F-2, Block, Amity CampusSec-125, Nodia (UP)

India 201303

ASSIGNMENTSPROGRAM:SEMESTER-ISubject Name : Master of Finance and ControlStudy COUNTRY : ZambiaPermanent Enrollment Number (PEN) :Roll Number : MFC001412014-2016002Student Name : DERICK MWANSA

INSTRUCTIONSa) Students are required to submit all three assignment sets.

ASSIGNMENT DETAILS MARKSAssignment A Five Subjective Questions 10Assignment B Three Subjective Questions + Case Study 10Assignment C 40 Objective Questions 10

b) Total weightage given to these assignments is 30%. OR 30 Marksc) All assignments are to be completed as typed in word/pdf.d) All questions are required to be attempted.e) All the three assignments are to be completed by due dates (specified from

time to time) and need to be submitted for evaluation by Amity University.f) The evaluated assignment marks will be made available within six weeks.

Thereafter, these will be destroyed at the end of each semester.g) The students have to attach a scan signature in the form.

Signature : __ ____Date : __19/01/2015____( √ ) Tick mark in front of the assignments submittedAssignment ‘A’ √ Assignment ‘B’ √ Assignment ‘C’ √

FINANCIAL ACCOUNTING

ASSINGNMENT A

Question one

Answer

Defining Accounting

In simple terms accounting may be defined as an information system which includes the process of recording, classifying, summarizing, reporting, analyzing and interpreting the financial condition and performance of a business – in order to communicate it to stakeholders for business decision making.

According to the American Institute of Certified Public Accountants, Accounting is “the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character, and interpreting the results thereof”.

This definition brings out the following three attributes of accounting:

(1) Events and transactions of a financial nature are recorded while the events of a non-financial nature cannot be recorded.

(2) The record should reflect the importance of the transactions so recorded both individually and collectively, which includes summarization, thereby making it amenable to analysis.

(3) The users of the financial statements should be able to obtain the message encompassed in such financial statements.

The term accounting is much broader; going into the realm of designing the bookkeeping system,

establishing controls to make sure the system is working well, and analysing and verifying the

recorded information. Accountants give orders; bookkeepers follow them.

Accounting encompasses the problems in measuring the financial effects of economic activity.

Furthermore, accounting includes the function of financial reporting of values and performance

measures to those that need the information. Business managers, investors, and many others

depend on financial reports for information about the performance and condition of the entity.

Accountants design the internal controls for the bookkeeping system, which serve to minimize

errors in recording the large number of activities that an entity engages in over the period. The

internal controls that accountants design are also relied on to detect and deter theft,

embezzlement, fraud, and dishonest behaviour of all kinds.

Accountants prepare reports based on the information accumulated by the bookkeeping process:

financial statements, tax returns, and various confidential reports to managers. Measuring profit

is a critical task that accountants perform — a task that depends on the accuracy of the

information recorded by the bookkeeper. The accountant decides how to measure

sales revenue and expenses to determine the profit or loss for the period.

Differences between accounting and book keeping

 Accountants are qualified to handle the entire accounting process, while bookkeepers are

qualified to handle recording financial transactions. To ensure accuracy, accountants often serve

as advisers for bookkeepers and review their work. Bookkeepers record and classify financial

transactions, laying the groundwork for accountants to analyze the financial data.

Below is a detailed summary of the differences between accountants and bookkeepers as

provided by Agrawal (2009).

Distinction between Accounting and Book-keeping Basis of Distinction Book-keeping Accounting

1 ScopeIt involves identification, measurement, recording and classification of transaction

In addition it involves summarizing classified transactions. Analyzing, interpreting & communicating the same.

2 Stage It’s a primary stage It’s a secondary stage, starts where book-keeping ends

3 Basic Objective To maintain systematic recordsTo ascertain net results of operations and financial position of the company

4 Who Performs Performed by junior staff By senior staff

5 Knowledge level Not required a high level of knowledge

It needs a high level of knowledge

6 Analytical Skill Not required Required7 Nature of Job Routine & clerical Analytical

ASSIGNEMENT A

Question two

Answer

Basic Accounting Equation

The basic accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities and owner's equity of a business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits. It can be expressed as

Assets = Capital + Liabilities

A = C + L

In a corporation, capital represents the stockholders' equity. Since every business transaction affects at least two of a company’s accounts, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. Thus, the accounting formula essentially shows that what the firm owns (its assets) is purchased by either what it owes (its liabilities) or by what its owners invests (its shareholders equity or capital).

The following is an illustration of how the accounting equation works.Obama started business with $ 500,000.

Step 1- Variables affected Asset & Capital

Step 2- Effect of transactions on affected variables Increase in asset & Capital

Step 3- Accounting equation Asset = Liability + Capital

500,000 = 0+ 500,000

It follows that in the balance sheet when preparing final accounts, the assets of a company must equal its liabilities plus owner’s equity or capital.

