Answer-Assignment DMBA104 MBA1 2 Set-1 and 2 Sep 2023
Answer-Assignment DMBA104 MBA1 2 Set-1 and 2 Sep 2023
2. Write a detailed note on different types of subsidiary books and their importance in
recording accounting transactions. Also demonstrate specimen of any 2 types of
subsidiary books
Answer 2.
Subsidiary books are also called as daybooks / special journals. They play a pivotal role in the
accounting process. These books allow businesses that will record specific types of transactions
in a detailed manner. This will ensure that the main ledger remains uncluttered and easy to
interpret. The use of subsidiary books expedites the accounting process and enhances the
accuracy.
Following are the different types of subsidiary books and their significance,
Sales Journal / Day Book: This will record the credit sales of goods. Cash sales gets recorded
in the cash book. Every entry includes details like the date of the sale, invoice number, name
of the purchaser and the amount.
Purchase Journal / Day Book: It is used to record credit purchases of goods. Like the sales
journal, cash purchases aren't recorded here but in the cash book.
Sales Return Journal / Returns Inward Book: When the goods are returned by the customer
due to defects or other reasons, these are recorded in this journal.
Purchase Return Journal (or Returns Outward Book): It keeps a record of goods returned
to suppliers due to any discrepancies in the order or defects.
Bills Receivable Journal: Records the bills which the business has to receive, i.e., amounts
owed to the business by customers.
Bills Payable Journal: It keeps track of the bills the business has to pay to its suppliers or
creditors.
Cash Book: It’s a unique book that functions as both a ledger and a subsidiary book. It records
all cash transactions – both receipts and payments.
Efficiency: By categorizing transactions, subsidiary books make the process of recording and
posting transactions more efficient.
Accuracy: Specialized books reduce the chances of errors. A clear, dedicated space for a
specific type of transaction ensures accurate recording.
Detailed Record: These books offer a detailed record of transactions, allowing businesses to
easily track any specific transaction.
Ease of Reference: With transactions categorized, it becomes easier for accountants to refer
back to a particular transaction type.
Uncluttered Main Ledger: By recording transactions in subsidiary books first, the main ledger
remains succinct with.
The following are the Specimen for Two Types of Subsidiary Books:
1. Sales Journal:
Date Invoice No Buyers Name Amount
01/09/23 S001 XXX Foundations 1000
04/09/23 S002 YYY Limited 2000
2. Purchase Journal:
To conclude, the subsidiary books will provide an organized, efficient, and accurate way of
recording transactions. They will serve as a foundational element in the accounting process,
ensuring that data flowing into the main ledger is well-structured and verified.
3. For the following balances extracted from a trial balance, prepare a trading account.
A trading account provides a detailed summary of gross profit or loss of a business. To derive
the gross profit, it is essential to take into account direct incomes and direct expenses.
Direct Incomes:
• Sales: The main income for any trading business. For the given period, sales amount to
Rs. 250,000.
Direct Expenses: These are the expenses directly linked to the production or procurement of
goods.
• Purchases: This is the primary direct expense which represents the cost of goods
bought for resale. For the given period, the purchases amount to Rs. 102,000.
• Returns Outwards: Deducted from purchases because these represent goods sent back
to the suppliers. Here, it is Rs. 3,000.
• Carriage Inwards: Expenses related to bringing the goods to the place of business. Rs.
5,000 for this period.
• Import Duty: Cost incurred for goods imported from foreign countries, which is Rs.
6,000.
• Clearing Charges: Amount paid for customs clearance of goods, amounting to Rs.
7,000.
• Royalty Paid to Extract Materials: A specific amount paid for extracted materials,
which is Rs. 10,000 in this period.
• Wages to Workers: Wages paid to workers who are directly involved in converting
raw material into finished goods or for handling goods. This is Rs. 8,000.
• Returns Inwards: Deducted from sales as they represent goods returned by customers.
The given amount is Rs. 3,000.
Now, let us prepare the trading account:
From the above trading account, the gross profit for the year ended 31-12-2022 is Rs. 35,300.
This profit is derived after deducting direct expenses from direct incomes. This account will
provide a clear picture of the company's trading operations and helps in understanding the
direct costs associated with the core operations of the business.
Assignment Set – 2
4. Following is the balance sheet for the period ending 31st March 2018 and 2019. If the
current year’s net loss is Rs.38,000, calculate the cash flow from operating activities.
31st MARCH
2018 2019
Short-term loan to employees 15,000 18,000
Creditors 30,000 8,000
Provision for doubtful debts 1,200 -
Bills payable 18,000 20,000
Stock in trade 15,000 13,000
Bills receivable 10,000 22,000
Prepaid expenses 800 600
Outstanding expenses 300 500
Answer 4.
The calculation of cash flow from operating activities is primarily based on the changes in
working capital items and the net profit or loss for the year. Using the indirect method, we start
with the net income (or net loss) and make adjustments for changes in current assets and current
liabilities.
