Bilaspur

gud 9t FrEnds.......................kamino ab so jao

happy holi in advance.................2013

College Library Govt. College of Teacher Education Dharamsala

DEPARTMENT OF HIGHER EDUCATION, SHIMLA , HIMACHAL PRADESH Department of Higher Education Himachal Pradesh

Q.1what are the objectives of preparing of trial balance?
Answer:-A trial balance is prepared with the following objectives.

To ascertain the arithmetical accuracy of ledger accounts:

A trial balance is prepared to check the arithmetical accuracy of ledger

accounts.

Completion of double entry:

It proves that both aspect of each transaction are recorded. If totals of

both sides are equal, it is believed that the records are complete and

reasonably trustworthy.



Q.2what are the limitaion of finacial statement?

Answer:
Improve
Financial statements are based on historical costs and as such the

impact of price level changes is completely ignored. They are interim

reports. The basic nature of financial statements is historic. These

statements are neither complete nor exact. They reflect only monetary

transactions of a business. The following limitations may be noted:
1. The financial position of a business concern is affected by several

factors-economic, social and financial, but financial factors are being

recorded in these financial statements. Economic and social factors are

left out. Thus the financial position disclosed by these statements is not

correct and accurate.
2. The profit revealed by the Profit and Loss Account and the financial

position disclosed by the Balance Sheet cannot be exact. They are

essentially interim reports.
3. Facts which have not been recorded in the financial books are not

depicted in the financial statement. Only quantitative factors are taken

into account. But qualitative factors such as reputation and prestige of

the business with the public, the efficiency and loyalty of its employees,

integrity of management etc. do not appear in the financial statement.
4. The rupee of 1995, as for example, does not mean the same as the

rupee of 2010. The existing historical accounting is based on the

assumption that the value of monetary unit, say rupee, remains

constant and accordingly assets are recorded by the business at the

price at which they are required and the liabilities are recorded at the

amounts at which they are contracted for. But monetary unit is never

stable under inflationary condition. This instability has resulted in a

number of distortions in the financial statements and is the most

serious limitation of historical accounting.
5. Many items are left to the personal judgment of the accountant. For

example; provision of depreciation, stock valuation, bad debts

provision etc. depend on the personal judgment of accountant.
6. On account of convention of conservation the income statement may

not disclose true income of the business since probable losses are

considered while probable incomes are ignored.
7. The fixed assets are shown at cost less depreciation on the basis of

"going concern concept" (one of the accounting concept). But the value

placed on the fixed assets may not be the same which may be realized

on their sale.
8. The data contained in the financial statements are dumb; they do not

speak themselves.
The human judgment is always involved in the interpretation of

statement. It is the analyst or user who provides tongue to those data

and make them to speak.

Ledger account balances:

It is a consolidated statement of balances of accounts on a certain date

to facilitate preparation of final accounts and balance sheet therefrom.

Q.3Enumerate the advantages of cost accounting?


Following are the most important advantages of a good cost

accounting system:

1) Classification and Subdivision of Costs:
In the contrast to a single profit or loss figure supplied by general

accounting, the cost accounting classifies costs and income by every

conceivable subdivision of the business enterprise. In a good costing

system data regarding costs by departments, processes, functions,

products, orders, jobs, contracts and services can easily computed. This

detailed cost information for managerial control is one of the most

important contributions of cost accounting.

2) Adequacy or Inadequacy of Selling Prices:
Unit cost of production, administration and safe made possible by cost

accounting aids management in deciding the adequacy or inadequacy

of selling prices i.e. neither too high detracting business, nor too low

resulting in losses to the concern.

In period of depressions, slumps, or in case of competition

management forced to lower prices even below cost of production and

sale. In such circumstances, cost accounting will help management in

deciding the proper reduction.

3) Disclosure of profitable Products:
Cost Accounting will disclose activities, departments, products and

territories, which bring profit and those that result in losses.

Management to determine what products because of profit margin the

sales department because of their greater profit margin should

emphasize will use this information. What products arte unprofitable

or less profitable and might be eliminated or lesser sales pressure be

given to them. What activities or territories are not producing

sufficient profit and should be either further improved or eliminated

and what methods of production and distribution are most profitable

for the firm. This will increase the overall profit of the concern.

4) Control of Material and Supplies:
In a good costing system materials and supplies must be accounted for

in terms of departments, jobs, units of production or service. This will

eliminate altogether or reduce to the minimum misappropriations,

embezzlements, deterioration, obsolescence, and losses from defective,

spoiled, scrap and out of date materials and supplies.

5) Maintenance of Proper Investment in Inventories:
A costing system will help in the maintenance of various inventory

items of materials and supplies in line with production and sale

requirements. If these quantities are too small, production may stop or

sales may be lost. On the other hand, if quantities of such materials

and supplies are in excess of the production and sales requirements,

too much working capital may unnecessarily tie up in inventories. The

detailed quantity information furnished by the cost accountant at all

times will go a long way in reducing or eliminating this possibility.