ASSIGNEMENT A

Question three

Answer

JournalizingJournalising is entering of financial data (taken usually from a journal voucher), pertaining to a specific transaction, in a journal under a double entry bookkeeping system. It involves recording of five aspects of a transaction: (1) Its date, (2) Ledger account to be debited and amount, (3) Ledger account to be credited and amount, (4) Brief description of the transaction, and its (5) Cross-reference to the general ledger.

Journal format

Below is a journal format.

Date Particulars Ledger Folio Debit ($) Credit ($)

The following is a brief explanation of the journal format contents.Date.The date on which transaction has taken place is entered in the date column.ParticularsThe description of the transaction and narration are entered in this column.Ledger folioIt is used to record the page number in the ledger in which a particular transaction has been enteredDebit columnAmount to be debited is entered in this columnCredit columnAmount to be credited is entered in this column

ASSIGNEMENT A

Question four

Answer

Special JournalSpecial Journals are designed to facilitate the process of journalizing and posting transactions. They are used for the most frequent transactions in a business. For example, in merchandising businesses, companies acquire merchandise from vendors, and then in turn sell the merchandise to individuals or other businesses. Sales and purchases are the most common transactions for the merchandising businesses.The types of Special Journals that a business uses are determined by the nature of the business. Special journals are designed as a simple way to record the most frequently occurring transactions. There are four types of Special Journals that are frequently used by merchandising businesses: Sales journals, Cash receipts journals, Purchases journals, and Cash payments journals.

Advantages of Special Journal

(1)    A major advantage of the special journals is that their use permits division of labour which is very necessary in a large organization. When the transactions are recorded in different books of original entry, the recording step in the accounting cycle can be divided among several persons, each of whom is responsible for particular types of transactions. 

(2)  The amount of space required for the record of same transactions is reduced. When transactions are recorded in chronological order in the general journal, a complete narration must be given. But if the transactions are classified and are recorded in a separate book, it is possible to avoid repeating much information that is same in all cases.

(3)   The most significant advantage of using special journals instead of general journal only is perhaps, the time saving gained in posting from journals to the ledger(s). The number of postings to ledger accounts is significantly reduced.

(4) Proper internal control as there is no conflicting responsibilities.

(5) Individual postings are eliminated for example, if the company had 100 sales transactions in a month, only one posting at the end of the month will be made to the sales ledger and not 100.

Below are some of the special journals:-

Purchases Journal

The Purchases journal is used for recording credit purchases such as merchandise for resale to customers, business supplies, equipment, and other such purchases.

Cash Payments Journal

The Cash Payments Journal is used to record all cash payments made by a company. All transactions in the cash payments journal involve the disbursement of cash, so you'll find a column for crediting cash (Cash CR.). There is also a credit column for purchases discounts in case the transaction involves a discounted purchase.

Cash Receipts Journal

A Cash receipts journal is a specialized accounting journal used in an accounting system to keep track of the sales of items when cash is received, by crediting sales and debiting cash. Sales on account are booked instead in the sales journal.

Sales Journal

The sales journal is used to record all of the company sales on credit. Most often these sales are made up of inventory sales or other merchandise sales. Notice that only credit sales of inventory and merchandise items are recorded in the sales journal. Cash sales of inventory are recorded in the cash receipts journal.

Cash Journal

Rrecord items sold or purchased with cash and they also record income received (debtor payment, interest) and daily expenses. If the transaction is of a cash nature, you must be convinced that money or cheque or credit card was also exchanged at the time that the good or service was exchanged.

Credit Journal

Record purchases or sales on credit. If the transaction is of a credit nature, you will assume that the cash will be exchanged after the exchange of the good or service. At this stage, these will only be concerned with your firm acquiring stock and the selling of that stock to customers who will pay later.

ASSIGNMENT A

Question five

Answer

Reasons for Disagreement between Cash Book and Pass Book Balances

The following are the important causes or reasons for the disagreement between the balances shown by the pass book and cash book.

1. Cheques issued but not presented for payment.2. Cheques paid or deposited but not collected and credited by the bank.3. Interest credited by the bank but entered in cash book.4. Bank charges, commission and interest in overdraft debited by the bank but not entered in cash book. .5. Expenses directly paid by the bank on behalf of customer but not recorded in cash book.6. Incomes directly collected by the bank on behalf of customer but not recorded in cash book.7. Amount directly deposited into the bank by debtors but not entered in cash book.8. Cheque deposited into the bank but dishonoured.9. Dishonour of bill discounted with the bank.10. Errors committed in the cash book and pass book.

ASSIGNEMENT B

Question one

Answer

Depreciation

The gradual conversion of the cost of a tangible capital asset or fixed asset into an operational expense (called depreciation expense) over the asset's estimated useful life.The objectives of computing depreciation are to:-

(1) Reflect reduction in the book value of the asset due to obsolescence or wear and tear. (2) Spread a large expenditure (purchase price of the asset) proportionately over a fixed period to match revenue received from it, and

(3) reduce the taxable income by charging the amount of depreciation against the company's total income.

In effect, charging of depreciation means the recovery of invested capital, by gradual sale of the asset over the years during which output or services are received from it. Depreciation is

computed at the end of an accounting period (usually a year), using a method best suited to the particular asset. When applied to intangible assets, the preferred term is amortization.

