ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

(Department of Business Administration)

FINANCIAL ACCOUNTING (5533)

CHECKLIST

SEMESTER: SPRING, 2010

This packet comprises the following material:

1. Text Book (one)

2. Course Outlines
3. Assignment No. 1, 2
4. Assignment Forms ( 2 sets )

In this packet, if you find anything missing out of the above mentioned material, please
contact at the address given below:

The Deputy Registrar

Services Block No. 28
Allama Iqbal Open University
H-8, Islamabad.
Phone Nos. 051-9057611-12

Nadia Rashid
(Course Coordinator)
 ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
(Department of Business Administration)
WARNING
1. PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR SOLVING
THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD
OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.
2. SUBMITTING ASSIGNMENT(S) BORROWED OR STOLEN FROM
OTHER(S) AS ONE’S OWN WILL BE PENALIZED AS DEFINED IN
“AIOU PLAGIARISM POLICY”.
ASSIGNMENT No. 1
Course: Financial Accounting (5533) Semester: Spring 2010
Level: MBA Total Marks: 100
Pass Marks: 40
GUIDELINES FOR ASSIGNMENT No. 1:
The student should look upon the assignments as a test of knowledge, management skills,
and communication skills. When you write an assignment answer, you are indicating
your knowledge to the teacher:
 Your level of understanding of the subject;
 How clearly you think?
 How well you can reflect on your knowledge & experience?
 How well you can use your knowledge in solving problems, explaining situations,
and describing organizations and management?
 How professional you are, and how much care and attention you give to what you do?

To answer a question effectively, address the question directly, bring important related
issues into the discussion, refer to sources, and indicate how principles from the course
materials apply. The student must also be able to identify important problems and
implications arising from the answer.

For citing references, writing bibliographies, and formatting the assignment, APA format
should be followed.

Q. 1 (a) Critically examine the difference between various forms of organization

exists in Pakistan. (05)
(b) Property management professionals provides building management services
to owners of office buildings and shopping centers. The company closes its
accounts at the end of the calendar year. The manner in which the company
has recorded several transactions occurring during 2002 is described as
follows:
i. On September 1, received advance payment from a shopping center for
property management services to be performed over the three-month

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 period beginning September 1. The entire amount received was credited
directly to a revenue account.
ii. On December 1, received advance payment from the same customer
described in part a for services to be rendered over the three-month
period beginning December 1. This time, the entire amount received was
credited to an unearned revenue account.
iii. Rendered management services for many customers in December.
Normal procedure is to record revenue on the date the customer is billed,
which is early in the month after the services have been rendered.
iv. On December 15, made full payment for a one-year insurance policy that
goes into effect on January 2, 2003. The cost of the policy was debited to
Unexpired Insurance.
v. Numerous purchases of equipment were debited to asset accounts, rather
than to expense accounts.
vi. Payroll expense is recorded when employees are paid. Payday for the last
two weeks of December falls on January 2, 2003.
Instructions:
For each item above, explain whether an adjusting entry is needed at December
21, 2002, and state the reasons for your answer. If you recommend an adjusting
entry, explain the effects this entry would have on assets, liabilities, owners’
equity, revenue, and expense in the 2002 financial statements. (15)

Q. 2 Island Hopper is an airline providing passenger and freight service among some
Pacific islands. The accounts are adjusted and closed each month. On June 30, the
trial balance shown below was prepared from the ledgers.

HEMPSTEAD REALTY
Trial Balance
March 31, 19--
Cash Rs. 59,500
Accounts receivable 15,000
Office supplies 1,700
Land 60,000
Building 180,000
Accumulated depreciation: Building Rs. 1,000
Office Equipment 42,000
Accumulated depreciation: Office 1,400
Equipment
Accounts payable 29,500
M. Valentino, capital 253,300
M. Valentino, drawing 9,000
Commissions earned 100,000
Advertising expense 1,800
Automobile rental expense 1,000

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 Salaries expense 14,000
Telephone expense 1,200
Rs.385,200 Rs.385,200
Instructions:
From the trial balance and supplementary data given, prepare the following as of
March 31, 19__.
a. Adjusting entries for depreciation during March of building and of office equipment.
b. Adjusting entry to recognize as expense the cost of office supplies used in March. At the
end of March, the supplies on hand are estimated to have a cost of Rs.1, 000.
c. Adjusted trial balance.
d. Income statement for the month of March.
e. A balance sheet at March 31 in report form. Assume no additional investments by owner
during March.
f. Closing entries. (20)

Q. 3 (a) Critically evaluate the difference between Perpetual and Periodic inventory
system. (05)
(b) River Imports sold merchandise to Marine Systems for Rs.8, 000, offering
terms of 2/10, n/30. Marine Systems paid for the merchandise within the
discount period. Both companies use perpetual inventory systems.
i. Prepare journal entries in the accounting records of River Imports to
account for this sale and the subsequent collection. Assume the original
cost of the merchandise to River Imports had been Rs.4,800.
ii. Prepare journal entries in the accounting records of Marine Systems to
account for the purchase and subsequent payment. Marine Systems
records purchases of merchandise at net cost.
iii. Assume that because of a change in personnel, Marine Systems failed to
pay for this merchandise within the discount period. Prepare the journal
entry in the accounting records of Marine Systems to record payment
after the discount period. (15)

