- Accounting Principles are the rules based on which accounting takes place and these rules are universally accepted. Explain the principles of materiality and principles of full disclosure. Explain why these two principles are contradicting each other. Your answer should be substantiated with relevant examples.
- Materiality principle: Accountants follow the materiality principle, which states that the requirements of any accounting principle may be ignored when there is no effect on the users of financial information. Certainly, tracking individual paper clips or pieces of paper is immaterial and excessively burdensome to any company's accounting department. Although there is no definitive measure of materiality, the accountant's judgment on such matters must be sound. Several thousand dollars may not be material to an entity such as General Motors, but that same figure is quite material to a small, family-owned business.
- Full disclosure means to disclose all the details of a security problem which are known. It is a philosophy of security management completely opposed to the idea of security through obscurity. The concept of full disclosure is controversial, but not new; it has been an issue for locksmiths since the 19th century. Full disclosure requires that full details of security vulnerability are disclosed to the public, including details of the vulnerability and how to detect and exploit it. The theory behind full disclosure is that releasing vulnerability information results in quicker fixes and better security. Fixes are produced faster because vendors and authors are forced to respond in order to save face. Security is improved because the window of exposure, the amount of time the vulnerability is open to attack, is reduced. The full disclosure principle states that any future event that may or will occur, and that will have a material economic impact on the financial position of the business, should be disclosed to probable and potential readers of the statements. Such disclosures are most frequently made by footnotes. For example, a hotel should report the building of a new wing, or the future acquisition of another property. A restaurant facing a lawsuit from a customer who was injured by tripping over a frayed carpet edge should disclose the contingency of the lawsuit. Similarly, if accounting practices of the current financial statements were changed and differ from those previously reported, the changes should be disclosed. Changes from one period to the next that affect current and future business operations should be reported if possible. Changes of this nature include changes made to the method used to determine depreciation expense or to the method of inventory valuation; such changes would increase or decrease the value of ending inventory, cost of sales, gross margin, and net income or loss. All changes disclosed should indicate the dollar effects such disclosures have on financial statements.
2. Journalize the below transactions, prepare relevant ledger accounts and finally trial balance. . ( 6+6+3 = 15 Marks)
M/s Ventak Enterprise Pvt Ltd.
01.01.2009 | Started business with cash Rs. 2,00,000 Goods Rs. 1,00,000 Furniture Rs. 50,000 |
01.01.2009 | Opened Current Account with Rs. 1,00,000 |
02.01.2009 | Placed an order with Ritik for the supply of goods of the list price of Rs. 1, 00, 00.In this connection, we paid 9% of the list price as an advance by cheque. |
03.01.2009 | Ritik supplied goods of the list price of Rs. 1, 00,000 less 12% trade discount. Packing and delivery charges Rs. 1,000. |
04.01.2009 | Purchased goods from Murali of the list price of Rs. 1,00,000 less 12% trade discount and paid him by cheque under a cash discount of 5% |
05.01.2009 | Received an order from Shyam for supply of goods of the list price of Rs. 1, 00,000 with an advance of 10% of list price. |
06.01.2009 | Supplied the above goods at 10% trade discount. Packing and delivery charges Rs. 1000. |
07.01.2009 | Goods costing Rs. 80,000 sold to Mr X at a profit of 20% on sales less 10% trade discount and 2% cash discount |
08.01.2009 | Goods (cost Rs. 3,000, Sales Price Rs. 4,000) taken away by the proprietor for his personal use. |
09.01.2009 | Shyam became insolvent and paid 80 paise in a rupee in full and final settlement |
10.01.2009 | Paid Ritik 80% on account. |
11.01.2009 | Goods (Cost Rs. 3,000 , Sales Price Rs. 4,000) stolen |
12.01.2009 | Paid Life Insurance Premium Rs. 1,000. |
13.01.2009 | Cash embezzled by an employee Rs. 1,000. |
3. Explain any two types of errors that are disclosed by trial balance with examples and rectification entry.
Note - Avoid giving examples given in the self learning material. (10 marks) Nov 2010
4. Let us assume you have been recently appointed as Management Accountant of a small but upcoming firm. Your immediate supervisor has asked you to prepare certain financial ratios from the balance sheet of one of their clients M/s Vinod Enterprise.
