BCOC 131 Financial Accounting Solved Assignment 2024- 2024
IGNOU BCOM Solved Assignment 2024 - 25
Valid from 1st January 2024 to 31st December 2024
TUTOR MARKED ASSIGNMENT
TUTOR MARKED ASSIGNMENT
COURSE CODE: BCOC-131
COURSE TITLE: FINANCIAL ACCOUNTING
ASSIGNMENT CODE: BCOC-131/TMA/2024-25
COVERAGE: ALL BLOCKS
Maximum Marks: 100
Note: Attempt all the questions.
Section-A (Attempt all the questions. Each question carries 10 marks.)
1. Explain the objectives of Accounting and briefly describe the qualitative characteristics of accounting information. (10)
Ans: The main objective of Accounting is to provide financial information to stakeholders. This financial information is normally given via financial statements, which are prepared on the basis of Generally Accepted Accounting Principles (GAAP). There are various accounting standards developed by professional accounting bodies all over the world. In India, these are governed by The Institute of Chartered Accountants of India, (ICAI). In the US, the American Institute of Certified Public Accountants (AICPA) is responsible to lay down the standards. The Financial Accounting Standards Board (FASB) is the body that sets up the International Accounting Standards. These standards basically deal with accounting treatment of business transactions and disclosing the same in financial statements.
The following objectives of accounting will explain the width of the application of this knowledge stream:
(a) To ascertain the amount of profit or loss made by the business i.e. to compare the income earned versus the expenses incurred and the net result thereof.
(b) To know the financial position of the business i.e. to assess what the business owns and what it owes.
(c) To provide a record for compliance with statutes and laws applicable.
(d) To enable the readers to assess progress made by the business over a period of time.
(e) To disclose information needed by different stakeholders.
Accounting Information is a set of financial data indicating an organization's resources, revenues, debts or expenses. Accounting information must possess the following qualitative characteristics:
1. Reliability: Reliability means the users must be able to depend on the information.
2. Relevance: To be relevant, information must be available in time, must help in prediction and feedback.
3. Understandability: Understandability means decision-makers must interpret accounting information in the same sense as it is prepared and conveyed to them.
4. Comparability: The users of the accounting information must be able to compare various aspects of an entity over different time period and with other entities.
5. Timeliness: Timeliness is how quickly information is available to users of accounting information. The less timely (thus resulting in older information), the less useful information is for decision-making. Timeliness matters for accounting information because it competes with other information.
2. What do you mean by principle of double entry? Give the rules of debit and credit with suitable examples. (10)
Ans: Principle of Double Entry: Double Entry is an accounting system that records the effects of transactions and other events in at least two accounts with equal debits and credits. Under this system all accounts i.e., Personal, real and nominal accounts are maintained. It is a complete system of recording business transactions. The true profit and true financial position of any business organisation can be ascertained with the help of double entry system of accounting.
Rules of Debit and Credit
1. Traditional Approach: Under this approach, Accounts are classified in to three namely real accounts, personal accounts and nominal accounts. There are separate rules for each type of accounts they are as follows
2. Real accounts: An account relating to an asset or property is called real account. Cash, furniture, plant and machinery etc are examples of real accounts the debit, credit rule applicable to real account is:
- Debit what comes in
- Credit what goes out
For example: If furniture is purchase for cash, then furniture comes in within the organisation so it is debited and cash goes out from the organisation so it is credited.
1. Personal accounts: It includes the account of person with whom the business deals. These accounts are classified in to three categories
a) Natural personal accounts: The term natural persons mean persons who are creation of god. For e.g.; -Raja’s accounts, Gupta’s accounts etc. b) Artificial personal accounts: These accounts include accounts of corporate bodies or institutions c) Representative personal account-these are accounts which represents certain person or group of persons. For example, salary due, rent outstanding etc. The rule of personal account is- Debit the receiver
- Credit the giver
For example, goods purchased from Mr. A on credit. Mr. A in this case is giver so he is credited and purchases account is debited.
