Ans 1. (a) The statement is false.

Bookkeeping is the recording of fnancial transactions. Transactions include sales,

purchases, income, receipts and payments by an individual or organization.
Bookkeeping is usually performed by a bookkeeper. Many individuals mistakenly
consider bookkeeping and accounting to be the same thing. This confusion is
understandable because the accounting process includes the bookkeeping function,
but is just one part of the accounting process. The accountant creates reports from
the recorded fnancial transactions recorded by the bookkeeper and fles forms with
government agencies. There are some common methods of bookkeeping such as
the singleentry bookkeeping system and the doubleentry bookkeeping system. But
while these systems may be seen as !real! bookkeeping, any process that involves
the recording of fnancial transactions is a bookkeeping process.
Financial accountancy (or financial accounting) is the field of accountancy concerned with the
preparation of financial statements for decision makers, such as stockholders, suppliers, banks,
employees, government agencies, owners, and other stakeholders. Financial capital maintenance
can be measured in either nominal monetary units or units of constant purchasing power. The
fundamental need for financial accounting is to reduce principalagent problem by measuring
and monitoring agents' performance and reporting the results to interested users.
Financial accountancy is used to prepare accounting information for people outside the
organiation or not involved in the day!to!day running of the company. "anagement accounting
provides accounting information to help managers make decisions to manage the business.
#n short, financial accounting is the process of summariing financial data taken from an
organiation's accounting records and publishing in the form of annual (or more fre$uent) reports
for the benefit of people outside the organiation.
(b) The statement is false.
#n accounting, a current asset is an asset which can either be converted to cash or used to pay
current liabilities within %& months. Typical current assets include cash, cash e$uivalents, short!
term investments, accounts receivable, inventory and the portion of prepaid liabilities which will
be paid within a year.'n a balance sheet, assets will typically be classified into current assets and
long!term assets.
(n asset that can be converted into cash $uickly and with minimal impact to the price
received. )i$uid assets are generally regarded in the same light as cash because their prices are
relatively stable when they are sold on the open market.
( c) The statement is false.
#n economics, fixed costs are business e*penses that are not dependent on the level of goods or
services produced by the business. They tend to be time!related, such as salaries or rents being
paid per month, and are often referred to as overhead costs. This is in contrast to variable costs,
which are volume!related (and are paid per $uantity produced).
#n management accounting, fi*ed costs are defined as e*penses that do not change as a function
of the activity of a business, within the relevant period. For e*ample, a retailer must pay rent and
utility bills irrespective of sales.
#n marketing, it is necessary to know how costs divide between variable and fi*ed. This
distinction is crucial in forecasting the earnings generated by various changes in unit sales and
thus the financial impact of proposed marketing campaigns. #n a survey of nearly &++ senior
marketing managers, ,+ percent responded that they found the -variable and fi*ed costs- metric
very useful.
(d) The statement is false.
#n economics, fixed costs are business e*penses that are not dependent on the level of goods or
services produced by the business. They tend to be time!related, such as salaries or rents being
paid per month, and are often referred to as overhead costs. This is in contrast to variable costs,
which are volume!related (and are paid per $uantity produced).
#n management accounting, fi*ed costs are defined as e*penses that do not change as a function
of the activity of a business, within the relevant period. For e*ample, a retailer must pay rent and
utility bills irrespective of sales.
(e) The statement is false.
(n incentive that a seller offers to a buyer in return for paying a bill owed before the scheduled
due date. The seller will usually reduce the amount owed by the buyer by a small percentage or a
set dollar amount. #f used properly, cash discounts improve the days!sales!outstanding aspect of
a business's cash conversion cycle.
(f) Treatment of cost of idle time depends upon whether it is normal or abnormal. The cost of
abnormal idle time is e*cluded from cost.
.nproductive time on the part of employees or machines as a result of factors beyond their
control. #dle time is the time associated with waiting, or when a piece of machinery is not being
used but could be. #dle time could also be associated with computing, and in that case refers to
processing time.
(g) The statement is false.
(bsorption costing means that all of the manufacturing costs are absorbed by the units produced.
#n other words, the cost of a finished unit in inventory will include direct materials, direct labor,
and both variable and fixed manufacturing overhead. (s a result, absorption costing is also
referred to as full costing or the full absorption method.