6) Correct Valuation of Inventories:
Cost Accounting plays a basic role in the correct valuation of

inventories of finished goods, work in process, materials and supplies.

The book inventory method (as opposed to physical inventory method)

made possible by cost accounting system will involve the operation of

the various inventory control accounts in such a manner that the

balances of these accounts well be inventory valuations required for

periodic financial statements. This enables the preparation of monthly

financial statements without the trouble and expense of taking monthly

physical inventories.

Further, the value of inventories shown by the book inventory will be

more accurate than inventory values shown by the physical inventory

method. If no cost system is in use and inventory values computed by

physical inventory method, then the value of these inventories must

either bean estimate of cost or be determined at market values. But in a

cost accounting system accurate procedures and techniques are

available by which inventory values can be computed in a relatively

more exact fashion. The requirements of management, stockholders,

creditors, employees and other groups interested in the financial

statements of the firm naturally attach more emphasis on this objective

of cost accounting. In most cases, this objective of cost accounting

dominates the formal cost records and routines.

7) Whether to Manufacture or Purchase from Outsiders:
Cost records furnish information regarding the cost of manufacturing

of different finished parts, which assist management in making a

decision whether to purchase these parts from outside manufacturers

or manufacture them in the factory.

8) Control of Labour Cost:
Orders, jobs, contracts, departments, processes, or services record cost

of labour. In many manufacturing enterprises, daily time reports are

prepared showing the number of hours and minutes spent and the wage

rate for each worker per job or operation. This enables management to

compare the current cost of labour per job or operation with some

previously incurred or determined cost thus measuring the efficiency or

inefficiency of the labour force and assigning the work to employees

best suited for it.

9) Use of Company-wide Wage Incentive Plans:
When labour cost is accounted for by jobs and operations, it is possible

to use effectively wage incentive plans or bonus schemes for the

remuneration of labour force. Carefully planned and administered

incentive schemes are an effective means of enforcing superior

performance and cost reduction. Workers are more co-operative,

responsive and productive when some form of incentive offered to them

for surpassing stipulated standards of perfection and performance.

Cost of accounting has developed incentive plans, which are applicable

not only to factory workers but also to clerks, salespersons, and other

executives for above standard performance.

10) Controllable and Uncontrollable Cost:
Cost accounting exhibits at each stage of production and sale the

controllable and uncontrollable items in the manufacturing, selling

and administrative cost thus enabling management to concentrate

attention on those costs, which can reduced of, eliminated. There is

very little the management can do to reduce such uncontrollable items

as idle time of machines and labour, wastage in the use of materials,

supplies and power can controlled much more effectively.

11) Use of Standards for Measuring Efficiency:
A complete cost accounting system, generally, has a well-developed

plan of standards to measure the efficiency of the organization in the

use of materials, incurrence of labour and other manufacturing cost.

Cora does this appraisal paring the work of factory workers, office and

sales personnel and other executive with what should have done in

manufacturing and selling a given quantity of units in a given period.

12) Reduction of Losses Due to Seasonal Conditions:
Cost accounting provides data for making a complete analysis of losses

due to idle plant and equipment or due to the use of plant and

equipment beyond normal capacity, irregular employment of labour,

wastes in the use of materials. It indicates cost variations between

active and inactive periods and seasonal conditions in the business or

industry. Seasonal fluctuations in business activity affect profoundly

the earnings of the concern. In many industries, seasonal variations

are responsible for higher costs and lower profits.

13) Budgeting:
In a good cost accounting system, preparation of various budgets

periods in advance of actual production and sale of goods is necessary.

These budgets include budgeted statement of profits, budgeted cost of

plant improvements, budgeted cost of production, budgeted cash

receipts and payments, and so forth. These budgets show the plans of

the management for future periods and they reflect the expected results

of these plans. They are of great help in getting the sales manager, the

works manager, and the treasurer into agreement as to a plan that can

sold, manufactured and financed. In fact, the use of budgets has made

costing a preventive device for the rectification of inefficiencies before

they creep into the business operations or as they occur from day to

day. In other words, budgeting, inculcates the habit of thinking and

calculations before taking decisions.

14) Reliable Check on General Accounting:
Finally, an efficient and proper system of cost accounting is a most

reliable and independent check on the accuracy of the financial

accounts. This check made effective through reconciliation of the

balance of profit or loss shown by the costing profit and loss account

and the balance of profit of profit or loss revealed by the general

accounting profit and loss account.

Q.4

Answer

BUDGET IS Term defined as " it is the numericalo value of the plan"
it is posted every year to the country. in company point of view it the
statment which their activitie in the future. its mainly for the

improvement.
Budget. A budget is a written record of income and expenses during a

specific time frame, typically a year.

