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ASSIGNMENT
NAME
PROGRAM MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER I
COURSE CODE & NAME DMBA104- FINANCIAL AND MANAGEMENT
ACCOUNTING
ROLL NO
NUMBER OF ASSIGNMENTS 02

Q>1
Below is an extensive elucidation of the many categories of accounting principles,
encompassing around 800 words:

Explanation of Accounting Concepts

Accounting concepts refer to the underlying rules and assumptions that govern the process of
preparing and presenting financial accounts. These concepts establish a structure for
documenting, communicating, and understanding financial transactions, guaranteeing
uniformity, precision, and openness in financial reporting. The following are the fundamental
accounting principles:

1. Business Entity Concept.

The business entity idea asserts that a business is an autonomous and discrete economic entity
apart from its proprietors or shareholders. Consequently, it is imperative to maintain a clear
demarcation between the financial activities and documentation of the enterprise and the
personal matters of the business proprietor(s). This notion assures that the financial
statements appropriately reflect the performance and financial status of the firm itself, rather
than the personal finances of the owner(s).

2. Concept of Continuity of Operations

The going concern principle posits that a business will persist in its operations indefinitely,
rather than being dissolved in the immediate future. This idea influences the valuation and
reporting of assets and liabilities in the financial statements. For example, long-term assets
are often reported at their historical cost rather than their current market value, as the business
is expected to employ these assets over the long term.
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3. Money Measurement Concept
The money measurement principle states that only transactions that can be stated in monetary
terms should be recorded in the accounting records. This means that non-monetary events and
transactions, like as changes in staff morale or customer pleasure, are not included in the
financial statements, as they cannot be properly quantified in monetary terms.

4. Accrual Concept
The accrual approach demands that revenues and expenses be recorded in the accounting
period in which they are generated or incurred, rather than when the cash is received or paid.
This means that income is recorded when it is earned, and expenses are recorded when they
are incurred, regardless of the time of the cash flow. This notion ensures that the financial
statements provide a more accurate portrayal of the business's financial performance within a
given period.

5. Matching Concept
The matching idea implies that expenses should be matched with the income they assist
generate. This means that expenses are recorded in the same accounting period as the relevant
revenues, even if the cash payment for the expense comes in a different period. This notion
serves to ensure that the financial accounts appropriately reflect the profitability of the
business within a given period.

6. Dual Aspect Concept

The dual aspect notion asserts that every commercial transaction has two aspects: a debit and
a credit. This means that for every transaction, there is an equal and opposite effect on the
accounting equation (Assets = Liabilities + Equity). This principle is the cornerstone of the
double-entry bookkeeping system, which is commonly used in accounting.

7. Materiality Concept
The materiality principle implies that only transactions and events that are substantial or
material to the financial statements should be recorded and reported. This means that small,
inconsequential transactions may be excluded or aggregated in the financial statements, as
long as they do not impair the general understanding of the business's financial status and
performance.

8. Consistency Concept
The consistency notion mandates that a business employ the same accounting methods and
concepts from one accounting period to the next. This guarantees that the financial statements
are comparable across time and that any changes in accounting procedures are correctly
disclosed and explained.

9. Conservatism Concept
The conservative idea asserts that when there is uncertainty about the outcome of a
transaction or event, the accountant should take the alternative that results in the lower asset
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value or higher liability value. This approach serves to guarantee that the financial statements
do not overestimate the financial status of the organization.

10. Full Disclosure Concept

The full disclosure concept requires that all relevant and substantial information be included
in the financial statements, even if it is not strictly required by accounting standards. This
notion ensures that the financial statements present a complete and transparent view of the
business's financial situation and performance.

These accounting concepts collectively constitute the cornerstone of financial reporting,

enabling organizations to create accurate and dependable financial statements that are
valuable for numerous stakeholders, including investors, creditors, and management.
Adhering to these standards creates uniformity, transparency, and comparability in financial
reporting, boosting the credibility of a company's financial information.

