Assignment Code: BCOC-131/TMA/2022-23

Course Code: BCOC-131

Assignment Name: Financial Accounting

Year: 2022-2023

Verification Status: Verified by Professor

Note: Attempt all the Sections. Maximum Marks: 100

SECTION-A

Attempt all the questions. Each question carries 10 marks. (5x10=50)

Q1) Define Computerized Accounting and distinguish between manual and computerized accounting system. (10)

Ans) Utilizing computers and accounting software to capture, store, and analyse financial data is known as computerised accounting systems. These are computer programmes that are kept on a network server, a company computer, or are remotely accessible through the Internet. A technology innovation in the area of commercial accounting is computerised accounting, which enables users to create income and expense accounts for things like rental or sales revenue, salaries, advertising costs, and material prices. They can also be used to create budgets, pay bills, and manage bank accounts. Some accounting systems also enable users to create tax forms, manage payroll, and control project spending, depending on the application.

Any business's owners and other stakeholders, no matter how big or little, are interested in whether the company is profitable or not. Many small firms use a manual accounting system and are satisfied with it. Others might be thinking about switching to a computerised system because accounting software is now also reasonably priced. The operations carried out by manual and computerised accounting systems are essentially the same; the only changes are in the mechanics of how the processes are carried out.

The differences between manual and computerized accounting system are:

Speed: Compared to manual procedures, accounting software processes data significantly faster and generates reports. Software programmes perform calculations automatically, reducing errors and boosting productivity. A computerised system that accepts data allows users to make reports by essentially clicking a button.

Cost: Using paper and a pencil for manual accounting is far less expensive than using a computerised system, which calls for hardware and software. Software maintenance and training are two additional costs related to accounting. With the price of printers, paper, ink, and other supplies, expenditures can quickly mount up. Manual accounting, however, needs more personnel. Therefore, higher salary and pay costs in manual accounting.

Backup: For protection against a fire or other disaster, all transactions can be preserved and backed up. With paper records, you can't do this without making duplicates of every page, which is a time-consuming and ineffective operation.

Q2) Journalise the following transactions: (10)

Ans)

Q3) From the following transactions of M/s. Joshi & Sons, prepare Cash Book. (10)

Ans)

Q4) Easy Payment Ltd. Sells goods on hire purchase basis at a profit of 50% on cost, The following particulars are given for the year ending December 31, 2018. Prepare the Hire Purchase Trading Account. (10)

Ans)

Working Notes:

Loading:

On Opening H.P. Stock (18,000 x 50/150) = Rs. 6,000

On Goods Sold on H.P. (1,74,000 x 50/150) = Rs. 58,000

On Closing H.P. Stock (60,000 x 50/150) = Rs. 20,000

Loss on Goods Repossessed:

= Amount of unpaid instalments - Market Value

= 6,000 - 3,000

= Rs. 3,000

Alternatively,

Hire Purchase Trading Account

Q5) On January 1, 2018, Universal Sports, Delhi consigned 180 cases of sports goods costing Rs. 360 each to Gemini Sports, Mumbai. They paid Rs 360 for insurance and Rs. 1,800 for freight. Gemini Sports are entitled to a commission of 10% on gross sales. Gemini Sports received the consignment on January 15 and sent a 60-day bill for Rs 10,000 to Universal Sport. The Bill was discounted for Rs. 9,000. (10)

On opening the cases, the Consignee found 10 cases of wrong description and returned them, paying return freight of Rs. 400. Gemini Sports sold 120 cases @ Rs 600 each for cash and 20 cases @ Rs. 700 each on credit. Gemini Sports spent Rs. 720 on clearing charges and Rs. 600 on carriage outwards. They incurred bad debts amounting to Rs 400. The accounts were settled on June 30, and the balance remitted by cheque. Show necessary ledger accounts in the books of both the parties.

Ans)

Working Notes:

Closing Stock Valuation:

= No. of Closing Units x Cost price per Unit + (Non-recurring Expenses x Closing Stock Units/No. of Units Consigned)

= 30 x 360 + (2,880 x 30/180)

= 10,800 + 480

= Rs. 11,280

(Non-recurring Expenses include all the expenses of Consignor and clearing charges paid by the Consignee)

SECTION-B

Attempt all the questions. Each question carries 5 marks. (6x5=30)

Q6) Briefly discuss the functions of accounting. (5)

Ans) The functions of accounting are as follows:

1. Recording: The fundamental purpose of accounting is this. In essence, it is concerned with making sure that all financial-related business activities are not only actually recorded but also are recorded properly. Journal is a book that is used for recording.

