100 or 1,000 products are made.
Variable Cost:
- Definition: Costs that vary directly with the level of production.
- Example: Raw materials, direct labor.
- Numerical Example: If the variable cost is Rs. 20 per unit, producing 100 units costs Rs. 2,000 (100 units * Rs. 20).
Semi-Variable Cost:
- Definition: Costs that have both fixed and variable components.
- Example: Utility bills that have a base charge plus a variable charge based on usage.
- Numerical Example: A utility cost has a fixed charge of Rs. 500 plus Rs. 10 per usage unit; for 50 units, the cost is Rs. 500 + (50 * Rs. 10) = Rs. 1,000.

(b) Machinery Account for A Firm

Initial Machinery Purchase:
- Purchased on 01/01/2009 for Rs. 1,80,000.
- Additional costs: Carriage Rs. 10,000, Installation Rs. 10,000.
- Total Cost = Rs. 1,80,000 + Rs. 10,000 + Rs. 10,000 = Rs. 2,00,000.
Depreciation Calculation:
- Depreciation per annum = 10 ext{%} ext{ of } Rs. 2,00,000 = Rs. 20,000.
- Reducing balance method applied.
Sale of Machinery:
- On 01/07/2011, sold one-fourth at 20% more than book value.
- Book value at that time must be calculated based on depreciation.
Account Preparation:
- Account details should include annual depreciation adjustments and sale calculations.

OR

(a) Short Note on Break-Even Analysis

Break-Even Analysis determines the point at which total revenue equals total costs, resulting in no profit or loss.
Formula:
ext{Break-Even Point (BEP)} = rac{ ext{Fixed Costs}}{ ext{Selling Price per Unit} - ext{Variable Cost per Unit}}
Financial managers use this to assess the risk of production decisions and set sales targets.

(b) Calculate Financial Ratios from Balance-Sheet

Given Balance-Sheet of M/s. B Ltd. :

Liabilities:
- 10% Equity Share Capital: Rs. 25,00,000
- 4% Preference Share Capital: Rs. 6,00,000
- 12% Debentures: Rs. 1,00,000
- Creditors: Rs. 50,000
- Bills Payable: Rs. 80,000
- Outstanding Salary: Rs. 12,000
- Total Liabilities: Rs. 33,42,000
Assets:
- Land and Building: Rs. 28,50,000
- Plant and Machinery: Rs. 3,00,000
- Furniture: Rs. 50,000
- Debtors: Rs. 50,000
- Bills Receivable: Rs. 40,000
- Stock: Rs. 10,000
- Bank: Rs. 30,000
- Pre-Paid Rent: Rs. 8,000
- Cash: Rs. 4,000
- Total Assets: Rs. 33,42,000

Current Ratio:
- Formula: ext{Current Ratio} = rac{ ext{Current Assets}}{ ext{Current Liabilities}}.
- Current Assets: Sum of items like Debtors, Stock, etc., = ???
- Current Liabilities: Bills Payable + Outstanding Salary = ???
Liquid Ratio:
- Formula: ext{Liquid Ratio} = rac{ ext{Liquid Assets}}{ ext{Current Liabilities}}
- Includes cash and receivables but excludes stock.
Debtors Turnover Ratio:
- Formula: ext{Debtors Turnover} = rac{ ext{Credit Sales}}{ ext{Average Debtors}}.
- Credit Sales: Rs. 12,00,000, calculate average debtors.
Average Collection Period:
- Formula: ext{Average Collection Period} = rac{365}{ ext{Debtors Turnover Ratio}}.
Creditors Turnover Ratio:
- Formula: ext{Creditors Turnover} = rac{ ext{Credit Purchases}}{ ext{Average Creditors}}.
- Cash Purchases equal to Rs. 7,50,000.
Average Payment Period:
- Formula: ext{Average Payment Period} = rac{365}{ ext{Creditors Turnover Ratio}}.
Inventory Turnover Ratio:
- Formula: ext{Inventory Turnover} = rac{ ext{Cost of Goods Sold}}{ ext{Average Inventory}}.
- Cost of Goods Sold = Rs. 96,500.

Question 4: Inventory Valuation

(a) Inventory Valuation using FIFO and LIFO

FIFO (First-In, First-Out):
- Method assumes that the oldest inventory items are sold first.
- Calculate Cost of Goods Sold based on cost of the beginning inventory and earliest purchases.
LIFO (Last-In, First-Out):
- Method assumes that the newest inventory items are sold first.
- Calculate Cost of Goods Sold using the latest costs of inventory purchases.
Example for Nell Farms (September, 2022):
- Beginning Inventory: 40 units @ Rs. 12
- Purchases: 60 units @ Rs. 13, 30 units @ Rs. 14, 45 units @ Rs. 15
- Sales Transactions:
- Sep. 10: 65 units sold.
- Sep. 30: 50 units sold.
- Apply FIFO and LIFO calculations to determine COGS.

(b) Short Note on Trend Analysis

Trend Analysis is a statistical technique that involves comparing financial data over a period to identify patterns and forecast future performance.
Applying visual aids, such as graphs, helps stakeholders understand performance shifts and trends over time to make strategic decisions accordingly.

OR

Question 4: Prepare Cost-Sheet for C Ltd.