(bsorption costing is often contrasted with variable costing or direct costing. .nder variable or
direct costing, the fi*ed manufacturing overhead costs are not allocated or assigned to (not
absorbed by) the products manufactured. /ariable costing is often useful for management0s
decision!making. 1owever, absorption costing is re$uired for e*ternal financial reporting and for
income ta* reporting.
Marginal cost is the change in total cost that arises when the $uantity produced changes by one
unit. That is, it is the cost of producing one more unit of a good. #f the good being produced is
infinitely divisible, so the sie of a marginal cost will change with volume, as a non!linear and
non!proportional cost function includes the following2
variable terms dependent to volume,
constant terms independent to volume and occurring with the respective lot sie,
3ump fi* cost increase or decrease dependent to steps of volume increase.
(h) The statement is false.
Activity-based costing "ABC# is a costing methodology that identifes activities in
an organization and assigns the cost of each activity with resources to all products
and services according to the actual consumption by each. This model assigns more
indirect costs "overhead# into direct costs compared to conventional costing models.
4ith (56, an organiation can soundly estimate the cost elements of entire products and
services. That may help inform a company's decision to either2
#dentify and eliminate those products and services that are unprofitable and lower the
prices of those that are overpriced (product and service portfolio aim)
'r identify and eliminate production or service processes that are ineffective and allocate
processing concepts that lead to the very same product at a better yield (process re!
engineering aim).
#n a business organiation, the (56 methodology assigns an organiation's resource costs
through activities to the products and services provided to its customers. (56 is generally used
as a tool for understanding product and customer cost and profitability based on the production
or performing processes. (s such, (56 has predominantly been used to support strategic
decisions such as pricing, outsourcing, identification and measurement of process improvement
initiatives.
(ns &. (a) (ssumptions are traditions and customs, which have been developed over a period
of time and well!accepted by the profession. 5asic accounting assumptions provide a foundation
for recording the transactions and preparing the financial statements there from. There are four
basic assumptions that are considered as cornerstones of the foundation of accounting.
These are2
1. Accounting entity,
2. Money measurement,
3. Going concern and
4. Accounting period.

(b)
M/s Gavasar !is"#anat" $ %o.
Trading 7 8rofit 7 )oss (ccount
(for the year ended "arch 9%,&++:)
&articulars Amount
' (s.)
&articulars Amount
'(s.)
To opening stock
To purchases
%,9,,+++
)ess 2
&,,++
To Freight on 8urchases
To ;ross 8rofit c<d
To =alaries
To >ent for ;odown
To >ates 7 Ta*es
To 8rinting 7 =tationary
To ?lectricity 6harges
To #nsurance 8remium
To ;eneral 'ffice ?*penses
To @epreciation2
5uilding %,A++
"otor 6ar B,+++
Furniture 7 Fi*tures &,+++
'ffice ?$uipment 9,+++
To 6arriage 'utward
To @iscount (llowed
To #nterest on )oan
To 8rovision for @oubtful @ebts B,9++
(dd2 5ad @ebts &,+++
,,9++
)ess 2 ?*isting 8rovision 9,+++
To 5ank 6harges
To "otor 6ar ?*penses
To Cet 8rofit to 6apital (<c
%,99,B++
%,&++
D%,:++
&,,:,B++
%&,+++
,,+++
&,%++
%,:++
&,&++
%,&++
9,+++
%+,A++
&,+++
&,B++
9,9++
9,9++
%,,++
9,,++
%:,B++
5y =ales
&,&:,,++
)ess2 >eturns
B,&++
5y 6losing =tock
5y ;ross 8rofit b<d
5y @iscount >eceived
&,&B,B++
BB,+++
&,,:,B++
D%,:++
%,,++
D9,B++ D9,B++
M/s Gavasar !is"#anat" $ %o.
5()(C6? =1??T
(as on "arch 9%,&++:)
)iabilities (mount
(>s.)
(ssets (mount
(>s.)