2. Classifying: To combine transactions or entries of the same nature at one location, classification involves doing a systematic examination of the data that has been recorded. The book known as "Ledger" contains the classifying work.

3. Summarizing: This entails presenting the classified data in a way that is clear to both internal and external end-users of accounting statements and is helpful to them.

4. Analysis and Interprets: The financial data is analysed and interpreted so that the end-users can make an informed decision regarding the financial health and operational profitability of the firm.

5. Communicate: This is accomplished through the creation and dissemination of accounting reports, which include additional information in the form of graphs, diagrams, funds flow statements, etc., in addition to the standard income statement and balance sheet.

Q7) Write about the Business Entity Concept. (5)

Ans) An organised commercial activity is referred to as a business entity. In this sense, a grocery store, a clothing retailer, an electrical supply company, an industrial facility, a bank, a school, a hospital, etc. are all examples of commercial enterprises. All types of business organisations can use the business entity idea. Since a limited corporation has its own legal existence, it is simple to retain this separation in this situation. However, in the instance of a sole proprietorship or partnership, it is more challenging to make this distinction because, in the eyes of the law, a partner or sole proprietor is not deemed to be a separate entity. They are liable on an individual basis for all business dealings. However, they must be recognised as separate entities for accounting reasons. This makes it easier and more accurate for them to calculate the business's profit or loss.

Q8) What do you mean by double entry system? (5)

Ans) You discovered that every commercial transaction has two aspects: I the receiving aspect and (ii) the giving aspect, under the dual aspect notion. For instance, when you pay cash for items, the cash leaves and the goods enter. A transaction thus has an impact on two things (also known as accounts) simultaneously. It would be preferable to record the effects relating to both products when you record the transaction in the business's books of account. Both products and money are impacted in the case above; the stock of goods rises while the stock of money falls. Therefore, we must record both the rise in goods on hand and the drop in cash. Two entries are involved here, one in the goods account and one in the cash account. It is known as the "Double Entry System" to record business transactions. It acknowledges and documents both sides of every transaction. This system debits the account that involves receiving aspects and credits the account that involves contributing aspects. As a result, there will be an equal amount of credit for every debit. A few regulations have been created with this in mind.

Q9) What is a compound journal entry? Give examples. (5)

Ans) A transaction may occasionally include more than two accounts. On some occasions, several transactions of the same kind could occur on the same day. If we write separate diary entries in these circumstances, it might take longer and take up more room. As a result, these transactions might be documented using a single journal entry. A compound journal entry is what we refer to as such an entry.

It may be recorded in the following three ways:

1. By debiting one account and crediting two or more accounts; or

2. By debiting two or more accounts and crediting one account; or

3. By debiting several accounts and crediting several accounts.

For example, the following transaction:

Paid cash to Ganesh Rs. 490. He allowed Rs. 10 as discount and settled his account. This transaction involves three accounts: (i) Ganesh’s Account, (ii) Cash Account, and (iii) Discount Received Account. The journal entry will be:

(Being cash paid to him in full settlement of the account)

Q10) What are the characteristics of a hire purchase agreement? (5)

Ans) The characteristics of a hire purchase agreement are:

1. It must be in writing and all parties involved must sign it (Section 3)

2. The agreement must specify as required by Section 4 of the Hire Purchases Act of 1972.

a) The cost of the products that are the subject of the agreement for hire purchase.

b) The cost of the products in cash, or the amount at which the hirer could buy them outright with cash.

c) The day that the contract is considered to have started.

d) The number of instalments required to pay the hire purchase price, the sum required for each, the date (and the method used to determine that date), the recipient and the location of payment are all specified.

e) The products covered by the agreement, in a way that makes them clear.

A complete description of the amount to be paid in cash or by check, if any, should be included in the agreement in addition to the conditions indicated above.

Q11) What are post-dated vouchers? Explain its use. (5)

Ans) Vouchers can be post-dated when they are entered, which prevents the ledgers from being changed until the date on the voucher. For entering transactions that happen frequently, this is helpful. For instance, you can set up payments in advance for instalment payments using post-dated checks, and Tally. ERP 9 would only update the ledgers on the due date. Vouchers can be post-dated when they are entered, which prevents the ledgers from being changed until the date on the voucher. For entering transactions that happen frequently, this is helpful. 