Liabilities | Amount | Assets | Amount |
Equity Share Capital | 50000 | Fixed assets | 87500 |
8% Pref Share Capital | 10000 | Investments | 25000 |
Reserve Fund | 40000 | Stock | 30000 |
6% Debentures | 20000 | Sundry Debtors | 13500 |
Sundry Creditors | 30000 | Bank Balance | 7000 |
P & L account | 21000 | Preliminary expenses | 8000 |
Total | 171000 | Total | 171000 |
The director intent to transfer a sum of Rs.5000 out of the current year’s profit to provision for tax. The financial ratios needed are:
a. Return on capital employed
b. Current ratio
c. Fixed assets to networth
d. Debt - Equity ratio
e. Return on owner’s capital. (10 Marks)
5. A friend of you has approached to help him out in setting his books of accounts in order. Unfortunately he is struck with difference in trial balance. Help him in redrafting the trial balance. (5 Marks)
Sl.no | Particulars | Dr | Cr | ||
1 | Stock on 31st Dec,2008 | 1,92,100 | |||
2 | Capital | 13,450 | |||
3 | Cash in hand | 1,400 | |||
4 | Bank Overdraft | 9,320 | |||
5 | Sales | 2,36,400 | |||
6 | Purchases | 106,400 | |||
7 | Returns inward | 13,400 | |||
8 | Returns outward | 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 2006 | 94,120 | |||
16 | Land and building | 15,000 | |||
17 | Plant and machinery | 20,900 | |||
18 | Trade expenses | 2,090 | |||
3,95,540 | 3,95,540 | ||||
6. Explain the accounting treatment of bad debt and provision for doubtful debts with suitable example. (10 Marks)
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Masters of Business Administration- MBA Semester 1
MB0045 – Managerial Economics - 4 Credits
(Book ID: B1131) Assignment Set- 1 (60 Marks)
Note: Each question carries 10 Marks. Answer all the questions.
1. Explain what is price elasticity of demand and outline the determinants of price elasticity of demand with examples.
Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or HHelasticityHH, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (holding constant all the other determinants of demand, such as income). It was devised by HHAlfred MarshallHH.
Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to ambiguity. Only goods which do not conform to the HHlaw of demandHH, such as HHVeblenHH and HHGiffen goodsHH, have a positive PED. In general, the demand for a good is said to be inelastic (or relatively inelastic) when the PED is less than one (in absolute value): that is, changes in price have a relatively small effect on the quantity of the good demanded. The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one (in absolute value): that is, changes in price have a relatively large effect on the quantity of a good demanded.
Revenue is maximised when price is set so that the PED is exactly one. The PED of a good can also be used to predict the HHincidence (or "burden") of a taxHH on that good. Various research methods are used to determine price elasticity, including HHtest marketsHH, analysis of historical sales data and HHconjoint analysisHH.
Definition
PED is a measure of responsiveness of the quantity of a good or service demanded to changes in its price.HH1HH The formula for the coefficient of price elasticity of demand for a good is:HH2HHHH3HHHH4
2. In the newspapers we read about mergers between companies in the same line of business. What are the economies of scale that can be availed of with mergers.
3. Discuss the features of monopolistic competition and the method of price determination in monopolistic competition.
4. If you were to buy a car, what are the factors that would affect the demand for your purchase.
5. When factors of production are combined to produce a particular level of output, what would be the effect on total product when all factors are kept fixed and only one factor is varied. For example, when the amount of land used for producing a particular crop is kept the same, and the other factors of production like labour, fertilisers, etc is increased.
6. A company wishes to project the production requirements of a particular product in the coming years. How will the company forecast the demand in the coming years, using the trend projection method
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