Again, a goods sold to Mr. B. Mr. B in this case is receiver of goods, so Mr. B is debited and sales is credited.
3) Nominal accounts: Accounts relating to expenses and losses and incomes and gains are called nominal accounts. Salary accounts, commission account etc are examples. The rule of nominal account is
- Debit all expenses and losses
- Credit all incomes and gains
For example, Rent paid in cash. Rent paid is an expense so it is debited and cash is credited.
Again, Salaries received in cash. Salary received is an income so it is credited and cash is debited.
Modern approach: Under this approach accounts are classified into five categories namely Assets, Liabilities, Capital, Incomes & Gains and Expenses & Losses. There are separate rules for each particular which are as follows:
| Asset A/c | : | Increase Dr. | : | Decrease Cr. |
| Liability A/c | : | Increase Cr. | : | Decrease Dr. |
| Capital A/c | : | Increase Cr. | : | Decrease Dr. |
| Revenue A/c | : | Increase Cr. | : | Decrease Dr. |
| Expenses A/c | : | Increase Dr. | : | Decrease Cr. |
3. What is meant by convergence to IFRS? Explain and distinguish between Indian AS and International AS. (10)
Ans:4. What is a trial Balance? Explain the causes for disagreement of a Trial Balance. (10)
Ans: After posting the accounts in the Ledger, a statement is prepared to show separately the debit and credit balances and to check the arithmetic accuracy of the accounts of a certain period such a statement is known as the Trial Balance.
The agreement of a Trial balance ensures arithmetical accuracy only. A concern can prepare Trial balance at any time, but its preparation as on the closing date of an accounting year is compulsory.
According to M.S. Gosav “Trial balance is a statement containing the balances of all ledger accounts, as at any given date, arranged in the form of debit and credit columns placed side by side and prepared with the object of checking the arithmetical accuracy of ledger postings”.
Types of Errors in Trial Balance
1. Errors of Commission: These are the errors which are committed due to the wrong posting of wrong transaction, wrong totaling or balancing of the accounts, wrong casting of the subsidiary books. Such errors are called Errors of Commission.
2. Errors of Omission: The errors of omission may be committed at the time of recording the transaction in the books of original entry or while posting to the ledger. These can be of two types:
i) Errors of complete omission
ii) Errors of partial commission
When a transaction is completely omitted from recording in the books of original record, it is an error of complete omission. When a transaction is partially omitted from posting in ledger, it is an error of partial omission.
3. Error of principle: Accounting entries are recorded as per the generally accepted accounting principles. If any of these principles are violated or ignored, errors resulting from such violation are known as errors of principle. An error of principle may occur due to incorrect classification of expenditure or receipt between capital and revenue. 1998, 2007
4. Compensating errors: When two or more errors are committed in such a way that the effect of these errors on the debits and credits of accounts is nil, such errors are called compensating errors. Such errors do not affect the tally of the trial balance.
Trial balance disclosed some of the errors and does not disclosed some other errors. This is given below.
A) Errors disclosed by the Trial Balance
- Wrong totaling of subsidiary books
- Posting of an amount on the wrong side
- Omission to post an amount into ledger
- Double posting or omission of posting
- Posting wrong amount
- Error in balancing
B) Errors not disclosed by the Trial Balance
- Error of principle
- Error of omission
- Errors of Commission
- Recording wrong amount in the books of original entry
- Compensating errors
- Describe the methods of recording depreciation in the books of account. How is the balance of the provisions for depreciation account shown in the Balance Sheet? (10)
Section-B (Attempt all the questions. Each question carries 6 marks.)
5. Give closing entries for Trading and Profit and Loss account. (6)
Ans:6. Provide the accounting treatment of adjustments in the final accounts for the following: (6)
a) Income received in advance.
b) Provision for discount on debtors.
Ans:7. Explain the steps involved in order to calculate the interest when total cash price of instalments are given. (6)
Ans: Calculation of Interest:
When rate of interest is given: Cash price less down payment add interest less installment. This process continues till the last instalment.
