...place. 4. Marks are given at the end of each question. Question Paper Designed by : Dr. Vinod Kumar Book recommended by author : ULTIMATE BOOK OF ACCOUNTANCY Publisher : Vishwas Publications (09216629576, 09256657505) Dr. Vinod Kumar is Author of Ultimate Book of Accountancy and a great name in the field of accountancy Maximum Marks: 80 Part – A Partnership, Share Capital and Debentures 1. Do all firms of business organisations prepare the P/L Appropriation A/c? 2. Where would you record the interest on capital when capital is fixed? 3. In the absence of partnership deed, how are mutual relations of partners governed? (1) (1) (1) 4. In case of re-issue of shares which were originally issued at par or at a premium, what is the maximum permissible discount on re-issue? (1) 5. State the provision of the Companies Act, 1956 regarding DRR? (1) 6. On 31st March, 2005, after the closing of books of accounts, the Capital Accounts of A, B and C stood at Rs.24,000; Rs.20,000 and Rs.12,000 respectively. The profit for the year Rs.36,000 was distributed equally. Subsequently, it was found that interest on capital @ 5% p.a. had been omitted. The profit sharing ratio was 2:2:1. (3) 7. Vinod Limited has Rs.8,00,000; 9% Debentures to be redeemed out of profits on 1st October 2010 at a premium of 5%. The company had a DRR of Rs.4,14,000. Pass the necessary Journal entries at the time of redemption. (3) 8. Vinod Limited issued 25,000; 10% Debentures of Rs.100 each. Give the Journal entries...
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...Increase assets and increase expenses. B. Increase assets and increase liabilities. C. Increase liabilities and increase paid-in capital. D. Have no effect on total assets. A journal entry recording an accrual: Answer A. Results in a better matching of revenues and expenses. B. Will involve a debit or credit to cash. C. Will affect balance sheet accounts only. D. Will most likely include a debit to a liability account. Which of the following is not a transaction to be recorded in the accounting records of an entity? Answer A. Investment of cash by the owners. B. Sale of product to customers. C. Receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive. D. Receipt of services from a "quick-print" shop in exchange for the promise to provide advertising design services of equivalent value.` The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is: Answer A. A. consistency. B. matching revenue and expense. C. original cost. D. objectivity Accounts receivable are reported at: Answer A. Net realizable value. B. Historical cost. C. Weighted average cost. D. Market value The income statement shows amounts for: Answer A. revenues, expenses, losses, and liabilities. B. revenues, expenses, gains, and market value per share. C. revenues, assets, gains, and losses...
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...1 Table of Contents The Concept .................................................................................................................................................. 4 The Management Team ................................................................................................................................ 4 Mission .......................................................................................................................................................... 5 Keys to Success ............................................................................................................................................. 6 Company Summary ....................................................................................................................................... 6 Company Ownership..................................................................................................................................... 7 Start-up Summary ......................................................................................................................................... 7 Start-up ..................................................................................................................................................... 7 Start-up Funding ....................................................................................................................................... 8 Products and Services .......................................
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...Profit has increased and this has been mainly due to the improvement in power system business. Performance RATING: SELL The Net sales of ABB has increased to about 10% and it has registered a EBITDA Margin of 5.6% in this quarter. It has registered a loss in the power automation segment. There is cost overrun in two of the projects. Power crisis in India has also affected the Industry as a whole. Many Orders have been received in low voltage segment of products Considering slow down in industrial capex and pricing pressure in the industry which is impacting margins, ABB can be recommended as a SELL Industry Analysis Electrical Equipment Industry is one of the vital sectors for the contribution of each and every economy. In the current scenario, frequent outages due to the widening gap between the demand and supply of power in the state have now started affecting the electrical equipment manufacturing units. So the demand has been sluggish throughout. The Indian electrical equipment industry has reported a decelerated growth to 6.6% in 2011-12 as compared to 11.3% and 13.7% in 2009-10 and 2010-11, respectively, according to data compiled by the Indian Electrical and Electronics Manufacturers’ Association (IEEMA). Sluggish growth in the power sector and the escalating imports of electrical equipment is significantly impacting the commercial viability of the domestic electrical equipment industry and will have severe long term consequences. All three segments of the power...
