BBA402 &MANAGEMENT ACCOUNTING

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ASSIGNMENT

DRIVE	Fall 2015
PROGRAM	BBA
SEMESTER	IV
SUBJECT CODE & NAME	BBA 402 &MANAGEMENT ACCOUNTING
BK ID	B1713
CREDITS	4
MARKS	60

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

Question. 1. Management accounting is sensitive to management needs; however, it assists themanagement and does not replace it. Write down in detail the scope of managementaccounting.

Answer:The scope or field of management accounting is very wide and broad based and it includes a variety of aspects of business operations. The main aim of management accounting is to help management in its functions of planning, directing, controlling and areas of specialization included within the admit of management accounting. The scope of management accounting can be studied as follows:

1. Financial Accounting: Financial accounting forms the basis for analysis and interpretation for furnishing meaningful data to the management. The

Question. 2. From the following balance sheets of Dramas Ltd., compute the trend percentages using 31st December 2005 as the base year.

Assets & Liabilities                        Amount

                                         2005     2006    2007

Liabilities:

Share capital                 2,00,000    2,50,000    3,00,000

Reserves                       1,00,000   1,50,000     1,50,000

Loans                            2,00,000   1,00,000        50,000

Creditors                       3,00,000   4,00,000     2,00,000

                                    8,00,000   9,00,000      7,00,000

Assets:

Buildings                       2,00,000    2,50,000     3,00,000

Plant                             2,00,000    2,50,000     1,00,000

Stock                            2,50,000    2,50,000     1,50,000

Debtors                         1,00,000    1,00,000     1,00,000

Cash at Bank                    50,000      50,000        50,000

                                    8,00,000    9,00,000     7,00,000

    Preparation of comparative balance sheet with the increase or decrease in percentage

    Conclusions

Answer:Comparative balance sheet refers to comparing the current year balance sheet of a company over previous year balance sheet so as to get an idea how company has performed this year in comparison to previous year. Comparative balance sheet can be prepared in the following way –

1.       First step for preparing comparative balance sheet is to list all the asset and liabilities of the company.

Question. 3. Working capital requirement is determined by a wide variety of factors. Elaboratethose factors and explain all of them.

Answer:The factors determining working capital needs of a business firm are as follows:

1.            Size of the firm:A large firm needs more working capital than a small firm. In order to sustain the high volume of production and sales, a large firm has to maintain greater current assets.

2.            Nature of Business:A trading concern has to maintain more inventory than a manufacturing concern. Therefore, more working capital is required by a trading concern. Public utility concerns such as railways, electricity supply concerns, gas agencies require less working capital because most of their transactions are on cash basis. Similarly, hotels and restaurants need little working capital as stock and debtors are not high.

3.            Type of Production Process:A firm using labour intensive technique needs more working capital to pay wages and salaries. A highly automatic plant will need less working capital and more fixed capital. Working capital requirements are higher when raw materials account for a major proportion of the total cost.

4.            Length of Operating Cycle:Longer is the time gap between purchase of raw materials and receipt of cash from debtors, greater is the need for working capital. That is why firms having a lengthy and roundabout manufacturing process require more working capital. For example, a heavy engineering firm has a longer operating cycle than a rice mill.

5.            Inventory Turnover:Where the inventory is large and its turnover is slow, working capital required is more. Inventory turnover means the speed with which sales are made. For example, a jeweller has to maintain a high inventory of different types of jewellery and the movement of inventory is slow. Therefore, the working capital requirements of a jeweller are more than those of a grocer.

There are two concepts of working capital:

(i) Gross Working Capital: It refers to the capital invested in the total current or circulating assets of the enterprise. Current assets are those assets which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. Examples of current assets include: cash in hand, bills receivable, prepaid expenses, sundry debtors(less provision for bad debts), and inventories (raw materials, work-in-process and finished goods), accrued incomes etc.

(ii) Net Working Capital: The term ‘Net working capital’ has been defined in two different ways:

(a) It is the excess of current assets over current liabilities i.e,

Net Working Capital= Current Assets – Current Liabilities

This is the most commonly accepted definition.

This net working capital can be both positive (when current assets> current liabilities) or negative (when current liabilities> current assets). Current liabilities are those liabilities that are to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business. Examples of current liabilities include sundry creditors, bills payable, bank overdraft, outstanding expenses, short-term loans, etc.(

b) It is that portion of a firm’s current assets which is financedby long-term funds. For example: A business requires investment in current assets such as cash, bills receivable, short-term investment etc. to an extent of Rs.20,000. A part of this requirement can be financed by the firm by purchasing on credit or postponing certain payments or, in other words, by creation of current liabilities such as outstanding expenses, accounts payable. If the amount of current liabilities comes to Rs.15, 000, the business will still need Rs.5, 000 for its working purposes. This amount may then have to be financed from long-term sources of funds.

Question 4.Variance analysis is a tool for measuring performance and depends on the principle of management by exception. Explain the uses of variance. From the following information, calculate sales margin price variance and sales margin volume variance.

Answer:Variance analysis is the quantitative investigation of the difference between actual and planned behavior. This analysis is used to maintain control over a business. For example, if you budget for sales to be $10,000 and actual sales are $8,000, variance analysis yields a difference of $2,000.

Variance analysis is especially effective when you review the amount of a variance on a trend line, so that sudden changes in the variance level from month to month are more readily apparent.

The SD is more intuitive because it is on the same scale as the data. However, when working with the normal distribution, the variance is the parameter not the SD. Thus, variances can be more useful when working with distributions mathematically

Question. 5. Explain the various steps in Budgetary Control. Advantages of Budgetary Control.

Steps in Budgetary Control

Advantages of Budgetary Control

Answer:

Question. 6. Use the following information to prepare:

A schedule of changes in working capital.

A funds flow statement of Sahana& Co.

Balance Sheet of Sahana&

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