Costing Records for December 2020:

Stock on 1st December:
- Raw Material: Rs. 25,000
- Finished Goods: Rs. 17,360
Stock on 31st December:
-

Examination Details - Seat No. / Enrollment No.: ___ - University: Gujarat Technological University - Course: MBA-Semester-I-Examination-Winter-2024 - Subject Code: 4519201 - Date: 09/01/2025 - Subject Name: Management Accounting - Time: 10:30 AM to 01:30 PM - Total Marks: 70 ## Instructions 1. Attempt all questions. 2. Make suitable assumptions wherever necessary. 3. Figures to the right indicate full marks. 4. Use of simple calculators and non-programmable scientific calculators are permitted. ## Question 1: Definitions 1. Equity Share Capital: Represents the ownership interest of shareholders in a company and is obtained by issuing shares to investors. 2. Assets: Economic resources owned by a business that are expected to provide future economic benefits. 3. Debtors: Individuals or entities that owe money to the company, typically as a result of credit sales. 4. Accrual Concept: An accounting principle whereby revenue is recognized when earned and expenses when incurred, regardless of the payment timing. 5. Marginal Costing: A costing technique that includes only variable costs in product costing and treats fixed costs as period costs, influencing decision-making based on contribution margin. 6. Expenditure: An amount spent or incurred in the course of business operations, which can be categorized as capital or revenue expenditure. 7. Opportunity Cost: The cost of forgoing the next best alternative when making a decision, serving as a key principle in economics and decision-making. ## Question 2: Journal Entries ### (a) Journalize Transactions for A Ltd: 1. Started Business with Stock: - Journal Entry: - Debit: Stock Account $Rs. 20,000$ - Debit: Cash Account $Rs. 1,00,000$ - Credit: Capital Account $Rs. 1,20,000$ 2. Bought Machinery on Credit: - Journal Entry: - Debit: Machinery Account $Rs. 25,000$ - Credit: X Ltd. Account $Rs. 25,000$ 3. Paid Office Electricity Bill: - Journal Entry: - Debit: Electricity Expense Account $Rs. 1,000$ - Credit: Bank Account $Rs. 1,000$ 4. Paid Son's Tuition Fees (Drawings): - Journal Entry: - Debit: Drawings Account $Rs. 10,000$ - Credit: Bank Account $Rs. 10,000$ 5. Purchased Goods: - Journal Entry: - Debit: Purchases Account $Rs. 23,000$ - Credit: Bank Account $Rs. 23,000$ 6. Sold Goods: - Journal Entry: - Debit: Bank Account $Rs. 1,10,000$ - Credit: Sales Account $Rs. 1,10,000$ 7. Distributed Free Samples: - Journal Entry: - Debit: Advertisement/Sales Promotion Account $Rs. 11,000$ - Credit: Purchases/Stock Account $Rs. 11,000$ ## Question 3: Cost Analysis and Examples ### (b) Machinery Account for A Firm 1. Total Cost on 01/01/2009: - $Rs. 1,80,000 + Rs. 10,000 + Rs. 10,000 = Rs. 2,00,000$ 2. Depreciation Schedule (10% Reducing Balance): - 2009: $Depreciation = Rs. 20,000$; $WDV (01/01/2010) = Rs. 1,80,000$. - 2010: $Depreciation = Rs. 18,000$; $WDV (01/01/2011) = Rs. 1,62,000$. - 2011 (Up to July 1st): $Depreciation (6 months) = 1,62,000 \times 10\% \times \frac{6}{12} = Rs. 8,100$. - WDV on 01/07/2011: $Rs. 1,53,900$. 3. Sale of 1/4th Machinery: - Book Value of 1/4th: $Rs. 1,53,900 / 4 = Rs. 38,475$. - Sale Price (20% above BV): $Rs. 38,475 \times 1.20 = Rs. 46,170$. - Profit on Sale: $Rs. 7,695$. ### (b) Financial Ratios Calculation 1. Current Assets (CA): - $Debtors(50,000) + BR(40,000) + Stock(10,000) + Bank(30,000) + Prepaid(8,000) + Cash(4,000) = Rs. 1,42,000$ 2. Current Liabilities (CL): - $Creditors(50,000) + BP(80,000) + O/S Salary(12,000) = Rs. 1,42,000$ 3. Ratios: - Current Ratio: $\frac{1,42,000}{1,42,000} = 1:1$ - Liquid Ratio: $\frac{CA - Stock - Prepaid}{CL} = \frac{1,24,000}{1,42,000} \approx 0.87$ - Debtors Turnover: $\frac{12,00,000}{50,000} = 24$ times - Avg Collection Period: $\frac{365}{24} \approx 15.2$ days ## Question 4: Inventory Valuation ### (a) FIFO and LIFO (Nell Farms) 1. Available Stock: 40@12, 60@13, 30@14, 45@15. 2. FIFO (First-In, First-Out): - Sep 10 Sales (65 units): $(40 \times 12) + (25 \times 13) = 480 + 325 = Rs. 805$. Remainder: 35@13. - Sep 30 Sales (50 units): $(35 \times 13) + (15 \times 14) = 455 + 210 = Rs. 665$. - COGS: $Rs. 805 + Rs. 665 = Rs. 1,470$. 3. LIFO (Last-In, First-Out): - Sep 10 Sales (65 units): $(60 \times 13) + (5 \times 12) = 780 + 60 = Rs. 840$. Remainder: 35@12. - Sep 30 Sales (50 units): $(45 \times 15) + (5 \times 14) = 675 + 70 = Rs. 745$. - COGS: $Rs. 840 + Rs. 745 = Rs. 1,585$.