Q>2
Subsidiary books, also known as special journals, are an integral part of the accounting
process. They are used to record specific types of transactions in a systematic manner,
providing detailed and organized records. Subsidiary books help in reducing the volume of
entries in the general ledger and facilitate the efficient management of financial data. They
also ensure accuracy and reduce errors by segregating different types of transactions. The
primary types of subsidiary books include the Purchases Book, Sales Book, Purchases
Returns Book, Sales Returns Book, Cash Book, Bills Receivable Book, and Bills Payable
Book. Below is a detailed explanation of each type, followed by specimens of the Purchases
Book and the Cash Book.

 Types of Subsidiary Books

1. Purchases Book
The Purchases Book is used to record all credit purchases of products. It does not include
monetary purchases, which are noted in the monetary Book. The entries in the Purchases
Book normally include the date of the transaction, the name of the supplier, the invoice
number, and the amount of the purchase.

2. Sales Book
The Sales Book documents all credit sales of products. Like the Purchases Book, it excludes
cash sales, which are documented in the Cash Book. Each entry in the Sales Book provides
the date of the transaction, the name of the customer, the invoice number, and the total
amount of the sale.
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3. Purchases Returns Book
Also known as the Returns Outward Book, this auxiliary book documents all returns of goods
that were previously purchased on credit. Each entry normally comprises the date of the
return, the name of the provider, the debit note number, and the amount.

4. Sales Returns Book

The Sales Returns Book, or Returns Inward Book, documents all returns of goods that were
previously sold on credit. It comprises facts such as the date of the return, the name of the
consumer, the credit note number, and the amount.

5. Cash Book
The Cash Book is a unique subsidiary book that records all cash receipts and payments,
including bank transactions. It acts both as a book of original entry and as a ledger account.
The Cash Book is separated into different columns for cash and bank transactions and may
include sections for discounts allowed and received.

6. Bills Receivable Book

This book maintains data of all bills receivable, which are pledges from consumers to pay a
set amount on a defined future date. The Bills Receivable Book comprises information such
as the date of the bill, the name of the drawer, the due date, the amount, and any relevant
remarks.

7. Bills Payable Book

The Bills Payable Book maintains details of all bills payable, which are commitments made
by the business to pay a certain sum to suppliers or creditors on a set future date. It comprises
facts such as the date of the bill, the name of the payee, the due date, the amount, and any
relevant remarks.

 Importance of Subsidiary Books

 Subsidiary books are crucial for several reasons:

1. Organization and Efficiency : By segregating different types of transactions, subsidiary

books help in organizing accounting records efficiently. This makes it easier to retrieve and
review specific transactions.
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2. Error Reduction : Specialized books reduce the likelihood of errors that can occur when
recording numerous transactions in a single ledger.

3. Time-Saving : Subsidiary books save time by allowing simultaneous entries in different

books, which can later be posted to the general ledger in summary form.

4. Detailed Records : These books provide detailed records of each transaction type,
facilitating easier analysis and auditing.

5. Improved Internal Control : By segregating duties (e.g., different people handling

purchases and sales), subsidiary books enhance internal control within the organization.

Specimens of Subsidiary Books

Specimen of Purchases Book

Specimen of Cash Book

Single Column Cash Book

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In the Cash Book specimen above, "V/R No." stands for Voucher/Receipt Number, which
helps in tracking the source documents for each transaction.

