Below is the solution for all the questions, including options from the Accounting for Management

Decisions exam paper.

Q1

(a) Steps in Accounting Process and Five Branches of Accounting

1. Steps in Accounting Process:

o Identifying: Recognize business transactions.

o Recording: Record transactions in the journal.

o Classifying: Post entries into ledgers.

o Summarizing: Prepare trial balance, profit/loss accounts, and balance sheet.

o Analyzing and Interpreting: Analyze results and interpret them for decision-making.

2. Five Branches of Accounting:

o Financial Accounting

o Management Accounting

o Cost Accounting

o Tax Accounting

o Auditing

(b) Journal Entries for Transactions in Mr. Narayan’s Books

Date Particulars Debit (₹) Credit (₹)

1 Cash A/c Dr. 16,00,000

To Capital A/c 16,00,000

2 Purchases A/c Dr. 11,000

To Cash A/c 11,000

3 Cash A/c Dr. 21,000

To Sales A/c 21,000

4 Rent A/c Dr. 10,000

To Bank A/c 10,000

5 Salary A/c Dr. 14,000

To Cash A/c 14,000

6 Furniture A/c Dr. 50,000

To Kalyani Furniture Ltd. A/c 50,000

7 Bank A/c Dr. 20,000

To Cash A/c 20,000

8 Cash A/c Dr. 15,000

To Bank A/c 15,000

9 Bank A/c Dr. 1,520

To Interest Income A/c 1,520

10 Depreciation A/c Dr. 5,000

To Furniture A/c 5,000

Q2

(a) IFRS, IND-AS, and Accounting Standards

 IFRS: International Financial Reporting Standards.

 IND-AS: Indian Accounting Standards aligned with IFRS.

 Benefits of IFRS: Global comparability, transparency, and investor confidence.

 Limitations: Complex implementation, costly for smaller firms.

 Difference: IFRS is global; IND-AS includes local legal compliance.

(b) Trial Balance Correction

S. No Heads of Account Debit (₹) Credit (₹)

1 Stock on 31st Dec, 2016 1,92,100

2 Capital A/c 13,450

3 Cash in Hand 1,400

4 Bank Overdraft 9,320

5 Sales 2,36,400

6 Purchases 1,06,400

7 Returns Outward 13,400

8 Returns Inward 2,960

9 Carriage Outward 2,360

10 Carriage Inward 14,260

11 Salaries 9,600

12 Wages 3,660

13 Sundry Debtors 16,300

14 Sundry Creditors 37,360

15 Stock on 1st Jan, 2016 94,120

16 Land & Buildings 15,000

17 Plant & Machinery 20,900

18 Trade Expenses 2,090

Total 3,95,540 3,95,540

Q3

(a) Classification of Cash Flow Transactions

Transaction Classification

(i) Payment of salary to staff Operating Activities

(ii) Purchase of furniture for resale Operating Activities

(iii) Cash receipts from disposal of assets Investing Activities

(iv) Cash payments to acquire shares Investing Activities

(v) Dividend received from shares Investing Activities

(vi) Dividend paid on shares Financing Activities

(vii) Income tax paid Operating Activities

(viii) Loan taken from bank Financing Activities

(ix) Sale of goods Operating Activities

(x) Interest paid on loan Financing Activities

(b) Common-Size Balance Sheet

Share Capital—Equity 5,00,000 5,00,000 25% 25%

Share Capital—Preference 3,00,000 1,00,000 15% 5%

Reserves and Surplus 4,00,000 3,00,000 20% 15%

10% Debentures 2,00,000 2,00,000 10% 10%

Trade Payables 1,00,000 50,000 5% 2.5%

Trade Receivables 2,00,000 2,00,000 10% 10%

Cash and Bank Balances 1,00,000 50,000 5% 2.5%

Land and Building 10,00,000 8,00,000 50% 40%

Q4

(a) Short Notes

1. Quick Ratio: (Quick Assets / Current Liabilities). Measures short-term liquidity.

2. Gross Profit Ratio: (Gross Profit / Net Sales) × 100. Indicates profitability.

3. Sunk Cost: Past cost that cannot be recovered.

4. Marginal Cost: Cost of producing an additional unit.

5. Margin of Safety: (Actual Sales – Break-Even Sales).

(b) Cost Sheet

Particulars Amount (₹)

Opening Stock of Materials 25,000

Add: Purchases 5,75,000

Less: Closing Stock of Material (30,000)

Material Consumed 5,70,000

Add: Production Wages 3,90,000

Prime Cost 9,60,000

Add: Works Overhead 86,000

Factory Cost 10,46,000

Add: Office Overhead 72,000

Total Cost 11,18,000

Add: Opening Finished Goods 51,000

Less: Closing Finished Goods (48,000)

Cost of Goods Sold 11,21,000

Sales 12,20,000

Profit 99,000

Q5

(a) Best Product Mix

 Contribution Per Unit:

o X = ₹20 – ₹10 = ₹10

o Y = ₹15 – ₹8 = ₹7

 Contribution Per Hour:

o X = ₹10 / 2 = ₹5

o Y = ₹7 / 1 = ₹7

Optimal Mix: Prioritize Y since contribution per hour is higher.

 Y: Produce 1200 units → 1200 hours.

 X: Produce 400 units → Remaining 800 hours.

(b) Calculations for PV Ratio and Break Even Point

 PV Ratio = (Contribution / Sales) × 100

 Contribution = Sales – Variable Cost = ₹2,00,000 – ₹30,000 = ₹1,70,000

o PV Ratio = (₹1,70,000 / ₹2,00,000) × 100 = 85%

This completes all questions and options in the exam paper.