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...stocks of current assets and should move towards very lean inventories and receivable levels. The committee even suggested the maximum levels of Raw Material, Stock-in-process and Finished Goods which a corporate operating in an industry should be allowed to accumulate These levels were termed as inventory and receivable norms. Depending on the size of credit required, the funding of these current assets (working capital needs) of the Corporate could be met by one of the following methods: • First Method of Lending: Banks can work out the working capital gap, i.e. total current assets less current liabilities other than bank borrowings (called Maximum Permissible Bank Finance or MPBF) and finance a maximum of 75 per cent of the gap; the balance to come out of long-term funds, i.e., owned funds and term borrowings. This approach was considered suitable only for very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs • Second Method of Lending: Under this method, it was thought that the borrower should provide for a minimum of 25% of total current assets out of long-term funds i.e., owned funds plus term borrowings. A certain level of credit for purchases and other current liabilities will be available to fund the build-up of current assets and the bank will provide the balance (MPBF). Consequently, total current liabilities inclusive of bank borrowings could not exceed 75% of current assets. RBI stipulated that the working capital needs of...
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...the basing on some financial results can lead to the investigate activity. At stand point in the year 2005, we had an analysis about Costco in period 2001-2005, then use these figures to make a decision whether or not invest in Costco in the next period. II. ANALYSIS To avoiding the problem of comparing companies of different sizes in Stock market, one of the most effective ways is to calculate and compare the financial ratios. Capture this trend, we are using ratio to analysis and predict future financial condition of COSTCO. Furthermore, the results of this analysis would be used to make the investigation more easily. After work with numbers and figures, we evaluated them into five groups of meaning: abilities in liquidity, assets management, debts management, profitable and market value. All the data is from Annual report of Costco Wholesale Corporation, it make the results more impartial and realistic. 1....
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...finance their working capital requirements STC is approaching the prudent limit of debt financing in relation to its equity Our Recommendation STC needs to raise more equity by positioning itself for an IPO. To do so, the company needs to: – Increase their operational effectiveness to free up working capital – Improve financial performance through asset and liability management 2 Agenda Background The Finson Plan A New Financial Strategy Results 1. Background 2. Evaluating the CFO’s (Harry Finson) Five-year Plan 3. Developing a New Financial Strategy 4. Results 3 1. Background Science Technology Company Science Technology was an early pioneer in the design, manufacture and use of electronic measuring instruments Product Categories: Systems for testing electronic circuits and components Equipment for measuring and analyzing noise and vibration Audiometric devices Time 1915: Founding Pioneer of electronic measuring instruments 1915 – 1945: Pre-war Era Little serious competition Growth resulted from R&D “We don’t want to grow too large” 1945 – Present: Post-war Era Explosive industry growth Entry of a number of competitors 4 1. Background Current Business Environment By 1974, the competitive landscape had changed Fluke AGR: 35% ROE: 18% Sales: $26.3M HP Annual GR: 20% - 25% Teradyne Growth ROE: 15% Sales: $661M AGR: 22% ROE: 20% Sales: $40.7M STC AGR: 8% ROE: 7% Sales: $45M ROE 5 1. Background Current Business...
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... Current ratio. The current ratio is also called the working capital ratio, as working capital is the difference between current assets and current liabilities. This ratio measures the ability of a company to pay its current obligations using current assets. The current ratio is calculated by dividing current assets by current liabilities. 20X1 20X0 Current assets $38,366 $38,294 Current liabilities 27,945 30,347 Current ratio 1.4 : 1 1.3 : 1 This ratio indicates the company has more current assets than current liabilities. Different industries have different levels of expected liquidity. Whether the ratio is considered adequate coverage depends on the type of business, the components of its current assets, and the ability of the company to generate cash from its receivables and by selling inventory. Acid-test ratio. The acid-test ratio is also called the quick ratio. Quick assets are defined as cash, marketable (or short-term) securities, and accounts receivable and notes receivable, net of the allowances for doubtful accounts. These assets are considered to be very liquid (easy to obtain cash from the assets) and therefore, available for immediate use to pay obligations. The acid-test ratio is calculated by dividing quick assets by current liabilities. 20X1 20X0 Cash $6,950 $6,330 Accounts receivable, net 18,567 19,230 Quick Assets $25...