Q. 4 The cash transactions and cash balances of Puma Farm for July were as follows:

1. The ledger account for Cash showed a balance at July 31 of Rs.33,533.9.

2. The July bank statement showed a closing balance of Rs.37,856.24.
3. The cash received on July 31, amounted to Rs.8,034.3. It was left at the bank
in the night depository chute after banking hours on July 31 and was
therefore not recorded by the bank on the July statement.
4. Also included with the July bank statement was a debit memorandum from
the bank for Rs.15.3 representing service charges for July.
5. A credit memorandum enclosed with the July bank statement indicated that a
non-interest-bearing note receivable for Rs.9,090 from Rene Manes, left with
the bank for collection, had been collected and the proceeds credited to the
account of Puma Farm.
6. Comparison of the paid checks returned by the bank with the entries in the
accounting records revealed that check no.821 for Rs.1,670.04, issued on

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 July 15, in payment for office equipment, had been erroneously entered in
Puma’s records as Rs.1,706.04.
7. Examination of the paid checks also revealed that three checks, all issued in
July, had not yet been paid by the bank: no.811 for Rs.1,722.24; no. 814 for
Rs.1,281.6; no. 823 for Rs.602.1.
8. Included with the July bank statement was a Rs.360 check drawn by Ahmed
Bilal, a customer of Puma Farm. This check was marked “NSF”. It had been
included in the deposit of July 27, but had been charged against the
company’s account on July 31.

Instructions:
a) Prepare bank reconciliation for Puma Farm on July 31.
b) Prepare journal entries (in general journal form) to adjust the accounts on
July 31. Assume that the accounts have not been closed.
c) State the amount of cash which should be included in the balance sheet on
July 31. (20)

Q. 5 Discuss different steps involved in developing accounting information system in an

organization. (20)
ASSIGNMENT No. 2
Total Marks: 100
Pass Marks: 40
This assignment is a research-oriented activity. You are required to obtain information
from a business/commercial organization and prepare a report of about 1000 words on
the issue allotted to you to be submitted to your teacher for evaluation.
You are required to select one of the following issues according to the last digit of your
roll number. For example, if your roll number is P-3427180 then you will select issue # 0
(the last digit):-
ISSUES:
0. Critically examine the accounting system of a trading organization of Pakistan.
1. Select an organization of Pakistan. Critically evaluate its method of accounting for
uncollectible accounts receivable in its financial statements & in its income tax
returns.
2. Select any manufacturing organization of Pakistan and analyze the operation of
periodic inventory system in it.
3. Select a registered partnership firm of Pakistan and discuss its tax issues.
4. Study an organization to see the selection criteria of suitable depreciation method
for various assets.
5. Select a partnership firm which has been dissolved and then critically evaluate its
causes of dissolution.
6. Select a corporation in Pakistan and analyze its procedure of stock issuance.
7. Compare 3 years’ income statement of any banking organization and highlight the
variation in its mark-up income section. Discuss the reasons for variation as well.
8. Select any organization and analyze the techniques used by it to minimize the
credit risk.

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9. Prepare a detail report of accounting for marketable securities for any specific
organization selected by you.
The report should follow the following format:
1.Title page
2.Acknowledgements
3. An abstract (one page summary of the paper)
4.Table of contents
5.Introduction to the issue (brief history & significance of issue assigned)
6.Practical study of the organization (with respect to the issue)
7.Data collection methods
8. SWOT analysis (strengths, weaknesses, opportunities & threats) relevant to the
issue assigned
9.Conclusion (one page brief covering important aspects of your report)
10. Recommendations (specific recommendations relevant to issue assigned)
11. References (as per APA format)
12. Annexes (if any)

GUIDELINES FOR ASSIGNMENT No. 2:

 1.5 line spacing
 Use headers and subheads throughout all sections
 Organization of ideas
 Writing skills (spelling, grammar, punctuation)
 Professionalism (readability and general appearance)
 Do more than repeat the text
 Express a point of view and defend it.

WORKSHOP:
The workshop presentations provide you opportunity to express your on communication
skills, knowledge & understanding of concepts learned during practical study assigned in
assignment No. 2.

You should use transparencies and any other material for effective presentation. The
transparencies are not the presentation, but only a tool; the presentation is the combination
of the transparencies and your speech comments explanation etc. Workshop presentation
transparencies should only be in typed format.

The transparencies should follow the following format:

1) Title page
2) An abstract (one page summary of the paper)
3) Introduction to the issue (brief history & significance of issue assigned)
4) Practical study of the organization (with respect to the issue)
5) Data collection methods
6) SWOT analysis (strengths, weaknesses, opportunities & threats) relevant to the
issue assigned
7) Conclusion (one page brief covering important aspects of your report)

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8) Recommendations (specific recommendations relevant to issue assigned)

GUIDELINES FOR WORKSHOP PRESENTATION:

 Make eye contact and react to the audience. Don't read from the transparencies or
from report, and don't look too much at the transparencies (occasional glances are
acceptable to help in recalling the topic to cover).
 A 15-minute presentation can be practiced several times in advance, so do that
until you are confident enough. Some people also use a mirror when rehearsing as
a substitute for an audience.