Budget essentials:-

A budget is a presentation of a projected operating plan expressed in

financial terms. Budgets can be developed for any period of time;

however, most operating budgets cover a twelve-month period, while

capital-equipment and project budgets typically cover longer (or

sometimes shorter) periods. This lesson will deal specifically with the

development and subsequent uses of an operating budget covering a

full calendar year.

There are three essential things needed for developing a budget:
The first is a clear understanding of the goals of an operation and the

requirements for achieving those goals.
The second is a working knowledge of the accounting system with which

the budget must conform.
And the third is a carefully developed set of assumptions upon which

the budget is constructed.

Once these three criteria have been established, an electronic

spreadsheet can be constructed to help work out the details of

allocating funds based on the goals you have decided on, the

constraints of the the accounting system and a clear set of assumptions.

But first, let's review these three criteria....

Q.5Discuss the managerial use of fund flow statement and limitations?

Answer:-
A fund flow statement is a summary of a firm’s inflow and outflow of

funds. In other words, fund flow is a statement which analyzes the

inflow and outflow of funds of an organization or firm in a particular

period.
Limitations Of Fund Flow Statement

The fund flow statement suffers from the following limitations:
1. The fund flow statement is prepared with the help of balance sheet

and profit and loss account of the current period and these statements

are based on historical cost. So a realistic comparison of profitability

and the funds position is not possible as the current cost is not

considered for the purpose of preparation of fund flow statement.
2. The cash position of the firm is not revealed by fund flow statement.

To know the cash position a cash flow statement has to be prepared.
3. The various activities are not classified as operating activities,

investing activities and financing activities while preparing fund flow

statement.
Uses Of Fund Flow Statement

1. The users of fund flow statement, such as investors, creditors,

bankers, government, etc., can understand the managerial decisions

regarding dividend distribution, utilization of funds and earning

capacity with the help of fund flow statement.
2. The quantum of working capital is revealed by the schedule of

working capital changes, which is a part of fund flow statement.
3. The fund flow statement is the best and first source for judging the

repaying capacity of an enterprise.
4. The management will be able to detect surplus/shortage of fund

balance.
5. The fund from operation is not mentioned in the profit and loss

account and balance sheet but it is separately calculated for the

purpose of fund flow statement.


Q.6 Define brs and write its importance?
Answer:-
BRS Means Bank reconsilation Statement.
This is nothing but the closing balance of bank pass book
tally with our book. The cheque payment transaction made in
last day or during the month but it is cleared in next month.
we should reconcile the bank statememt.

Importance of brs:-
* Bank reconciliation statement ensures the accuracy of the balances

shown by the pass book and cash book.
* Bank reconciliation statement provides a check on the accuracy of

entries made in both the books.
* Bank reconciliation statement helps to detect and rectify any error

committed in both the books.
* Bank reconciliation statement helps to update the cash book by

discovering some entries not yet recorded.
* Bank reconciliation statement indicates any undue delay in the

collection and clearance of some cheques.

Q.7Explain limitation of ratio analysis?
Answer:-
In spite of many advantages, there are certain limitations of the ratio

analysis techniques and they should be kept in mind while using them

in interpreting financial statements. The following are the main

limitations of accounting ratios:
Limited Comparability:- Different firms apply different accounting

policies. Therefore the ratio of one firm can not always be compared

with the ratio of other firm. Some firms may value the closing stock on

LIFO basis while some other firms may value on FIFO basis. Similarly

there may be difference in providing depreciation of fixed assets or

certain of provision for doubtful debts etc.
False Results:- Accounting ratios are based on data drawn from

accounting records. In case that data is correct, then only the ratios

will be correct. For example, valuation of stock is based on very high

price, the profits of the concern will be inflated and it will indicate a

wrong financial position. The data therefore must be absolutely

correct.
Effect of Price Level Changes:- Price level changes often make the

comparison of figures difficult over a period of time. Changes in price

affects the cost of production, sales and also the value of assets.

Therefore, it is necessary to make proper adjustment for price-level

changes before any comparison.
Qualitative factors are ignored:- Ratio analysis is a technique of

quantitative analysis and thus, ignores qualitative factors, which may

be important in decision making. For example, average collection

period may be equal to standard credit period, but some debtors may

be in the list of doubtful debts, which is not disclosed by ratio analysis.

Effect of window-dressing:- In order to cover up their bad financial

position some companies resort to window dressing. They may record

the accounting data according to the convenience to show the financial

position of the company in a better way.
Costly Technique:- Ratio analysis is a costly technique and can be used

by big business houses. Small business units are not able to afford it.

Misleading Results:- In the absence of absolute data, the result may be

misleading. For example, the gross profit of two firms is 25%. Whereas

the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and

profit earned by the other one is Rs. 10,00,000 and sales are Rs.

40,00,000. Even the profitability of the two firms is same but the

magnitude of their business is quite different.
Absence of standard university accepted terminology:- There are no

standard ratios, which are universally accepted for comparison

purposes. As such, the significance of ratio analysis technique is

reduced.

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