SWAMI VIVEKANAND SUBHARTI UNIVERSITY

MASTER OF BUSINESS ADMINISTRATION

MBA – (FINANCE & MARKETTING)

ASSIGNMENTS

1ST YEAR – 2021-22(1ST SEMESTER)

NAME: THANDAPANI.P

FATHER’S NAME: PALANI S

ENROLLMENT NO: AR2203256113801

ROLL NO : A220311940

SUBJECT: MBA-03 – Accounting for Managers

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Q: [Link] do you mean by final accounts?

What is meant by Final Account?

Final accounts are the means of conveying to the management, owners and
interested outsiders a concise picture of profitability and financial position of
the business. It is the end product of accounting process which gives
consolidated accounting information of the accounting period, after the
accounting period is over.

These accounts summaries all the accounting information recorded in the

subsidiary books and the ledger running into hundreds or thousands of pages.
The basis of preparation of final accounts is the trial balance containing debit
and credit balances.

Accordingly, accounts are classified into five categories.

1. Assets Account
2. Liabilities Account
3. Capital Account
4. Account of Expenses and Loss items
5. Account of Income and Gain items or Revenue Account

Illustration: 

Classify the following accounts as per accounting equation approach:

1. Capital brought in
2. Land purchased
3. Purchases
4. Sales
5. Cash paid
6. Cash received
7. Subscription received
8. Furniture purchased
9. Sales returns
10. Purchase returns
11. Bank A/c
12. Wages paid
13. Bank overdraft
14. Outstanding salary
15. Interest accrued

Solution

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 1. Capital A/c
2. Assets A/c
3. Expenses A/c
4. Revenue A/c
5. Assets A/c
6. Assets A/c
7. Revenue A/c
8. Assets A/c
9. Revenue A/c
10. Expenses A/c
11. Assets A/c
12. Expenses A/c
13. Liabilities A/c
14. Liabilities A/c
15. Assets A/c
Final accounts can be calculated as follows:

1. Make a list of trial balance items and adjustments

2. Record debit items on expense side of P and L account or assets side in
balance sheet
3. Record credit items on the income side of trading P and L account or liabilities
side of balance sheet.
4. Balance the profit and loss account and determine profit or loss from the trial
balance
5. Add any profit obtained to the capital on the liabilities side of the balance
sheet.
6. Make a total of the balance sheet.

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Q:2. Describe the fundamental accounting equation.

Answer:

The fundamental accounting equation seeks to explain the relationship between the
assets constituting a business and the funds that have been used to finance their
purchase. Also known as the balance sheet equation, it forms the basis of the
double-entry system of bookkeeping.

As per the Fundamental Accounting Equation,

Assets = Liabilities + Owners Equity

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The underlying rationale behind the fundamental accounting equation is that of
equilibrium. This means that every plus should have a corresponding minus, and
every debit should have a corresponding credit.

The entire concept of the fundamental accounting equation is contained within the
below-mentioned three variables. Namely,

1. Assets

2. Liabilities &

3. Owner’s Equity

The fundamental accounting equation explains that the value of a company’s assets

will always be equal to the sum of the borrowed funds and own funds. Also, given
any two variables, the third variable can be easily obtained. The fundamental
accounting equation also forms the basis of the balance sheet and profit & loss
account. Without a doubt, any transaction in a business will impact one of the three
variables. Therefore, it is important to understand the context of each variable.

Elements of the Fundamental Accounting Equation

Assets

Assets represent the economic resources of the entity deployed to generate future
income. They can be fixed assets held by the entity for a considerable period of time
and used year after year. Examples include land, machinery, computers, etc. There
are also current assets forming a part of the company’s working capital. These
assets keep changing from asset to money and back in the ordinary course of work.
Examples include stock, receivables, advance payments, etc. Lastly, there also
exists a class of assets called the intangibles. They refer to assets such as goodwill,
patents, copyrights & trademarks. Though not tangible, these assets bring huge
value to an organization.

Owner’s Equity

It represents the owner’s own investment in the business. Extending from the
fundamental accounting equation, the owner’s equity equals the total assets held as
reduced by the external liabilities (Assets – Liabilities). For this reason, it is also
referred to as Net Assets. All adjustments for profits, reserves, and drawings reflect
in this account.

Liabilities

Liabilities refer to the amount a business owes to outsiders. They can also be
classified as current and non-current borrowings. Non-current debt refers to the long-
term obligation payable within a period of not less than 12 months. They are
generally for financing projects with longer maturities. Current borrowings refer to the

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short-term obligation a company has to take on in the regular course of business—
for example, buyer’s credit for purchasing a stock or a bank overdraft.
Mathematically, Liabilities equals the difference between total assets and owner’s
equity (Total Assets – Equity).

Q:3. What is the definition of Accountancy?

Answer:

The present age is the age of trade business and commerce.

After Globalisation, liberalization, and privatization, business is
increasing day by day and becoming complex also.
An organization cannot remember all its dealing for long. Therefore,
it becomes necessary to keep a written record of all business
transactions day by day, this lead to the development of accounting.
Let us understand the meaning of basic accounting.

Meaning of Accounting
Lucas Pacioli is considered to be the Father of modern bookkeeping.
The only recording of financial transactions in bookkeeping is not
enough to achieve the commercial objective, but also it is important
to know the financial result.

It is necessary that the recorded transaction is collected, classified

and summarised. This work is done by accounting. After identifying
the financial transaction, through the basic accounting process, these
are recorded properly in a systematic manner in the books. The
meaning of accounting can be made clearer by understanding its
process Process of Accounting

Basic Accounting

Accounting is a systematic process of identifying recording

measuring classify verifying some rising interpreter and
communicating financial information. It reveals profit or loss for a

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given period and the value and the nature of a firm’s assets and
liabilities and owners’ equity.