Starting Point: Net Loss for the current year: Rs. 38,000
Net Cash Flow = (Rs. -3,000) + (Rs. -22,000) + Rs. 1,200 + Rs. 2,000 + Rs. 2,000 + (Rs. -
12,000) + Rs. 200 + Rs. 200 = (Rs. 31,600)
Cash Flow from Operating Activities: = Net Loss + Net Cash Inflow/(Outflow) from
Changes in Working Capital = Rs. -38,000 + (Rs. -31,600) = Rs. -69,600
In conclusion, the cash outflow from operating activities for the year ending 31st March 2019
amounts to Rs. 69,600. This is indicative of the firm's operating inefficiencies or other factors
leading to a negative cash position from its core operations during the year. It's vital for the
management to delve deeper into its operating segments to ascertain the causes and take
corrective measures.
5. Define Marginal Costing. Discuss in detail the assumptions and limitations of Marginal
Costing. 2+8
Ans 5.
MARGINAL COSTING
Cost Behavior: It assumes that total variable cost changes proportionately with the level of
activity, while total fixed costs remain constant across different activity levels.
Sales Mix: In multi-product scenarios, the sales mix is assumed to remain constant.
Stock Valuation: Stocks, if any, are valued at marginal cost. Unsold goods carry only variable
cost, and no part of the fixed cost is assigned to closing stocks.
Steady Production Rate: The production rate remains consistent, and any fluctuation in sales
is reflected in the inventory levels.
Over-simplified Classification: The rigid classification of costs into fixed and variable can be
oversimplified. In reality, few costs are strictly fixed or variable. For instance, a cost that is
fixed in the short term might vary in the longer term.
Ignoring Fixed Costs: By treating fixed costs as period costs and not considering them while
pricing or decision-making, there's a risk of under-pricing products in the long run, which can
lead to reduced profitability.
Constant Sales Mix Assumption: In multi-product scenarios, the assumption that the sales
mix remains constant might not be realistic. Fluctuations in demand for different products can
significantly affect profitability.
Potential Misleading Decisions: If managers base decisions solely on marginal costs without
considering the holistic view of total costs, it can lead to potentially misleading decisions. For
example, a product with a positive contribution margin (sales - variable costs) might still be
unprofitable if fixed costs aren't covered.
Not Suitable for External Reporting: Marginal costing does not conform to generally
accepted accounting principles (GAAP) and hence is not suitable for external financial
reporting. Financial statements based on marginal costing may not show the actual profit or
loss of the organization.
Change in Production Patterns: The method assumes that production patterns remain
consistent, but in real-world scenarios, economies of scale, technological changes, or learning
curves can change production costs and patterns over time.
In conclusion, while marginal costing provides valuable insights for managerial decision-
making, especially in the short term, it's essential to be aware of its limitations. Businesses
should use it in conjunction with other costing methods and financial data to make informed
decisions.
Answer 6.
Planning: One of the primary features of budgetary control is planning. Businesses must
forecast their future operations, expenses, and revenues. A well-prepared budget provides a
clear roadmap, detailing what is to be achieved during a specified period. This allows
organizations to allocate resources optimally.
Standard Setting: Budgetary control involves setting standards for performance. These
standards or benchmarks serve as a reference point against which actual performance can be
measured. They can be in terms of revenue targets, cost limits, or any other financial metrics.
Coordination: For a budget to be effective, coordination across various departments and units
is crucial. This ensures that the objectives of one department align with another and support
the overall organizational goal. For instance, the sales department's targets should be in sync
with the production department's capabilities.
Recording: Every financial activity must be recorded. This feature ensures that there's a
systematic record of all transactions, which can then be compared against the budgeted figures.
This not only helps in monitoring but also ensures transparency in operations.
Comparison and Analysis: One of the primary reasons for preparing a budget is to compare
actual performance with budgeted figures. If actual figures deviate from the budget,
management can investigate the reasons. Analysis helps in understanding whether the variance
was due to external factors, inefficiencies, or perhaps the budget itself was unrealistic.
Feedback Mechanism: Budgetary control provides a feedback loop. After comparing the
actuals with the budgeted figures, the findings are reported back to the concerned departments
or units. This feedback can be used to take corrective actions or make strategic decisions.
Corrective Action: Merely identifying variances is not enough. Effective budgetary control
ensures that corrective action is taken to address any discrepancies. For instance, if expenses
are overshooting, management might look into ways to cut costs or optimize operations.
Flexibility: While a budget provides a roadmap, it should not be so rigid that it cannot be
changed. External factors such as market conditions, competition, and economic shifts can
affect business operations. Hence, a good budgetary control system allows for revisions,
ensuring that the budget remains relevant.
Control Mechanism: Above all, budgetary control acts as a control mechanism. It ensures that
every department or unit operates within its allocated resources, preventing overspends and
promoting efficiency. Through this, it ensures that the organization as a whole remains on track
to achieve its financial objectives.
In conclusion, budgetary control is an indispensable tool for modern businesses. It not only
provides direction but also offers a means to measure performance, ensuring efficiency and
financial prudence. Its essential features, from planning and coordination to feedback and
corrective actions, enable organizations to navigate the complexities of the business world
effectively.