Q>3

 Stock on 1-1-2004: Rs. 70,700

 Returns inwards: Rs. 3,000
 Returns outwards: Rs. 3,000
 Purchases: Rs. 102,000
 Carriage inwards: Rs. 5,000
 Import duty on materials received from abroad: Rs. 6,000
 Clearing charges: Rs. 7,000
 Royalty paid to extract materials: Rs. 10,000
 Fire insurance on stock: Rs. 2,000
 Wages paid to workers: Rs. 8,000
 Sales: Rs. 250,000

Parttculars Amount (Rs.) Particulars Amount

(Rs.)
To Opening Stock 70,700 By Sales 1,02,000
To Purchases 1,02,000 Less: Returns 3,000
Inwards
Less: Returns Outwards 3,000 2,47,000
99,000
To Carriage I nwards 5,000
To Import Duty on Materials 6,000
To Clearing Charges 7,000
To Royalty Paid 10,000
To Wages Paid to Workers 8,000
To Fire Insurance on Stock 2,000
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To Gross Profit c/d 39,300
Total 2,47,000 Total 2,47,000

Gross Profit=Net Sales−(Opening Stock+Net Purchases+Direct Expenses)

Gross Profit=247,000−(70,700+99,000+5,000+6,000+7,000+10,000+8,000+2,000)
Gross Profit=247,000−207,700
Gross Profit=39,300

Q>4

Changes in Working Capital:

Net loss for the current year: Rs. 38,000

1. Short-term loan to employees (Asset Increase):

o Increase from Rs. 15,000 to Rs. 18,000
o Change: Rs. (18,000 - 15,000) = Rs. 3,000
o

2. Creditors (Liability Decrease):

o Decrease from Rs. 30,000 to Rs. 8,000
o Change: Rs. (8,000 - 30,000) = Rs. (22,000)

3. Provision for doubtful debts (Non-cash item):

o Decrease from Rs. 1,200 to Rs. 0
o Change: Rs. 1,200

4. Bills payable (Liability Increase):

o Increase from Rs. 18,000 to Rs. 20,000
o Change: Rs. (20,000 - 18,000) = Rs. 2,000

5. Stock in trade (Asset Decrease):

o Decrease from Rs. 15,000 to Rs. 13,000
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o Change: Rs. (15,000 - 13,000) = Rs. 2,000
o

6. Bills receivable (Asset Increase):

o Increase from Rs. 10,000 to Rs. 22,000
o Change: Rs. (22,000 - 10,000) = Rs. 12,000
o

7. Prepaid expenses (Asset Decrease):

o Decrease from Rs. 800 to Rs. 600
o Change: Rs. (800 - 600) = Rs. 200
o

8. Outstanding expenses (Liability Increase):

o Increase from Rs. 300 to Rs. 500
o Change: Rs. (500 - 300) = Rs. 200

Net Adjustments to Net Loss:

Net Adjustments = (3,000)+(−22,000)+1,200+2,000+2,000+(−12,000)+200+200=−31,400

Cash Flow from Operating Activities=Net Loss + Net Adjustments

Cash Flow from Operating Activities=(−38,000)+(−31,400)

Cash Flow from Operating Activities=−69,400

Q>5

A cost accounting technique called marginal costing focuses on separating fixed and variable
expenses in order to determine how production volume affects costs and profits. It assists
with short-term decisions like price, product mix, and special orders and offers insights into
the profitability of various items. Let's examine its underlying presumptions, constraints, and
workings.

Marginal Costing Assumptions:

1. Separation of Fixed and Variable Costs : The fundamental presumption is that

expenses may be distinguished between fixed and variable categories. While fixed costs stay
the same within a given production capacity, variable costs change in direct proportion to the
volume of production or sales.

2. Continuous Selling Price : This model implies that, across all production levels, the
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selling price per unit stays constant.

3. Total Production is Sold : This approach ignores the effect of inventory levels on costs
and profits by assuming that all units produced are sold.

4. Homogeneous Product : It is considered that the manufactured good is uniform or

homogenous throughout.

5. Relevance over Time : The short-term perspective is deemed more significant than the
long-term perspective by marginal costing.

Marginal Costing's Limitations:

1. Over-Simplification : By assuming a linear relationship between costs and activity

levels, marginal costing may oversimplify the real-world case. In practice, however, costs
may behave differently because of capacity utilization, economies of scale, etc.

