B.Com/BBA Essentials of Financial Accounting Dec 2024

Description

Essentials of Financial Accounting

December 2024 Examination

 

 

1. A manufacturing company, XYZ Ltd., had the following transactions in January 2024:

• January 2: Purchased raw materials worth Rs. 15,000 on credit.
• January 5: Paid Rs. 2,500 for factory utilities in cash.
• January 10: Sold finished goods worth Rs. 25,000 on credit, with a cost of goods sold (COGS) of Rs. 15,000.
• January 15: Received Rs. 5,000 from customers for previous sales.
• January 20: Paid Rs. 7,000 towards the outstanding accounts payable for raw materials.

Required:

Prepare the journal entries for each of the above transactions. Post the journal entries to the appropriate ledger accounts.  (10 Marks)

Ans 1.

Introduction

Financial accounting is the backbone of any business, providing an organized record of transactions that helps stakeholders make informed decisions. It involves systematically documenting and interpreting a company’s financial activities to produce accurate financial statements. The process of recording transactions begins with journal entries, continues with posting to ledger accounts, and culminates in trial balances and financial reports. This problem explores the financial transactions of XYZ Ltd., a manufacturing company, during January 2024. Through

 

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2. Discuss the significance of the Statement of Cash Flows in financial reporting. How does it differ from the Income Statement and the Balance Sheet, and why is it essential for investors and creditors to review this statement? (10 Marks)

Ans 2.

Introduction

The Statement of Cash Flows (SCF) is a critical component of financial reporting, providing insights into a company’s cash inflows and outflows over a specific period. Unlike the Income Statement and Balance Sheet, which focus on profitability and financial position, the SCF highlights liquidity and the ability to generate cash to fund operations, investments, and financing activities. This statement bridges the gap between accrual-based accounting figures and actual cash movements, offering stakeholders a clearer understanding of the organization’s cash management. For investors and creditors, the SCF is indispensable as it reveals the company’s capacity

 

 

3. XYZ Ltd. is a growing manufacturing company facing increased competition in its industry. The company’s management is considering several changes to its financial reporting practices to enhance transparency and align with industry best practices. They are specifically focusing on the following areas:

• Changing from the historical cost method to the fair value measurement for certain investments.
• Implementing a new revenue recognition policy based on the percentage-of- completion method for long-term projects.
• Adjusting the method of depreciation from straight-line to declining balance for its machinery Required:

1. Analyze how each of these proposed changes would impact the financial statements of XYZ Ltd., considering the relevant accounting concepts and conventions. (5 Marks)

Ans 3a.

Introduction

XYZ Ltd., a growing manufacturing company, is considering changes to its financial reporting practices to enhance transparency and align with industry standards. These changes include adopting fair value measurement for investments, a percentage-of-completion method for revenue recognition, and a declining balance method for depreciation. Each proposed change will have significant implications for the company’s financial statements, impacting income, assets, liabilities, and overall financial representation. Understanding these effects in light of accounting concepts such as comparability, reliability, and relevance is essential for effective implementation.

Concept and

 

1. Discuss the potential advantages and disadvantages of these changes from both a financial reporting perspective and for decision-making by external stakeholders (investors, creditors, etc.) (5 Marks)

Ans 3b.

Introduction

XYZ Ltd.’s proposed changes to financial reporting practices aim to enhance transparency and decision-usefulness. However, these changes also bring both benefits and challenges for external stakeholders such as investors and creditors. Assessing the advantages and disadvantages of fair value measurement, the percentage-of-completion method, and the declining balance method is