3xd Amwwen'

Jomal
Debil eedl
FTolal Tolal

Dr |L,00,000
To Gpilil AIC L,00,000
h.o0,000 a
CEet euy fa slilid buniuoy eik Ro
Gplat)
Dr |40,00D
2-1

To GAIC
40,00D

-DY lo,060
3-1 Euilire Ale
al Alc |lo,000

-DY 5000
punchaes AlC
5000

-DY 20,00D
ab Alc
Tö ales AIC |20,000
on an Bais Ro 20,0o)

6-1 punchanes Alc .-DY |20,0oD

20,000
Ro 20,DoD
 FBlal
-DY 5,000
To fales Alc 15,00D

Ro 15.00o
Cndt Bai)
DY
2,500

2,500

31-l DY 4000

4,000

3)-) -Dr

Ro
Aa
eebil

Copilal 64,000
^aley
punchaes
1,54,000
1300
Panhare Relinus

1&00
Sales Relin |4o00
ferniline 6o0

premis |a4,000
Mla yau 3000

32,00D
Deblas
26,060
Araaigs |2000
Credilas
8,700

R,48,A0o 48,o
4Th Chapter
Summarise the following transactions into journal
January 1. Commenced business with a capital of
Rs.1,00,000
January 2. Cash deposited in the bank Rs.40,000
January 3. Bought furniture for cash Rs.10,000
January 4. Bought goods for cash from Rajeev. 5,000
January 5. Sold goods for cash 20,000
January 6. Purchased goods from Chandra 20,000
January 7. Goods sold to dharma 15,000
January 20. Received interest 2,500
January 31. Paid rent 4,000
January 31. Paid salary to manager 10,000

Plan trial balance from the following accounting records

Particulars Rs.
Capital 64,000
Sales 1,74,000
Purchases 1,54,000
Carriage inwards 1,300
Purchase returns 2,000
Carriage outwards 1,800
Sales returns 4,000
Furniture 600
Premises 24,000
Motor van 3,000
Opening stock 32,000
Debtors 26,000
Drawings 2,000
Creditors 8,700
Answer: Trial Balance
Particulars Debit Rs. Credit Rs.
Capital 64,000
Sales 1,74,000
Purchases 1,54,000
Carriage inwards 1,300
Purchase returns
1,800 2,000
Carriage outwards
Sales returns 4,000
Furniture 600
Premises 24,000
Motor van 3,000
Opening stock 32,000
Debtors 26,000
Drawings 2,000
Creditors. 8,700

Total 2,48,700 2,48,700

The following data is extracted from the financial statements of a firm dealing in fertilisers.
The fertiliser business, in general, has an inventory ratio of 6 times.
Identify the following ratios.
a. Inventory turnover ratio
b. Average period of the holding the stock
Sundry debtors Rs, 45,000
Closing stock Rs. 30,000
Sales Rs.4,00,000
Sales returns Rs.20,000
Opening stock Rs.40,000
60% of the sales are credit sales.

Answer:

A. Net sales = Sales – sales returns

= 4,00,000 – 20,000 =3,80,000
Credit sales = 60% of total sales
= 3,80,000 X60/100
= 2,28,000
 Average stock = (opening stock + closing stock)/2
= (40,000+60,000)/2 = 50,000
Inventory turnover ratio = Credit sales / average stock
= 2,28,000 / 50,000 = 4.56 times

Inventory turnover ratio of 4.56 is not satisfactory as it is less than the industry average.
B) Average period of holding inventory = 365 days/4.56 = 80.04 days.
The average period of holding inventory is 80 days which is very high. As per
the industry ITR, the average period is 61 days (365/6) The firm should identify what
are the reasons obstructing its performance. The possible reason could be lack of
working capital, inability to collect its debts promptly or need for more advertisement,
and so on

Examine the following trial balance and adjustments of Swaraj Emporium; prepare trading,
profit and loss account and balance sheet for the year ended December 31, 2017.

Particulars Debit Credit

Rs. Rs.
Sundry Debtors 64,000
Opening stock 44,000
Cash in hand 70
Machinery 35,000
Sundry creditors 21,300
Trade expenses 2,150
Sales 2,69,000
Salaries 4,450
Carriage outwards 800
Rent 1,800
Bills payables 15,000
Purchases 2,37.740
Discounts 2,200
Business premises 69,000
Capital 1,59,000
Cash at bank 3,090
------------ --------------
4,64,300 4,64.300
Adjustments: -
1. Closing stock Rs.24,900
2. Rent was unpaid to the extent of Rs.170/-
3. Outstanding trade expenses were Rs.300/-
4. Written off bad debts Rs.800/-
5. Provide 5% for doubtful bad debts
6. Depreciate plant ad machinery @10% per annum
7. Business premises are to be depreciated by 2% per annum.
Solution:

Trading account of Swarajya Emporium for the year ended 31st December, 2017
Dr Cr