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...program, I was placed in M.M. ISPAHANI Ltd. for completing my term paper. I was rotated in almost every desk of the organization and all over the factory. Statement of the Problem: The efficient management of working capital is very vital for a business survival. This is premised on the fact having too much working capital signifies inefficiency, whereas too little cash at hand signifies that the survival of business is shaky. Here I focus on working capital management practices in M. M. ISPAHANI Ltd. to evaluate the real condition that are existing. Objectives of the study: The main objective of the study is to gather practical knowledge about working capital management of M.M. ISPAHANI Ltd. My study covers the following areas: * To Study the working capital policies of the sample company. * To study the structure of working capital. * To measure the utilization of working capital of the sample company. * To examine the impact of working capital on profitability. * To identity the problems facing the sample company. * To suggest the recommendation of measuring working capital Management efficiency. Scope of the Study: In my term paper the sample size was one and M.M. ISPAHANI Ltd. was selected as a sample and my topic was working capital management. For gathering more about my requirements I have scheduled my time in various departments, such as Department | Days | Executive Officer | 07 | Finance & Accounts | 15 | Marketing & Sales...
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...inventory are sold on account. A fixed asset is sold for cash for less than book value. A fixed asset is sold for cash for more than book value. Corporate income tax is paid. Payment is made to trade creditors. Cash is obtained through a short-term bank loan. Cash is obtained through a long-term bank loan. A cash dividend is declared and paid. Accounts receivable are collected. Merchandise is purchased on account. Cash advances are made to employees. Minority interest in a firm is acquired for cash. Equipment is acquired for cash. + + + + + 0 0 0 + – 0 0 0 – – WCR 0 – + 0 0 + + 0 0 0 – 0 + 0 0 NSF – – 0 – + + 0 – + – 0 + + + NET PROFIT 0 + + – + 0 0 0 0 0 0 0 0 0 0 3. Reconstructing a balance sheet. Sales 20 days of sales 360 days of sales Accounts receivable 40 days of sales Inventory Inventory = $400,000 = ($400,000/20) × 360 = $7,200,000 = ($7,200,000/360) × 40 = $800,000 = Sales/6 = $7,200,000/6 = $1,200,000 Working capital requirement (WCR): WCR = .20 × Sales = .20 × $7,200,000 = $1,440,000 Accounts payable Since WCR Accounts payable = (Accounts receivable + Inventory) – Accounts payable, = (Accounts receivable + Inventory) – WCR = ($800,000 + $1,200,000) – $1,440,000 = $560,000 Net fixed assets Net fixed assets Net fixed assets = Total assets – Current assets = Total assets – Inventory – Accounts receivable – Cash = $5,000,000 – $1,200,000 – $800,000 – $400,000 = $2,600,000 Short-term debt Liabilities = .60 × total assets = .60 × $5,000,000 = $3,000,000...
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...is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liablities exceed current assets, then the company may have problems meeting its short-term obligations. For example, if XYZ Company's total current assets are $10,000,000, and its total current liabilities are $8,000,000, then its current ratio would be $10,000,000 divided by $8,000,000, which is equal to 1.25. XYZ Company would be in relatively good short-term financial standing. And according to the information of Morgan company and Parker company, by comparing the two companies the current ration of Morgan it shows that Morgan in each year increases liabilities while Parker increases assets and so in meeting current obligations it seems that parker is able to increase his current obligations than Morgan because in each year he increases assets and reduces liabilities than Morgan who increases liabilities more than assets! Acidic test ratio is a stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets, acidic test ratio is equal to current assets –inventory divide by current liabilities...