2. Decision-Making on Variable Costs Alone : Ignoring fixed costs when relying solely
on marginal costing can result in less-than-ideal choices. Relying only on variable expenses
when making decisions could overlook the long-term effects on sustainability and
profitability.

3. Inventory Valuation : Because full absorption costing is required for external reporting
under some accounting standards (such as GAAP or IFRS), inventory is valued at variable
production costs only when using marginal costing.

4. Short-Term Focus : It prioritizes short-term choices and might not offer a thorough
understanding of the long-term effects of choices like funding capacity expansion or
developing new products.

5. Difficulty in Cost Allocation : Under marginal costing, assigning fixed costs to items
for the purpose of making decisions can be difficult. In profitability analysis, this may result
in inappropriate allocations and distortions.

6. Sales Mix and Profitability : Regardless of the sales mix, marginal costing is predicated
on a fixed selling price per unit. When there is a variety of items with various cost structures
and selling prices, this can result in inaccurate profitability analyses.

How Marginal Costing Operates:

1. Cost Behavior Segregation : Fixed and variable costs are separated out using marginal
costing. While fixed expenses, such as rent, depreciation, and wages, are constant within a
relevant range of activities, variable costs, such as direct materials, direct labor, and variable
overheads, directly vary with production levels.

2. Contribution Margin Calculation : The difference between total sales revenue and
total variable costs is used to compute contribution margin. It shows the amount of revenue
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needed to pay fixed expenses and, after deducting variable costs, contribute to profits.

3. Break-Even Analysis : Break-even analysis, which ascertains the volume of sales

required to cover all costs (both fixed and variable), is made easier by marginal costing. This
aids in determining profitability levels and helping create sales targets.

4. Decision-Making Tools : It offers tools to help with decision-making about price,

product mix, product discontinuation, and special orders, such as marginal costing ratios
(contribution-to-sales ratio, profit-volume ratio).

5. Performance Evaluation : By comparing the contribution margins of different profit

centers or organizational segments, marginal costing can be utilized to assess how well those
centers or segments are performing.

Real-World Implementations and Modifications:

- Variable Costing : A variation on marginal costing that solely accounts for variable
manufacturing costs—not fixed manufacturing overhead costs—in inventory valuation and
cost of goods sold.

- Throughput Accounting : Pays more attention to the pace of product production than to
actual costs. In order to increase profitability, it seeks to maximize throughput (sales less
direct material cost).

- Activity-Based Costing (ABC) : This method incorporates activity-based cost drivers to

assign fixed and variable costs to products, giving decision-makers a more precise way to
allocate costs.

In summary, although marginal costing provides insightful information and useful tools for
decision-making, its assumptions and constraints must be carefully considered. It is
especially helpful in situations where decisions must be made quickly and where variable
expenses have a big impact on profitability. However, in order to present a comprehensive
picture of costs and profitability for long-term strategic choices and thorough financial
reporting, it is frequently required to integrate marginal costing with other costing
methodologies or methods like activity-based costing or absorption costing.

Q>6
A crucial component of financial management is budgetary control, which is using budgets
to keep an eye on and regulate an organization's activities. It includes establishing clear
financial objectives and targets, making strategies on how to get there, carrying them out, and
finally keeping an eye on and assessing performance in relation to the budget. Organizations
may ensure accountability, manage resources efficiently, and accomplish strategic goals with
the aid of this methodical approach. Let's examine the idea of budgetary control and its key
components in more detail.
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Comprehending Budgetary Management:

Several essential components are involved in budgetary control:

1. Setting Objectives and Targets : Clearly defining the organization's financial goals and
targets is the first step in the process. These goals should serve as a guide for financial
performance and be in line with the organization's overarching strategic objectives.

2. Budget Preparation : Based on the established goals, budgets are created. Forecasts of
revenues, costs, and other financial components for a given time frame, frequently a fiscal
year, are usually included. Depending on the structure and size of the business, budgets can
be divided into a number of categories, including master, operating, and capital budgets.