1. Uses of post-dated voucher:

2. It is utilised by a business.

3. Submitted with a certain date and automatically updated to take that date into consideration.

4. These vouchers are used to simplify multiple submissions.

5. It is employed to display the exchange rate or discount rate.

6. By automatically supplying the information, it aids in keeping the record.

7. It makes it possible to simplify entries.

SECTION-C

Attempt all the questions. Each question carries 10 marks. (2x10=20)

Q12) What are the qualitative characteristics of accounting information? (10)

Ans) The qualitative characteristics of accounting information are as follows:

Understandable: Accounting data must be comprehensible. This is a crucial qualitative trait for proprietors of small businesses. Many small business owners lack a solid accounting foundation. Business owners may not benefit from financial information that is overly complex or difficult to understand. Small business owners frequently hire certified public accountants to handle a variety of accounting tasks. Business owners should pick an accountant who can present data in a way that is simple to understand.

Usefulness: Business owners require accounting data that is relevant to the current business decision. They can ask for cost-benefit analyses, accounting schedules, reconciliations, and financial statements. For instance, cost allocation reports could not give business owners enough information to make a choice about recruiting personnel. It has very little to do with human resources because cost allocation often relates to the application of business costs to goods or services produced by the company. To make sure that accounting information delivers the most helpful information for the decision-making process, business owners should carefully seek and examine accounting information.

Relevance: Accounting information ought to be time-related or include details about certain business operations. Analysing trends is a common practise for business executives who are evaluating financial data. The trend analysis contrasts data from the company's most recent accounting period with data from earlier financial periods. The process of trend analysis might be greatly distorted by irrelevant previous data. For instance, it is necessary to have pertinent data on the cost of materials for budgets when examining the production process for budgets. Cost data on the components used to make COGS would not be meaningful.

Reliability: Accounting data must be trustworthy in order for business owners to feel confident that it accurately depicts the state of the company's finances. Accounting data is frequently used by business owners to obtain outside financing for their enterprise. Lenders and investors could be reluctant to give money to a company if they believe the information it provides is unreliable or inaccurate. With inadequate accounting information, business owners can also find it difficult to obtain outside finance.

Comparable: Comparability enables business owners to compare the accounting data of their organisation to that of a rival. Comparative analysis is a tool used by business owners to evaluate how well their firms perform in various market environments. Owners frequently compare products using the industry's top business. These businesses typically run their operations in the most productive and efficient ways. This method may be challenging due to non-comparable accounting data. For instance, business owners want to think about creating financial statements in accordance with accepted accounting practises. The statements can then be contrasted with similarly prepared financial standards from other companies.

Consistent: Consistency describes how accountants and business owners enter financial data into a company's general ledger. Owners of businesses must make sure that all financial transactions are handled uniformly. The same manner should be used to record inventory purchases from today through tomorrow. In addition to reducing the number of financial accounts or journal entries that are included in a company's general ledger, this aids in the creation of reliable historical records.

Q13) State the salient features of joint venture. Distinguish it from consignment. (10)

Ans) A "joint venture" is when two or more people work together to carry out a certain commercial venture and divide the earnings according to an established schedule. Each of them is referred to as a "Co-venturer" when they join as a party to the joint venture. Due to the joint venture business's brief lifespan, no firm name is often utilised for it. Unless otherwise agreed, the - co-venturers are free to conduct their respective businesses normally throughout this time.

As soon as the venture is finished, the co-venturers' business relationship ends. Consequently, a joint venture is a type of transient collaboration between two or more people who have decided to work together on a particular undertaking. In the construction industry, consignment, sale, and purchase of real estate, underwriting of shares and debentures, etc., joint ventures are relatively prevalent.

For instance, A and B decided to build a college building and combined their resources and expertise. As capital, A contributed Rs. 6 lakh and B Rs. 4 lakh. They finished the building and divided the revenues in proportion to their capital contributions. In this illustration, working together to create a building by A and B is a joint venture. A and B are business partners. They will split the earnings six to four (same as the ratio of their capitals). Once the college building's construction is complete, this enterprise will be shut down.

From the discussion above, the following list of fundamental characteristics of a joint venture can be made:

1. It is made up of two or more people.

2. The goal is to carry out a specific undertaking or venture.

3. For the joint venture business, there is no unique firm name.

4. It is momentary in nature. As a result, once the initiative is over, the agreement pertaining to it automatically terminates.

5. Co-venturers split profits and losses according to a predetermined ratio. The gains and losses are to be split equally between the co-venturers if there is no other agreement between them.

6. Unless otherwise agreed upon, the co-venturers are free to go on with their individual businesses during the term of the joint venture.

The main advantages of a joint venture are:

1. Sufficient Resources: Because two or more people share their resources, there is enough money on hand.

2. Ability and Experience: The talents and experiences of the individual venturers in a joint venture may vary. The venture will be able to profit from their experience.

3. Spreading of Risk: The co-venturers concur to divide the gains and losses according to a specific ratio. This indicates that in that ratio, they likewise bear the risk.