6apital %,,&,+++
(dd2 Cet 8rofit %:,B++
%,:+,B++
)ess2 @rawings %D,A++
)oan from /ishwanath 9+,+++
(dd2 #nterest ,++
=undry 6reditors
'utstanding ?*penses2
=alaries %,+++
>ent A++
$,%&,'(
(
)(,%((
*),(((
$,+((
Fi*ed (ssets2
5uilding ,+,+++
)ess2 @epreciation 9,+++
"otor 6ar &+,+++
)ess2 @epreciation B,+++
'ffice ?$uipment &+,+++
)ess2 @epreciation 9,+++
Furniture 7 Fi*tures &+,+++
)ess2 @epreciation &,+++
6urrent (ssets2
=tock in trade
=undry @ebtors :,,+++
)ess2 8rovision for 5ad @ebts B,9++
6ash at 5ank
6ash in 1and
8repaid #nsurance
&,9:,+++ &,9:,+++
,ns ). "a# -ost accounting is regarded as the process of collecting, analyzing,
summarizing and evaluating various alternative courses of action involving costs
and advising the management on the most appropriate course of action based on
the cost e.ciency and capability of the management.
The organizations and managers are most of the times interested in and
worried for the costs. The control of the costs of the past, present and future is part
of the job of all the managers in a company. /n the companies that try to
have profts, the control of costs a0ects directly to them. 1nowing the costs of the
products is essential for decisionmaking regarding price and mi2 assignation of
products and services.
Objectives Of Cost Accounting:
The ob3ectives of cost accounting are ascertained of cost, fi*ation of selling price, proper
recording and presentation of cost data to management for measuring efficiency and for cost
control. The aim is to know the methods by which e*penditure on materials, wages and
overheads is recorded, classified and allocated so that the cost of products and services may be
accurately ascertainedE these costs may be related to sales and profitability may be
determined. The following are the main ob3ectives of cost accounting2
Ascertainment of Cost: The primary objectives of the cost accounting are
to ascertain cost of each product, process, job, operation or service rendered.
Ascertainment of Proftability: -ost accounting determines the
proftability of each product, process, job, operation or service rendered. The
statement of proft or losses and Balance 3heet also submitted to the
management periodically.
Classifcation of Cost: -ost accounting classifes cost in to di0erent
elements such as materials, laborer and e2penses. /t has further been divided
as direct cost and indirect cost for cost control and recording.
Control of Cost: -ost accounting aims at controlling cost by setting
standards and compared with the actual, the deviation or variation between
two is identifed and necessary steps are taken to control them.
Fixation or Selling Prices: -ost accounting guides management in regard
to f2ation of selling prices of the products. /t is also helpful for preparing
tender and 4uotations.
"b# ,nnual 5emand6 *((( Tones.
7rdering cost6 8s. %9 order.
Orde
r
sie
!"mbe
r of
orders
#Ann"al
demand$or
der sie%
&al"e$ord
er
#!o' of
orders$
Price%
Averag
e
(nvento
ry
#val"e of
eac)
order$*%
Orderin
g
cost#+s
'%
#, +s'
-$order%
Carryin
g
cost#+s
'%
#*./ of
average
inventory%
Ann"al
Cost#+s
'%
#Ann"al
0emand1
Price%
2otal
cost#+
s'%
#OC 3
CC3 AC%
&(( &( $,&(( %(( $&( $&( &*,((( &*,&*(
&+( $% $,*:+ :); '% $*; &),%(( &),;**
;(( + *,%*( &,)&( )( *%* &),&(( &),%'*
&,((( & $$,*(( +,:(( $& $,$*( &&,;(( &),'+&
*,((( $ &&,*(( $$,&(( % &,&*( &&,*(( &*,%*%

<ere we can see that when the order size is ;(( Tones, the total cost is
minimum. Therefore, the best 4uantity to order is ;(( Tones.
O+
#a% 7verheads costs are also termed as /ndirect or supplementary costs.
These are costs which cannot be wholly debited directly to a particular job.
They are neither direct material nor direct wages nor are they e2penses of a
direct nature and therefore, they cannot enter the cost of manufacture direct.
But they constitute an element of costs as they have been incurred for
manufacturing a commodity or making it ready for sale. They may happen
either inside or outside the factory.
#b% Absorption of over)eads
,fter allocation and apportionment of overheads to their departments, we have to
include it in the cost of production. The process of this is called absorption of
overheads. =or calculating the total cost of production, overhead is its main part. =or
including overhead in each unit of production, we have to study the methods of
overhead absorption.