Straight Line Depreciation

A method of calculating the depreciation of an asset which assumes the asset will lose an equal amount of value each year. The annual depreciation is calculated by subtracting the salvage value of the asset from the purchase price, and then dividing this number by the estimated useful life of the asset.In straight line depreciation method , depreciation is charged on fixed asset with fixed rate. Suppose depreciation Rate is 10 % and Fixed Asset is 10

At the end of first year the depreciation will be = 1 and the fixed asset will reduce to 9

At the end of Second year depreciation will be = 1 and the fixed asset will reduce to 8

So, Graph will show the straight line. So, this method is famous with this name due to this reason. In other words we can say that the amount of depreciation will equal in first year or in end of asset.

Diminishing Balance Method

Under this method the depreciation charged in the various years will not be equal over the useful life of the asset. This is because the depreciation charge every year is calculated as a percentage of the outstanding balance of the asset as at the beginning of that particular year and not on the original cost of the asset.

In diminishing balance method , depreciation is charged on the amount of fixed asset after deducting previous year depreciation

Suppose fixed asset is 10

Then depreciation of first year at 10% = 1

balance of fixed asset at the beginning of second year =9

now depreciation will charge on 9 not on 10

So  9 X 10/100 = 0.9

now the balance fixed asset in the beginning of third year will be = 8.1

Now again depreciation will charge on the amount of 8.1

So , slop of curve under diminishing balance method  will not straight line but more upward in left side .

The graph below shows the behaviour of the two methods of depreciation.

ASSIGNMENT B

Question two

Answer

Bill of Exchange

The Negotiable Instruments Act, 1881 defines a bill of exchange as “an instrument in writing containing an unconditional undertaking, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or the bearer of the instrument

There are five important parties to a Bill of Exchange:

The Drawer: The drawer is the person who has issued the bill. In an export transaction, exporter draws the bill as money is owed to him.The Drawee: The drawer is the person on whom the bill is drawn. Exporter draws the bill on the importer who is the drawee.  Drawee is the debtor who owes money the exporter (creditor).The Payee: The payee is the person to whom the money is payable. The bill can be drawn by the exporter payable to the drawer (himself) or his banker.The Endorser: The endorser is the person who has placed his signature on the back of bill signifying that he has obtained the title for the bill on his own account or on account of the original payee.The Endorsee: The endorsee is the person to whom the bill is endorsed. The endorsee can obtain the payment form the drawer.

ASSIGNEMENT B

Question three

Answer

Capital and Revenue Expenditure

Expenditure on fixed assets may be classified into Capital Expenditure and Revenue Expenditure. The distinction between the nature of capital and revenue expenditure is important as only capital expenditure is included in the cost of fixed asset.

Capital Expenditure

Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition (e.g. delivery costs).Capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods. Capital Expenditure may include the following:-

(1) Purchase costs (less any discount received)(2) Delivery costs(3) Legal charges(4) Installation costs(5) Up gradation costs(6) Replacement costs

As capital expenditure results in increase in the fixed asset of the entity, the accounting entry is as follows:

Debit Fixed Assets

Credit Cash or Payable

Revenue Expenditure

Revenue expenditure incurred on fixed assets includes costs that are aimed at 'maintaining' rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obtained over a relatively short period of time. For example, a company buys a machine for the production of biscuits. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintains it (i.e. machine will produce the same quantity of biscuits as it did when it was Revenue costs therefore comprise of the following:-

(1) Repair costs(2) Maintenance charges(3) Repainting costs(4) Renewal expenses

As revenue costs do not form part of the fixed asset cost, they are expensed in the income statement in the period in which they are incurred. The accounting entry to record revenue expenditure is therefore as follows:-

Debit Revenue Expense (Income Statement)Credit Cash or Payable

ASSIGNMENT B

Question four

Case Study

Answer

GuptaTrading , profit and Loss Account for the year ended June 30, 2001

$ $Sales 98,780.00Less: Return inwards (680.00)Net Sales 98,100.00Cost of SalesOpening Inventory 5,760.00Purchases 40,675.00Carriage on Purchases 2,040.00Less: Return outwards (500.00)Closing inventory (6,800.00)Total Cost of sales (41,175.00)Gross Profit 56,925.00Add other incomes: Rent receivable 1,000.00Total Income 57,925.00ExpensesCarriage on Sales 3,200.00Wages 8,480.00Bad Debts 725.00Fuel and Power 4,730.00Insurance (600- 170/2) 515.00General Expenses 3,000.00Depreciation: Machinery 2,000.00 : Patent 1,500.00Salaries 15,000.00Total Expenses (39,150.00)Net Profit 18,775.00

ASSIGNMENT C

Multiple choice

Answer.

1 B 9 D 17 E 25 C 33 D2 A 10 D 18 D 26 E 34 B3 C 11 D 19 D 27 D 35 B4 C 12 C 20 E 28 C 36 C5 C 13 A 21 E 29 D 37 B6 A 14 B 22 A 30 B 38 C7 D 15 A 23 B 31 D 39 B8 E 16 D 24 E 32 A 40 E