Particulars Amount Particulars Amount

To Opening stock 44,000 By Sales 2,69,000

To Trade expenses 2,150 2,450 By Closing stock 24,900

Add: outstanding expenses 300

-------

To Purchases 2,37,740

To Gross profit 9,710

(Transfer to profit & loss a/c)

2,93,900
2,93,900
Profit and loss account of Swarajya Emporium for the year ended 31st December, 2017

Dr Cr

Particulars Amount Particulars Amount

To Bad debts written off 800 By Gross profit

9,710
To Doubtful bad debts 3,160

To Depreciation on machinery 3,500

To Salaries 4,450

To Carriage outwards 800

To Rent 1,800
Add: Outstanding rent 170 8,550
1,970 By Net loss
____
(Transfer to Capital a/c)

To Discounts allowed 2,200

To Depreciation on business 1,380

premises.

------------
18,160
18,160
 Balance Sheet in the books of Swarajya as on 31st December 2017

Liabilities and capital Amount Assets Amount

Capital 1,59,000 Sundry Debtors 64,000

Less: Net loss 8,550 1,50,450 Less: Bad debts 800

----------

Sundry creditors 21,300 63,200

Less: Doubtful bad debts 3,160
Outstanding trade expenses 300 60,040
_____
Outstanding rent 170 Cash in hand 70

Bills Payables 15,000 Plant 35,000 31,500

Less: Depriciation@10% 3,500

_____

Business premises 69,000

67,620
Less.Depriciation@2% 1380

--------

Closing stock
24,900
Cash in Bank
3,090

1,87,220 1,87,220
5Th Chapter

Radha Krishna Enterprises wants to install a machinery. They received two quotations.
Machinery X costs Rs. 10,00,000/- its annual returns are expected to be Rs. 3,00,000/- per
annum for 5 years. Machinery Y costs 8,00,000/- and its annual cash inflows are as follows:
Year 1 2 3 4 5
Profits 2,00,000 2,50,000 3,00,000 3,00,000 2,50,000
summarize the best project by using payback technique

A. PAY BACK PERIOD OF MACHINE X:

Payback period =Actual investment /Annual cash inflows
=10,00,000 / 3,00,000
=3.33 Years
MACHINE-B
Year 1 2 3 4 5
Cash 2,00,000 2,50,000 3,00,000 3,00,000 2,50,000
Inflows
CCIF 2,00,000 4,50,000 7,50,000 10,50,000 13,00,000

Investment laid in between 3rd and 4th years.

Therefore, Pay Back Period =
Initial Investment - CCIF of L1
L1 + -------------------------------------
CCIF of L2 - CCIF of L1

8,00,000 – 7,50,000
= 3 + -----------------------------
10,50,000– 7,50,000

50,000
= 3 + --------------
3,00,000

= 3+0.167 =3.167
Note: Payback period of Machine X is 3.33 years and Machine Y is 3.167 years.
Hence machine Y is acceptable.
Subhani and sons has given the following information:
Particulars Project-A Project-B
Estimated cost 2,00,000 3,00,000
Estimated life 5years 6 years
Estimated scrap 50,000 60,000
Annual returns:
Year 1 1,00,000 1,20,000
Year 2 1,00,000 90,000
Year 3 80,000 90,000
Year 4 60,000 65,000
Year 5 50,000 50,000
Year 6 -- 40,000
Solve project proposals and select the best by using ARR
Answer:

Project-A

Average Returns = Total returns / No. Of years

Total Profits = 1,00,000 + 1,00,000 + 80,000+60,000 +50,000 = 3,90,000
No. Of years = 5Years
Average Returns = 3,90,000/5 = 78,000
Average investment = 1/2(Investment – Salvage value) + Salvage value
= ½ (2,00,000-50,000) +50,000 = 1,25,000
Accounting Rate Return = Average Returns / Average Investment X 100
= 78,000/ 1,25,000 X 100
= 62.4%
Project-B
Average Returns = Total returns / No. Of years
Total Profits = 1,20,000 + 90,000 + 90,000+65,000 +50,000 + 40,000 = 4,55,000
No. Of years = 6Years
Average Returns = 4,55,000/6 = 75,833
Average investment = 1/2(Investment – Salvage value) + Salvage value
= ½ (3,00,000-60,000) +60,000 = 1,80,000
Accounting Rate Return = Average Returns / Average Investment X 100
= 75,833/ 1,80,000 X 100
= 42.129%
 Comparing to Project A and Project B proposals Project A having the
high ARR so Project A is accepted.