In other words, accounting is a practice and body of knowledge

concerned primarily with

 Method for recording transactions,

 Keeping a financial record,
 Performing internal audit
 Reporting and analysing financial information to the
management and
 Advising on taxation matters.
 Definitions of Accounting

Some prominent definitions of accounting to help us better

understand the meaning of basic accounting.

According to the Committee of Terminology of American Institute of

Certified Public Account:” Accounting is the art of recording,
classifying summarising in a significant manner and in terms of
money, transaction, and events which are, in part at least of a
financial character and interpreting the results thereof.”

According to Bierman and Drebin:” Accounting may be defined as

identifying, measuring, recording and communicating of financial
information.”

Therefore accounting can be defined as” the process of recording,

summarising, reporting and analysing required financial information
relating to the economic events of an organization to the interested
users for making decisions and components”.

Q:4. Discuss the advantage and disadvantage of fixed instalment method and
diminishing balance method.

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Answer:

(A).Advantages Of Fixed Installment Method  of Depreciation

the main advantages of fixed installment method of depreciation are given below

* Fixed installment method is simple to understand and easy to calculate the amount
of depreciation.

* Fixed installment method provides the same amount of depreciation throughout the
life of the asset.

* Fixed installment method helps to estimate the amount of depreciation in advance.

   
Disadvantages of Fixed Installment Method of Depreciation

Following are the main disadvantages of fixed installment method of depreciation.

* Fixed installment method does not take into consideration the seasonal fluctuations
in the use of fixed assets. Depreciation amount per month will remain the same
irrespective of the use of machine.

* Equal amount of Depreciation is charged even though the capacity of the machine
declines every year.

(B). Main benefits or advantages of diminishing balance or reducing balance

method of provision of depreciation can be expressed as follows:

1. Simplicity

Diminishing balance method of providing depreciation is very simple technique. It

does not require special knowledge to calculate depreciation. It is so simple that
anyone can understand easily.

2. Scientific

Diminishing balance method is systematic and scientific method of providing

depreciation. Depreciation amount gradually decreases with the potential and
efficiency of the asset

3. Tax Benefit

Reducing balance or diminishing balance method is acceptable by tax authorities.

So, it provides tax benefit to the company.

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4. Suitable For Large Scale Business

This method of depreciation is suitable for large scaled business large and complex
technology with large machines and equipment.

5. Reduce the Impact of Obsolescence

In diminishing balance method, higher amount of depreciation is deducted in initial

years. So, it helps to reduce the impact of obsolescence of assets.

6. Suitable For Valuable Assets

This method is very suitable and applicable for valuable assets like land and
building, machines and equipment having long life.

Major drawbacks or disadvantages of diminishing balance or reducing balance

method of providing depreciation can be described as follows:

1. Not Suitable For All Assets

Diminishing balance method of provision of depreciation is not suitable or applicable

for less valued assets having short life. It is suitable only for valuable assets having
long life.

2. Loss of Interest

In this method of depreciation, deducted depreciation amount of previous is not

invested outside. So, the company does not earn any interest or revenue from it. So,
interest is lost on capital investment.

3. Higher Rate

Diminishing balance method requires higher depreciation rate to recover the cost of
assets.

4. Book Value

In diminishing balance method, value of asset cannot be written off. The book value
of asset never becomes zero.

5. Difficulty in Calculation

Under this method, there is no uniformity in depreciation amount. It is difficult to

obtain the exact rate of depreciation.

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Q:5. What is Working Capital?

Answer:

Working capital, also known as net working capital (NWC), is the difference between
a company’s current assets—such as cash, accounts receivable/customers’ unpaid
bills, and inventories of raw materials and finished goods—and its current liabilities,
such as accounts payable and debts.

NWC is a measure of a company’s liquidity, operational efficiency, and short-term

financial health. If a company has substantial positive NWC, then it should have the
potential to invest and grow. If a company’s current assets do not exceed its current
liabilities, then it may have trouble growing or paying back creditors. It might even go
bankrupt.

KEY TAKEAWAYS

 Working capital, also called net working capital (NWC), represents the
difference between a company’s current assets and current liabilities.

 NWC is a measure of a company’s liquidity and short-term financial health.

 A company has negative NWC if its ratio of current assets to liabilities is less
than one.

 Positive NWC indicates that a company can fund its current operations and
invest in future activities and growth.

 High NWC isn’t always a good thing. It might indicate that the business has
too much inventory or is not investing its excess cash.

Working Capital

Understanding Working Capital

NWC estimates are derived from the array of assets and liabilities on a
corporate balance sheet. Current assets listed include cash, accounts receivable,
inventory, and other assets that are expected to be liquidated or turned into cash in
less than one year. Current liabilities include accounts payable, wages, taxes
payable, and the current portion of long-term debt that’s due within one year. 1

To calculate NWC, compare the former with the latter—specifically, subtract one
from the other. The standard formula for NWC is current assets minus current
liabilities. A company has negative NWC if the equation produces a negative number
or if its working capital ratio, which is current assets divided by current liabilities, is
less than one.

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In the corporate finance world, “current” refers to a time period of one year or less.
Current assets are available within 12 months; current liabilities are due within 12
months.

Positive NWC indicates that a company can fund its current operations and invest in
future activities and growth.

NWC that is in line with or higher than the industry average for a company of
comparable size is generally considered acceptable. Low NWC may indicate a risk
of distress or default.

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