3. Coordination and Communication : The organization as a whole needs to properly

communicate budgets. This guarantees that all divisions and tiers of administration
comprehend their respective functions and obligations in accomplishing the allocated goals.
To guarantee that several departments are working toward the same organizational objectives,
coordination between them is essential.

4. Implementation of Budgets : Following approval, a variety of operational plans and

initiatives are used to carry out the budgets. At all organizational levels, managers are in
charge of carrying out their own budgets and making sure that resources are distributed and
used efficiently.

5. Monitoring and Control : A key component of budgetary control is the ongoing

comparison of actual performance to planned targets. This entails contrasting the budgeted
amounts with the actual financial outcomes (real income, expenses, etc.). Any notable
deviations are quickly found, examined, and the appropriate remedial action is taken after
determining the reason of the deviations.

6. Performance Evaluation : A framework for assessing an individual's, department's, and

organization's overall performance is provided by budgetary control. Assessing how closely
actual results match budgeted expectations and pinpointing areas for improvement are key
components of performance review.

Crucial Elements of Financial Management:

1. Clear Objectives and Targets : Establishing precise and unambiguous financial

objectives and targets is the first step in budgetary control. These goals ought to be attainable
and reasonable so that they serve as a standard by which to measure success.

2. Thorough Budget Development : - All facets of an organization's activities, such as

cash flows, capital expenditures, expenses, and revenues, should be included in the budget.
They ought to be created using trustworthy information and presumptions, accounting for
both external (market trends and economic conditions) and internal (past performance)
influences.
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3. Top Management Support and Commitment : - Strong support and commitment
from top management are necessary for effective budgetary control. It is recommended that
senior executives engage in the budgeting process by actively contributing, providing
resources as needed, and ensuring budgets are in line with strategic objectives.

4. Adaptability and Flexibility : -Although budgets offer a structure for organizing and
managing finances, they should also permit adaptability to account for alterations in company
circumstances or unforeseen circumstances. When necessary, managers should be able to
make changes to budgets with the appropriate approval and documentation.

5. Regular Monitoring and Reporting : - Effective budgetary control depends on

ongoing financial performance monitoring. Management should develop and analyze reports
on a regular basis that compare budgeted figures with actual performance. This makes it
easier to spot variations early and act quickly to address them.

6. Accountability and Responsibility : - Budgetary control designates departments and

individuals inside the company with accountability for reaching budgeted targets. A culture
of accountability and performance-driven behavior is fostered by holding managers
accountable for their performance in relation to budgeted goals.

7. Coordination and Communication : - It is imperative that financial goals and

targets are effectively communicated throughout the organization. It guarantees that all staff
members are aware of their responsibilities in reaching budgetary targets and encourages
departmental collaboration toward shared objectives.

8. Evaluation of Performance and Comments : - Budgetary control makes regular

reviews and assessments of performance easier. Feedback on budget performance aids in
recognizing the organization's strengths and weaknesses and encourages learning and
ongoing development.

9. Strategic Planning Integration : - Integration of the organization's strategic planning

process with budgetary control is crucial. In order to ensure that financial resources are
distributed in a way that maximizes sustainability and long-term value, budgets should
support and align with strategic objectives.

Advantages of Financial Management:

- Resource Allocation : Facilitates effective resource allocation in accordance with

strategic objectives and priorities.
- Cost Control : Promotes cost and expense control, avoiding waste and overpaying.
The Performance Measurement framework facilitates the assessment and measurement of
performance.
- Decision Making : Offers data and financial insights to support decision-making
processes.
- Accountability and Motivation : Promotes accountability and spurs workers to meet
goals.
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To sum up, budgetary control is an essential management tool that helps businesses to
efficiently plan, track, and manage their financial performance. Through the implementation
of well-defined goals, thorough budget planning, performance monitoring, and
accountability-building, organizations can optimize resource allocation, attain economic
stability, and promote long-term expansion.