Question 1) Accounting is an art of recording, classifying and summarizing in a

significant manner and in terms of money transactions and events. Explain the
accounting process and write the objectives of accounting.

a) Explanation of accounting process.

Ans :-
Identifying the transactions and events :-This is the first step in the
accounting process .it recognizes the transaction in the books of account
.when money goods or service are transferred from one person or account
to another or account it is known as transactions
Measuring :-This means expressing the value of events and transactions
in terms of money.
Recording :-The next process after measuring the transactions is the
recording .it deals with recording of identified transactions and events in a
systematic manner in the books of original entry in accordance with the
principles of accountancy .the book in which transactions are first
recorded is called the journal.
Classifying :-all the recorded transactions do not make any sense unless
they are processed and presented in a manner that is useful to this
purpose.
Summarizing :-The end objective of any business is to make profit .to
know if this objective was achieved .it is necessary to summarise all the
transactions that occurred and are recorded .This required analyzing total
expenses or losses ,total income or gain ,total assets ,and total liabilities.
Analyzing :-its purpose is to identify the financial strengths and
weaknesses of an interprises using various tools like ratio analyzing ,
fund flow analysis ,cash flow analysis, etc.
Interpreting :-This step explains the importance of all the datas in a
manner that the ends user of financial statements can make a meaningful
judgement about the financial position and profitability of the business.
Communicating :-it deals with communicating the analysed and
interpreted data in the form of financial reports or statements to the users
of financial information. it is an important part of accounting to decide what
,how ,howmuch ,when and in what form to communicate.

b) Objectives of accounting.

Ans :-
Accounting assists in systematic recording of all business events or transactions.
Accounting measure the financial performance of an enterprises.
Accounting facilitates reporting of results to both internal and external users.
Accounting is required to fulfill the statutory requirements of various regulatory
bodies such as registrar of companies.
Accounting helps in internal control by bholding the concerned persons vresponsible
for any errors ,lapses ,or under performance.

Question 2) J ournal is a book of original entry and only one journal is maintained if the
business is very small in size and the transactions are limited.
Give the meaning of a subsidiary book. List and explain all the types of subsidiary books.


a) Explanation of subsidiary books.

Ans :- journal is a book of original entry and only one journal is maintained
if the business is very small in size and the transactions are limited .
however ,for large businesses having numerous transactions .it becomes
difficult if all transactions where to be recorded in the same book . hense
,the need for sub dividing the journal arises .such sub divisions of journal
are called subsidiary book.

b) The explanation of all types of subsidiary books:-

Ans :-There are seven types of subsidiary books are popular and it is
given below:-
Purchases book :-This book is meant for recording purchases
.however ,only credit purchases of goods are recorded in this
journal as the cash purchases will pass through the cash back.
Sales book :-sales book or sales day book is the subsidiary
book meant for recording sales .however ,only credit sales
will pass through the cash book.
Purchases returns book :-purchases return refers to goods
returned to the supplier out of purchases made from him. the
reason for such return of goods can be because the goods
were damaged ,were not as per specifications ,or were not
as per the sample approved .the purchase returns book is
also called returns outwards book
Sales returns book :-sales retuns refer to goods returns by the
customer out of sales made to him .the reason for such
return of goods can be because the goods wrere damaged.
Bills receivable book :-bill receivable book is one of the
subsidiary books. To prepare this book one should know
about the bill of exchange.a bill of exchange is defined by the
Indian negotiable instrument act ,1881 as an instruments in
writing containing an unconditional order signed by the
maker, directing a certain sum of money only to,or to the
order of a certain person or to the bearer of the instrument..
Bills payable book bills payable book is a subsidiary book
meant for recording acceptance given to creditors.
Cash book :-cash book is the most important subsidiary
book.it is book meant for recording all cash transactions i.e.,
cash receipts and cash payaments made during a particular
period. It is both a journal and a ledger



Question 3)
For the following balances extracted from a trial balance, prepare a trading account.


Particulars Amount in Rs.


Amount in Rs.

Stock on 1-1-2004


70700
Returns inwards 3000
Returns outwards 3000
Purchases 102000
Debtors 56000
Creditors 45000
Carriage inwards 5000
Carriage outwards 4000
Import duty an materials received from
abroad
6000
Clearing charge 7000
Rent of business shop 12000
Royalty paid to extract materials 10000
Fire insurance on stock 2000
Wages paid to worker 8000
Office salleries 10000
Cash discount 1000
Gas ,electricity and water 4000
sales 250000

Ans :-
Dr Traiding Account for the year ending--- cr

Particulars Rs. Particulars Rs.
To stock on 1-
1-2004
70700
To purchases
102000
(-) returns
Outwards 3000
99000 By sales
250000
(-) returns
Inwards 3000
247000

To carriage
inwards
5000
To import duty 6000
To clearing
charges
7000
To royality 10000
To fire
insurance
2000
To wages 8000
To gas
,electricity,
water
4000
To gross profit 35300
Total 247000 Total 247000



Question 4) Write short notes on :

a) Explanation of CMS .


Ans :- The explosion in technology coupled with increasing worldwide
competition, is forcing managers to produce high quality goods and services
in order to provide outstanding customer service and at the lowest possible
cost.
Horngren and other define a CMS as a a collection of tools and techniques
that identifies how management decision affect costs.
A cost management system is a management planning and control system
with following objectives:-
1) to provide cost information for strategic management decisions.
2) To provide cost information for operational control;
3) To provide a measure of inventory value and cost of goods sold for
financial reporting.
4) To measure the cost of resources consumed in performing the
organisations significant activities.
5) To determine the efficiency and effectiveness of all major activities
performed in the organisation.
6) To identify and evaluate new activities that can improve the future
performance of the organisation.
7) To identify and eliminate non value added costs.

b) Value Added .