#c% Over or 4nder absorption of Over)ead
4hen, under historical costing system, on the basis of actual figures, the ascertainment of
recovery rate is made, then the overhead which has been actually incurred becomes e$ual
to the overhead recovered. =o in this case there is no chance that the overhead will be
over or under absorbedE but difference may arise between the overhead incurred 7
overhead recovered or absorbed, when, on the basis of estimated or e*pected figures,
recovery rate is predetermined. .nder!absorption of overhead arises, when the amount of
overhead that has been incurred e*ceeds the amount of overhead that has been absorbed.
4hereas, over!absorption of overhead arises when the amount of overhead that has been
absorbed e*ceeds the amount of overhead that has been incurred. 5ecause of any one or
both of the below mentioned two reasons, the under or over!absorption of overhead may
arise2
(a) the actual overhead e*penses is more or less than the estimates of overhead,
(b) the base of actual amount of the absorption (cost of material, wages, hours of work etc.,
as the case may be) is different from the base of estimated absorption.
*reatment of +ver or ,nder-a.sor.ed +ver"ead in %ost Accounts/
#n three different ways, the treatment of over or under!absorbed overhead may be done2
'a) 0riting off to costing profit and loss account/
#f the difference between actual overheads and absorbed overheads is small, it is simply
transferred to costing profit and loss account.
#f however this difference is large the reason should be investigated. 4hen the cause is
abnormal the amount of under < over!absorption should be treated as abnormal loss and
transferred to costing profit and loss accent.
(b) ,se of supplementary rate/
Under this method, the difference of actual and estimated overheads is charged to
three parts, i.e. cost of work-in-progress, cost of finished stock and cost of sales
proportionately. This is usually done with the supplementary rate of overheads. The
supplementary rate is computed by dividing under/over-absorbed overheads with
the actual base.
(c) %arry for#ard to t"e next year/
Sometimes it is recommended that the difference should be carried forward to the
next year-with the expectation that in the next year the position will be corrected.
ut this results in rendering the costing data of both the years misleading. !owever
this method is suitable only in case of new pro"ects which will have more outputs in
the next period than in the initial period.
#n this method, the amount of under-absorbed overheads$ Transferred to the debit
of overhead reserve suspense account and the amount of over-absorbed overheads
are transferred to its credit side.
%b& 5AC6(!7 6O4+ +A27
8arge
5ac)ine
Small
5ac)ine
Fixed cost:
>ighting
Manager?s 3alary
8ent and 8ates
6o"rly Fixed cost #0ivided by 9-. 6o"rs%
&ariable cost:
5epreciation ",fter deducting scrap value#
+epairs: oil and maintenance:
"8s. *(((9$&((( <ours for >arge machine#
"8s. $;((9'((( <ours for 3mall machine#
Po;er@
&( units A + paise per unit for large machine
& units A + paise per unit for small machine
5ac)ine 6o"r +ate
<='>.
?..
@..
><='>.
?'--
?'99
.'99
-
?
-
@'9*
->
?..
*..
9->
?'.?
.'@9
-
.'?9
-
.'?.
?'-=
Aorking !otes:
Comp"tation of 8ig)ting c)arges:
>ighting charges per Bear6 8s. $;&(
>ighting charges for ) months6 $;&(C)9$&6 8s. *++
Dorkers employed by large machine6 &C)6%
Dorkers employed bu small machine6*C&6;
8atio of employees of large and small machine6 %@;
Eow, 8s. *++ will be apportioned in the above ratio
i.e. 8s. $'+ for large machines and 8s. &%( for small machines
or
8s. ':.+( per large machine and 8s. %+ per small machine.
Comp"tation of rent and rates:
Total of workshop 8s.%,*(( per annum and for three months6 %*((C)9$&6
8s. $,%((
Eow, each large machine occupies $9*
th
of space and each small machine
occupies $9;
th
of space. Therefore, the amount to be apportioned to machines
for three months will be@
Fach >arge machine6 $%((C$9*6 8s. *((
Fach small machine6$%((C$9;6 8s. &((
0epreciation:
Ger hour for large machine6 "&(((($*(((#9$&(((6 8s. $.))