When rate of interest is not given following steps will be followed:
- 1st Step: Ascertain total amount of interest from the following formula = total amount paid - cash price and then ascertain the interest installment with the help of ratio of amount due at the beginning of each year. Here total amount paid will be some of down payment and total of all installment paid,
- 2nd Step: Amount due at the beginning of each year will be calculated as:
a) Amount due at the beginning of 1st year = total amount- down payment
b) Amount due at the beginning of 2nd year = first year due – 1st installment
c) Amount due at the beginning of 3rd year = second year due – 2nd installment and so on
- 3rd Step: Divide the total amount of interest in the ratio of amount outstanding at the beginning of each year.
8. State the journal entries to be passed in order to open various accounts under Stock and Debtor system applicable in case of hire purchase business. (6)
Ans:9. Name the systems of maintaining the accounts of a dependent branch and describe how profit is ascertained under each system. (6)
Ans: Methods of Branch Accounting – Dependent Branch
In case of a dependent branch, the head office may keep accounts of the branch according to any of the following systems
a) Debtors System – Most Popular Method
b) Stock and Debtors system
c) Wholesale System
d) Final Account system
(1) Debtors System (Synthetic Method): This system is adopted in case of branches of small size. Under this system, a branch account is opened separately for each branch in the books of head office. This account is nominal account in nature and is prepared to calculate profit and loss for each branch. The goods supplied by the head office to the branch may be either at cost price or at cost plus profit.
In case of a dependent branch, head office prepares branch account to find the profit or loss of the branch. This account starts with opening balance of assets and debited with all the goods and cash sent to branch and credited with all the realisation from branch and ends with closing balance of assets which is similar to debtors account prepared by a seller. That’s why this method is called debtor system.
Under this method, a separate branch account for each branch is prepared to find profit or loss of each Branch:
| Particulars | Amount | Particulars | Amount |
| To Branch Assets (Opening balance)
- Branch Cash - Branch Debtors - Branch Debtors - Branch Furniture To Goods Sent to Branch Less: Return to Head office To Bank (Expenses paid by HO) To Branch Liabilities (Closing Balance) |
By Branch Liabilities (Opening Balance) By Bank (Remittance) - Cash Sales - Collection from debtors - Any cash realised at branch Less: Expenses paid by branch manager By Branch Assets (closing balance) |
(2) Stock and Debtors System (Analytical method): Profit and loss of a branch can be found out by preparing branch account but there is another method for the same purpose. This method is known as stock and debtor’s method. It is a detailed method of keeping branch accounts and is very useful where the branch turnover is sufficiently high. In this method instead of branch account, separate accounts such as branch stock account, branch debtors account, goods sent to branch account, branch expenses, branch profit and loss account are prepared. Sometimes branch cash account is also prepared to record the cash transactions at branch. If goods are sent by head office to branch at invoice price, branch adjustment account is opened to record profit included in goods sent and unsold stock.
(3) Wholesale Branch System: Manufacturers may sell goods to the consumers either through the wholesalers and approved stockists or through their branches or also do self-retailing. Sometimes head office sent goods to its branches at wholesale price. If the retail sale price of branch is more than the wholesale price of head, the difference will be the profit at branch. For example, head office sends goods costing Rs. 100 per unit to its branch at a wholesale price of Rs. 130 and branch sold the goods at Rs. 200, then the profit made by the branch will be Rs. 70 (200 – 130).
(4) Final Accounts System: The head office can also ascertain the profit or loss of a dependent branch by preparing branch trading and profit and loss a/c at cost. In this method, profit and loss of each branch can be ascertained. All expenses whether direct or indirect is shown in profit and loss account.
Section-C (Attempt all the questions. Each question carries 10 marks.)
10. Briefly explain various methods of recording the joint venture transactions without maintaining separate set of books. (10)
Ans:11. Write short notes on the following: (10)
a) Ledger creation.
b) Creating invoices.
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