Ans :- instead of selling a piece of wood as it is ,think of converting it into
a chair and then selling it. which one would fetch more money to you ?
obviously, it is the chair. by converting the piece of wood into a chair you
have added value to it. you have increased the realizable value of the
wood .this is called the value added. The value added can Be quantified
and used as measure of performance. For example:-
The wood could be sold for rs 1000 but the chair out of the wood could be
sold for rs 2500 means value added is rs 2500-1000=1500
And by this example we see that the value added is the increase in the
realisable value by altering the form of a row material by converting in to
a finished product. According to ICAI , the term value added refers to the
increase in value of a product or service resulting from an alteration in the
form , location, or availability excluding the cost of bought out materials
and services. It is calculated by deducting the value of goods and services
purchased from sales revenue.
VALUE ADDED=SALES-COST OF GOODS AND SERVICES
PRODUCTING THOSE SALES REVENUE.
It may also be expressed as profit before tax,inclusive of employee costs,
interest, and depreciation.



Question 5) Ajay industries manufactures a product X. On 1st January, 2007,
there were 5000 units of finished product in stock.
Work-in-progress Rs.57,400
Raw materials Rs.1,16,200
The information available from cost records for the year ended 31st
December, 2007 is as follows:

Direct material 9,06,900
Direct labour 3,26,400
Freight on R M purchased 55,700
Indirect labour 1,21,600
Other factory overhead 3,17,300
Stock of raw materials on 31
st
dec
2007
96,400
Work-in progress on 31
st
dec
2007
78,200
Sales (1,50,000 unit) 30,00,000
Indirect materials 2,13,900


There are 15000 units of finished stock in hand on 31st December 2007.
Prepare a statement of cost and profit assuming that opening stock of
finished goods is to be valued at the same cost per unit as the finished stock
at the end of the period.


Preparation of statement of cost and profit .



Ans :-

Statement of cost and profit of product X

Particular Rs. Rs.
Opening stock for raw
materials
1,16,200
Add : direct materials 9,06,900
Add: freight on raw
materials purchased
55,700u
Total 10,78,800
Less :closing stock of
raw materials
96,400
Value of raw materials
consumed
9,82,400
Add :direct wages 3,26,400
Prime cost 13,08,800
Add :factory overheads
:

Indirect materials 2,13,900
Indirect labour 1,21,600
Other factory overhead
total
3,17,300
6,52,800

Add :opening work-in
progress
Less :closing work in
progress
57,400
7,10,200
78,200
6,32,000




6,32,000
Factory cost/works cost 19,40,800
Add :op.stock of
F.goods 5000 units @
rs. 12.13 per unit
60,650
Total 20,01,450
Less :cl.stock of
F.goods 15000 units @
rs.12.13
1,81,950
Cost of goods sold 18,19,500
Profit 11,80,500
Sales 30,00,000




Question 6) Assume a company is considering dropping product B from
its line because accounting statement shows that product B is being
sold at a loss.

product income statement
A B C TOTAL
Sales revenue 50000 7500 12500 70000
Cost of sales
d.material 7500 1000 1500 10000
d.labour 15000 2000 2500 19500
Indirect manufacturing
cost(50% of direct labour)
7500 1000 1250 9750
total 30000 4000 5250 39250
Gross margin on sales 20000 3500 7250 30750
Selling and admn 12500 4500 4000 21000
Net income 7500 1000 3250 9750

Additional information:-
a) Factory over head cost is made up of fixed cost of rs 5850 and
variables cost of rs 3900.
b) Variable cost by produce are A- rs. 3000, B-RS. 400, C-rs. 500.
c) Fixed cost and expenses will not be changed if product B is
eliminated.
d) Variable selling and administrative expenses to the extent of rs-
11000, can be traced to the product: A- RS.-7500, B- RS.-1500,
and C-rs.-2000.
e) Fixed selling and administrative expenses are rs-10000.











Product income statement












If the producy of B was discontinued the marginal contribuation would be lost and the
net income would be reduced by rs 2600. Asssume that after dropping product a has
increased by 10%.the total profit of the firm will not increase by this sales increase. By
this sales increase product A makes only a marginal contribuation of 34%
(17000/50000)

Sales revenue of product 50000 100%
Variable cost of production A 33000 66%
Marginal contribution of product a 17000 34%
On additional sales sales of rs 5000, the marginal contribution would be rs 1700.
Sales revenue 10%of 50000 5000
Variable cost 66% 3300
Marginal contribution 1700
This contribution is less than rs-2600, now being realized on the sales of product
B. it would take additional sales of product A of approximately rs- 7647 to equal
the marginal contribution of rs 2600 now being made by
Marginal contribution of product / marginal contribution of product A.=
2600 / 34%= rs. 7647.
It is possible that dropping of product B may result in reduction in some of the
fixed costs. Product B now contributes rs-2600 towards recovery of fixed costs
product income statement
A B C TOTAL
Sales revenue 50000 7500 12500 70000
Cost of sales
d.material 7500 1000 1500 10000
A B C TOTAL
Sales revenue 50000 7500 12500 70000
Less v.c
d. material 7500 1000 1500 10000
d. labour 15000 2000 2500 19500
Factory overhead

3000 400 500 3000
Selling and administration
overhead
7500 1500 2000 11000
total 33000 4900 6500 44400
contribuation 17000 2600 6000 25600
Less: fixed cost
Factory over head 5850
Selling and administrative
overhead
10000
Total fixed cost 15850
Net income 9750
and expenses can be reduced by more than this amount . it is advisable to drop
product B