Ger hour for small machine6 "*((($((#9'(((6 8s. (.*)
'ns (. %a& 1oint &roducts are t#o or more products, produced from t"e same process or
operation, considered to .e of relative e2ual importance. 8ricing for 3oint products is a little
more comple* than pricing for a single product. To begin with there are two demand curves. The
characteristics of each demand curve could be different. @emand for one product could be
greater than for the other product. 6onsumers of one product could be more price elastic than the
consumers of the other product (and therefore more sensitive to changes in the product's price).
To complicate things further, both products, because they are produced 3ointly, share a common
marginal cost curve. There are comple*ities in the production function also. Their production
could be linked in the sense that they are bi!products (referred to as complements in production),
or they could be linked in the sense that they can be produced by the same inputs (referred to as
substitutes in production). (lso, production of the 3oint product could be in fi*ed proportions or
in variable proportions.
( .y-product is a secondary product derived from a manufacturing process or chemical
reaction. #t is not the primary product or service being produced. #n the conte*t of production, a
by!product can be defined as the 'output from a 3oint production process that is minor in $uantity
and<or C>/ when compared to the main products'. 5ecause they are deemed to have no
influence on reported financial results, by!products do not receive allocations of 3oint costs. 5y
products also by convention are not inventoried, but the C>/ from by!products is typically
recognied as 'other income' or as a reduction of 3oint production processing costs when the by!
product is produced. ( by!product can be useful and marketable or it can be considered waste.
,ns +. "a# Break even point is a point where the gains of the business are e4ual to
the losses. The point defnes when an investment will generate a positive return.
The point where sales or revenues e4uals the e2penses. There is no proft made or
loss incurred at the breakeven point. /t is the lower limit of proft when prices are set
and margins are determined. /f the production is enhanced beyond this level, proft
shall accrue to the business and if it is decreased from this level, loss shall be
su0ered by the business.
CAS6 B+7AB 7&7! PO(!2
/t is the point where cash breaks even i.e. the volume of sales where cash
realization on account of sales will be su.cient to meet the immediate cash
liabilities. /t is the label of activities where the total costs under two alternatives are
same.
Dhile calculating the cash breakeven point, cash f2ed costs "i.e. e2cluding f2ed
share of depreciation and deferred e2penses# and cash contribution "i.e. after
making adjustments for variable share of depreciation etc. # are considered.
=ormula@
-ash breakeven point " in units# 6 cash f2ed cost9 cash contribution per unit
-ash breakeven point " in sales 8s.#6 cash f2ed cost C selling price per unit9 cash
contribution
per unit
CO5POS(27 B+7AB 7&7! PO(!2
This term is used to designate breakeven sales when a company sells more than one product or
service. ( break!even point for all the products or services combined can be determined, based
on the e*pected sales mi* and the composite or weighted average unit contribution margin.
"b# Marginal cost for the current year
5irect Material
8s. *.&(
5irect Dages
$.&(
Hariable 7verheads@
Dorks 7verheads
).((
Dales 7verheads
(.&+
Total Marginal -ost
;.%+
-ontribution per Init
%.)+
3elling Grice
$+.((
Statement of Proft on Sale of -.:... 4nits
3ales
8s. ',((,(((
>ess@ Hariable -ost "%(,(((C;.%+#
+,$',(((
-ontribution
),;$,(((
>ess@ =i2ed -ost
Dorks 7verheads "$,;(,(((J$;,(((# $,';,(((
3ales 7verheads " *+,(((J*,+((# *',+((
&,*:,+((
Groft
$,)),+((
Groft re4uired $,;(,+((
Groft on %(,((( units $,)),+((
Groft to be earned on &(,((( units *:,(((
Statement of 5inim"m Selling Price per 4nit for an order of *:... "nits
Hariable -ost "&(,(((C;.%+#
8s. $,:),(((
5esired Groft
*:,(((
Total 3ales
&,&(,(((
3elling Grice per Init 6 &,&(,((( 6 8s.$$
&(,(((
Herifcation @
8s.
