B.Com/BBA Essentials of Financial Accounting JUNE 2024

Description

Essentials of Financial Accounting

June 2024 Examination

 

 

1. PCB Corporation, a manufacturing company, is preparing its financial statements for the current fiscal year. The company sells goods on credit to its customers and offers them various discounts and incentives to encourage prompt payment. Additionally, PCB Corporation receives income from interest on overdue accounts receivable.
2. Analyze how PCB Corporation should recognize revenue from the sale of goods on credit under AS 9 and Ind AS 18, considering the timing of revenue recognition and any specific criteria outlined in the standards.
3. Discuss how discounts and incentives offered by PCB Corporation to its customers should be accounted for in accordance with AS 9 and Ind AS 18.
4. Explain the accounting treatment for interest income earned by PCB Corporation on overdue accounts receivable under AS 9 and Ind AS 18.
5. Discuss any specific guidelines or requirements outlined in the standards regarding the recognition and measurement of interest income related to overdue receivables. (10 Marks)

Ans 1.

Introduction:

PCB Corporation, a manufacturing company, faces the complex task of recognizing revenue from the sale of goods on credit, managing discounts and incentives, and accounting for interest income on overdue accounts receivable. This examination aims to analyze the revenue recognition, treatment of discounts and incentives, and the accounting for interest income, as per Accounting Standard (AS) 9 and Indian Accounting Standard (Ind AS) 18.

Revenue recognition for goods sold on credit is a critical issue, especially regarding the timing of recognition and specific criteria that must be met. Discounts and incentives offered to customers further complicate the revenue recognition process. Lastly, interest income on overdue accounts receivable introduces additional

 

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2. DEF Corporation operates several branches, each operating independently and maintaining its own set of books. Under the independent branch method:

Data:

• DEF Corporation has three branches: Branch A, Branch B, and Branch C.
• Each branch maintains its own ledger accounts, including sales, expenses, assets, and liabilities.
• At the end of the accounting period, each branch prepares its own trial balance. The trial balances for Branch A, Branch B, and Branch C are as follows:

Branch A Trial Balance:

Account	Debit (₹)	Credit (₹)
Sales	1,50,000
Expenses	50,000
Inventory	75,000
Accounts Receivable		25,000
Cash	20,000
Capital	2,00,000
Total	2,95,000	2,25,000

 

Branch B Trial Balance:

Account	Debit (₹)	Credit (₹)
Sales	1,80,000
Expenses	60,000
Inventory	90,000
Accounts Receivable		35,000
Cash	25,000
Capital	2,30,000
Total	3,55,000	3,15,000

 

Branch C Trial Balance:

Account	Debit (₹)	Credit (₹)
Sales	2,00,000
Expenses	70,000
Inventory	1,10,000
Accounts Receivable		45,000
Cash	30,000
Capital	2,50,000
Total	4,60,000	4,05,000

 

Question based on above information:

1. Describe the process of maintaining accounts for each branch under the independent branch method.
2. How would the trial balance of each branch be adjusted and consolidated at the head office?
3. Identify potential challenges in reconciling accounts from multiple branches, considering differences in accounting practices and errors.
4. Discuss the steps that the head office would need to take to ensure accurate consolidation of financial statements.
5. Analyze the advantages of the independent branch method, such as local autonomy and specialized management.
6. Discuss the  disadvantages  of  the  independent  branch  method,  such  as  difficulty  in maintaining uniformity in reporting and increased complexity in consolidation.  (10 Marks)

Ans 2.

Introduction

The independent branch method is a significant approach in accounting, allowing corporations with multiple branches to maintain separate sets of books for each branch. This method provides several benefits, including local autonomy and specialized management at each branch. Under this method, each branch maintains its own ledger accounts, prepares its own financial statements, and is accountable for its profits and

 

3a. ABC Ltd.  Is  constructing  a fixed  asset.  Following  are  the expenses  incurred  on  the construction:

Materials Rs. 10,00,000

Direct Expenses Rs. 2,50,000

Total Direct Labour Rs. 5,00,000 (1/10th of the total labour time was chargeable to the construction)

Total office and administrative expenses Rs. 8,00,000 (5% is chargeable to the construction) Depreciation on the assets used for the construction of this assets Rs. 10,000. Calculate the cost of fixed assets.     (5 Marks)

Ans 3a.

Introduction

When constructing a fixed asset, it’s essential to accurately calculate the total cost incurred during the construction process. This includes expenses such as materials, direct expenses, direct labor, office, and administrative expenses, and depreciation on assets used for construction. By calculating these costs, ABC Ltd. can determine the total cost of the fixed asset, which is crucial for proper accounting