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...BUSG 1301 Total Current Assets and Liabilities of Starbucks Corporation for past 4 years: Period Ending | Sept. 29, 2012 | Sept. 29, 2011 | Sept. 29, 2010 | Sept. 29, 2009 | Total Current Assets | 4.2B | 3.8B | 2.8B | 2.0B | Total Current Liabilities | 2.2B | 2.1B | 1.8B | 1.6B | As you can see from above chart, the total Current Assets of Starbucks has increased from $2.0 billion in 2009 to $4.2 billion in 2012. Its total Current Liabilities was 1.6 billion in 2009 and 2.2 billion in 2012. Starbucks total Accounts Receivable was $271 million in 2009 which increased to $485.9 million in 2012. This may be due to opening of increased number of stores. The company wrote off $5 million as bad debt in 2009, $3.3 million in 2011 and 5.6 million in 2012. Its Accounts Payable has increased from $267.1 billion in 2009 to 398.1billion in 2012. Although debt as a percent of total capital increased at Starbucks Corporation over the last fiscal year to 22.47%, it is still in-line with the Hotels, Restaurants and Leisure industry's norm. Additionally, even though there are not enough liquid assets to satisfy current obligations, Operating Profits are more than adequate to service the debt. Accounts Receivable are typical for the industry, although worsening, with 12.80 days worth of sales outstanding. Last, Starbucks Corporation is among the most efficient in its industry at managing inventories, with only 67.09 days of its Cost of Goods Sold tied up in inventory. Data Sources: ...
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...1. For a business, the advantage of offering credit to customers is that it: A. increases the amount of sales. B. increases cash flow from financing activities. C. decreases cost of goods sold. D. decreases the amount of inventory the company needs to carry. _______ 2. The net realizable value of accounts receivable is calculated, A. Accounts Receivable + Uncollectible Accounts Expense B. Accounts Receivable + Notes Receivable C. Accounts Receivable - Allowance for Doubtful Accounts D. 365/Accounts Receivable _______ 3. To estimate the amount of its uncollectible accounts receivable, a company might A. consult industry publications. B. look at its past history of uncollectible accounts. C. take into account the current condition of the economy. D. all of these. _______ 4. Which of the following is not an advantage of accepting credit cards from retail customers? A. The acceptance of credit cards tends to increase sales. B. There are fees charged for the privilege of accepting credit cards. C. The credit card company performs credit worthiness assessments. D. The credit card company assumes the cost of slow collections and write-offs. _______ 5. The accounting records of the Schaller Company and Quimby Company contained the following account balances: [pic] Select the true statement from the following options: A. The accounts receivable for Schaller Company turned over 6 times per year. B. The company with the higher turnover...
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...Current ratio: measure shore-term liquidity higher is better ( in some cases) : * healthy indication for performance of company because It shows the company commitment and ability in meeting up short-term obligation (it suggests that the business has enough cash to be able to pay its debts). * If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations * If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management. Quick ratio: specifies whether the assets that can be quickly converted into cash are sufficient to cover current liabilities * High quick ratio: company may keep too much cash on hand or have a problem collecting its accounts receivable (too high) OR because It shows the company commitment and ability in meeting up short-term obligation * Low: company relies too much on inventory or other assets to pay its short-term liabilities Inventory turnover and day’s sales in inventory: * Low inventory turnover ratio is a signal of inefficiency. It also implies either poor sales or excess inventory; indicate poor liquidity, possible overstocking, and obsolescence, * High inventory turnover ratio implies either company sale is doing very fast strong * High inventory levels are usual unhealthy indicates firm have poor...
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...employs have validity. The matching principle correctly predicts that the amount of short-term debt financing that a firm uses is directly related to the quantity of the firm’s current assets. Additionally, other factors that have been shown to affect the levels of long-term debt financing that a firm employs are also shown to affect the amount of short-term debt financing that a firm uses. Specifically, the amount of firm short-term debt financing is shown to be inversely related to the amount of the firm’s non-debt tax shields, growth opportunities, product uniqueness and firm size. Additionally, short-term debt financing was found to be directly related to the quantity of tangible assets the firm owns. Keywords: Debt, Capital Structure, Matching Principle, Collateral, Financing Determinants of short-term, Page 1 111008 – Research in Business and Economics Journal INTRODUCTION The matching principle of finance is the standard theory used to explain the amount of short-term debt financing and other current liabilities that a firm has on its balance sheet. Briefly, the theory states that firms should finance their short-term assets with short-term liabilities (Guin (2011)). This implies that the amount of short-term debt financing that a firm uses depends on the amount of the firm’s short-term assets and its other sources of short-term financing. However, since short-term debt has characteristics that are similar to the characteristics of long-term debt, the factors that have...
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