Inspect the following details relating to the two projects A and B, suggest which one is to
accepted under NPV and IRR method. The company’s discount rate is 10%
Particulars Project-A Project-B
Estimated cost 2,00,000 3,00,000
Estimated life 5years 6years
Estimated scrap 50,000 60,000
Annual returns:
Year 1 1,00,000 1,20,000
Year 2 1,00,000 90,000
Year 3 80,000 90,000
Year 4 60,000 65,000
Year 5 50,000 50,000
Year 6 -- 40,000

A. Calculation of NPVs of cash inflows

Year Project A Project B
Cash NPV@10% Net Present Cash NPV@10% Net
inflows Value inflows Present
Value
1 1,00,000 0.909 90,900 1,20,000 0.909 1,09,909
2 1,00,000 0.826 82,600 90,000 0.826 74,340
3 80,000 0.751 60,080 90,000 0.751 67,590
4 60,000 0..683 40,980 65,000 0..683 44,395
5 50,000 0.621 31,050 50,000 0.621 31,050
6 -- -- -- 40,000 0.564 22,560
Scrap 50,000 0..621 31,050 60,000 0.564 33,840
NPV of cash inflows 3,36,660 NPV of cash inflows 3,33,684
Less: NPV of outflows 2,00,000 Less: NPV of outflows 3,00,000
1,36,000 33,684

Note: - Project A is acceptable.

 Calculation of IRR from the following cash inflows Assumed factors 10% and 20%

Year Project A
Cash NPV@10% Net Present Cash NPV@20% Net
inflows Value inflows Present
Value
1 1,00,000 0.909 90,900 1,00,000 0.833 83300
2 1,00,000 0.826 82,600 1,00,000 0.694 69400
3 80,000 0.751 60,080 80,000 0.578 46240
4 60,000 0..683 40,980 60,000 0.482 28920
5 50,000 0.621 31,050 50,000 0.402 20100
6 -- -- -- -- -- --
Scrap 50,000 0..621 31,050 50,000 0.402 20100
NPV of cash inflows 3,36,660 NPV of cash inflows 2,68,060
Less: NPV of outflows 2,00,000
1,36,000

Formula:

P1 – Q
IRR = L+ --------- X D
P1 –P2
L- Lower discount rate

P1 - Present value of cash inflows at lower rate.

P2 - Present value of cash inflows at higher rate.

Q- Actual investment

D- Difference in Discount rates.

3,36,000 – 2,00,000
10% + ------------------------------X (20-10)
3,36,000 – 2,68,060

IRR = 10% +20 = 30%

 Year Project B IRR
Cash DF@10% Net Present Cash DF@20% Net
inflows Value inflows Present
Value
1 1,20,000 0.909 1,09,909 1,20,000 0.833 99960
2 90,000 0.826 74,340 90,000 0.694 62460

3 90,000 0.751 67,590 90,000 0.578 52020

4 65,000 0..683 44,395 65,000 0.482 31330

5 50,000 0.621 31,050 50,000 0.402 20100

6 40,000 0.564 22,560 40,000 0.335 13400
Scrap 60,000 0..564 33,840 60,000 0.335 20100
PV of cash inflows 3,36,684 PV of cash inflows 299370

Formula:
P1 – Q
IRR = L+ --------- X D
P1 –P2
L- Lower discount rate

P1 - Present value of cash inflows at lower rate.

P2 - Present value of cash inflows at higher rate.

Q- Actual investment
D- Difference in Discount rates.

3,36.684 – 3,00,000
10% + ------------------------------- X (20-10)
3,36,684 – 2,99,370

10% + 9.73 = 19.73%

Comparing to Project A IRR and Project B IRR Project A IRR is higher than project B
IRR so Project A is Acceptable.
Discover the Average Rate of Return from the following data relating to CNC Machine-I and
Machine-II
Cost Rs.3,00,000/- each
Estimated life 3 years each
Estimated scrap Rs.60,000/- each
Additional working capital Rs.2,50,000/- each
Tax rate 50%
The estimated cash inflows after taxes for each machine are as given below:

Year 1 2 3 4
Machine-I 1,50,000 3,00,000 1,50,000 --
Machine-II 2,00,000 3,00,000 2,50,000 1,50,000

Answer:

A. Machine – I
Average Returns = Total returns / No. Of years
Total Profits = 1,50,000 + 3,00,000 + 1,50,000 = 6,00,000
No. Of years = 3 Years
Average Returns = 6,00,000/3 = 2,00,000
Average investment = 1/2(Investment – Salvage value) + Salvage value + Additional
Working Capital
= ½ (3,00,000-60,000) +60,000 +2,50,000 = 4,30,000
Average Rate of Return = Average Returns / Average Investment X 100
= 2,00,000/ 4,30,000 X 100
= 46.51%
Machine – II
Average Returns = Total returns / No. Of years
Total Profits = 2,00,000 + 3,00,000 + 2,50,000 + 1,50,000 = 9,00,000
No. Of years = 4 Years
Average Returns = 9,00,000/4 = 2,25,000
Average investment = 1/2( Investment – Salvage value) + Salvage value +
Additional Working Capital
= ½ (3,00,000-60,000) +60,000 +2,50,000 = 4,30,000
Average Rate Return = Average Returns / Average Investment X 100
= 2,25,000/ 4,30,000 X 100
= 52.32%

Comparing to Machine -I and Machine -II ARR Machinery-II ARR is higher than
Machinery-I ARR so Machinery-II is acceptable.