3ales %(,((( units C $+
6 ',((,(((
&(,((( units C $$
6 &,&(,(((

$$,&(,(((
>ess@ Hariable -osts ;(,((( C ;.%+ %,'&,(((
=i2ed -osts &,*:,+((
',)',+((
Groft
$,;(,+((
Ans >' "a# The Balanced Scorecard "BSC# is a strategy performance management
tool a semistandard structured report, supported by proven design methods and
automation tools, that can be used by managers to keep track of the e2ecution of
activities by the sta0 within their control and to monitor the conse4uences arising
from these actions. /t is perhaps the best known of several such frameworks "it is
the most widely adopted performance management framework reported in the
annual survey of management tools undertaken by Bain K -ompany, and has been
widely adopted in Fnglishspeaking western countries and 3candinavia in the early
$''(s#. 3ince &(((, use of the Balanced 3corecard, its derivatives "e.g.,
Gerformance Grism#, and other similar tools "e.g., 8esults Based Management# has
also become common in the Middle Fast, ,sia and 3panishspeaking countries.
The characteristic of the 5alanced =corecard and its derivatives is the presentation of a mi*ture
of financial and non!financial measures each compared to a 'target' value within a single concise
report. The report is not meant to be a replacement for traditional financial or operational reports
but a succinct summary that captures the information most relevant to those reading it. #t is the
method by which this 'most relevant' information is determined (i.e., the design processes used to
select the content) that most differentiates the various versions of the tool in circulation.(The
5alanced =corecard also gives light to the company's vision and mission. These two elements
must always be referred to when preparing a balance scorecard).
(s a model of performance, the 5alanced =corecard is effective in that -it articulates the links
between leading inputs (human and physical), processes, and lagging outcomes and focuses on
the importance of managing these components to achieve the organiation's strategic
priorities.-
F&G
The first versions of 5alanced =corecard asserted that relevance should derive from the corporate
strategy, and proposed design methods that focused on choosing measures and targets associated
with the main activities re$uired to implement the strategy. (s the initial audience for this were
the readers of the 1arvard 5usiness >eview, the proposal was translated into a form that made
sense to a typical reader of that 3ournal ! one relevant to a mid!sied .= business. (ccordingly,
initial designs were encouraged to measure three categories of non!financial measure in addition
to financial outputs ! those of -6ustomer,- -#nternal 5usiness 8rocesses- and -)earning and
;rowth.- 6learly these categories were not so relevant to non!profits or units within comple*
organiations (which might have high degrees of internal specialiation), and much of the early
literature on 5alanced =corecard focused on suggestions of alternative 'perspectives' that might
have more relevance to these groups.
"odern 5alanced =corecard thinking has evolved considerably since the initial ideas proposed in
the late %H:+s and early %HH+s, and the modern performance management tools including
5alanced =corecard are significantly improved ! being more fle*ible (to suit a wider range of
organisational types) and more effective (as design methods have evolved to make them easier to
design, and use).
"b# 0irect 5aterial &ariances
5M-H 6 3td. -ost for ,ctual 7utput L ,ctual -ost
6 +,$&( C+C*.&( L &+,:(( C*.+(
6 $,(:,+&( L $,$+,%+( 6 ;,$)( " ,dverse#
"i# 5MGH 6 ,ctual Mty. Ised C " 38 L ,8#
"ii# 5MIH 6 &+,:(( C " *.&( *.+(#
6 &+,:(( C )( 6 8s. :,:$( " ,dverse#
6 38 C " 3td. Mty. for actual output L ,ctual Mty.#
6 *.&( C " +,$&( C +,&+,:((#
6 *.&( C " &+,%(( &+,:((#
6 *.&( C $(( 6 *&( " ,dverse#
Herfcation @
5M-H 6 5MGH J5MIH
8s. ;,$)( ",# 6 8s. :,:$( ",# J *&( ",#
5>-H 6 5irect >abour variances
6 3td. -ost for ,ctual 7utput L ,ctual -ost
6 +,$&( C ) C ) L *;,*;(
6 *%,(;( L *;,*;( 6 &,*(( " ,dverse#
"iii# 5>8H 6 ,ctual Time C " 38 L ,8#
6 $+,$+( C " ) L ).&(#
6 $+,$+( C .&( 6 8s. ),()( " ,#
6 38 C " 3td. Time for ,ctual 7utput L ,ctual Time#
6 ) C " +,$&( C ) L $+,$+(#
6 ) C " $+,)%( L $+,$+(#
6 ) C &$( 6 8s. %)( " =avourable#
Herifcation@
5>-H 6 5>8H J 5>FH
&,*(( " ,# 6 ),()( " , # J %)( " = #