WEIGHTAGE OF THEORY & PRACTICAL ASPECTS IN ASSIGNMENT No. 2 &

WORKSHOP PRESENTATIONS
Assignment # 2 & workshop presentations are evaluated on the basis of theory & its
applicability. The weightage of each aspect would be:
Theory: 60%
Applicability (practical study of the organization): 40%

FINANCIAL ACCOUNTING
COURSE OUTLINES (MBA 5533)
Unit-1: Introduction to Accounting
1.1. Evolution of accounting
1.2. Accounting theory & conceptual framework
1.3. Why study Accounting?
1.4. Accounting Information System(AIS)
1.5. Manual, computerized, and computer based accounting system
1.6. Basic accounting model
1.7. Financial Statements
1.8. Characteristics of financial statements
1.9. Constraints on relevant, reliable information
1.10. Users of accounting information
1.11. Major fields of accounting
Unit-2: Recording, Year-end Adjustments and Financial Statements
2.1 Business Events and business transactions
2.2 Evidence and authentication of transactions
2.3 The recording process
2.4 The journal and posting in the ledger
2.5 Balancing the accounts
2.6 Chart of accounts
2.7 Limitations of trial balance
2.8 Concept of accruals and deferrals
2.9 Need for adjusting entries
2.10 Prepaid expenses

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 2.11 Accrued expenses
2.12 Accrued incomes
2.13 Depreciation
2.14 Adjusted trial balance
2.15 Work sheet
2.16 Closing entries
2.17 Preparation of financial statements
Unit-3: Accounting for trading organizations
3.1 Difference between manufacturing and merchandising organizations
3.2 Merchandizing activities
3.3 Accounting for purchases
3.4 Accounting for sales and inventory
3.5 Returns, Allowances, and Discounts
3.6 Merchandise Reporting
3.7 Work sheet for merchandising concern
3.8 Adjusting entries
3.9 Closing entries
3.10 Cost of goods sold statement, Income statement and balance sheet
Unit-4: Cash, Accounts Receivable, and Temporary Investments
4.1 Cash
4.1.1 Cash management
4.1.2 Internal control over cash
4.1.3 Cash receipts and disbursements
4.1.4 Reconciling the bank statements
4.1.5 The impress petty cash system
4.1.6 The statement of cash flows
4.2 Accounts receivable
4.2.1 Uncollectible accounts
4.2.2 Write-off methods
4.2.3 Estimation of credit losses
4.2.4 Management of accounts receivable
4.2.5 Techniques to minimize credit losses
4.2.6 Evaluating the quality of accounts receivable
4.2.7 Notes receivable and interest charges
4.2.8 Credit card sales
4.2.9 Credit risk
4.3 Short term investments
4.3.1 Purchases of marketable securities
4.3.2 Recognition of investment revenue
4.3.3 Adjusting marketable securities to market value
4.3.4 Reporting investment transaction
Unit-5: Accounting Information System
5.1. Forms of business
5.2. What is an Accounting Information System (AIS)?

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 5.3. Manual, computerized, and computer based AIS
5.4. Using an AIS to add value to business
5.5. The future role of the AIS
5.6. Elements and procedures of AIS
5.7. Development of an accounting information system
5.7.1. Analysis
5.7.2. Design
5.7.3. Implementation
5.7.4. Follow up
5.8. Special Journals
5.9. Subsidiary ledgers
5.10. Special journals and posting process
5.10.1. Sales journal
5.10.2. Returns inward journal
5.10.3. Cash book
5.10.4. Posting from the cash book
5.10.5. General journal
Unit-6: Accounting for Inventory & Plant Assets
6.1. Inventory systems
6.2. Types of inventories
6.3. Identifiable costing method
6.4. Cost flow assumptions (LIFO, FIFO, …)
6.5. Weighted and moving average method
6.6. Lower of cost or market
6.7. Net realizable value
6.8. Advantages and disadvantages of LIFO, FIFO and AVCO
6.9. Accounting for Property; Plant and Equipment
6.10. Property, plant and equipment
6.10.1. Cost of property, plant and equipment
6.10.2. Subsequent expenditure
6.11. Depreciation
6.11.1. Depreciation methods
6.11.2. Acquisition of plant assets
6.11.3. Disposal
6.11.4. Trade-in
6.11.5. Improvements
6.11.6. Intangible assets and amortization
6.11.7. Wasting assets and depletion
Unit-7: Partnerships
7.1 Partnerships, advantages and disadvantages
7.2 Partnership deed
7.3 Accounts of partnerships
7.4 Closing the partnership accounts at year-end
7.5 Partnership profits and income taxes

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 7.6 Dividing partnership net income
7.7 Dissolution of partnership
7.8 Liquidation of partnership
Unit-8: Corporations
8.1. Corporation, advantages and disadvantages
8.2 Stockholders’ equity and dividends.
8.3. Rights of common stockholders and preferred stockholders
8.4. Issuance, face value, book value and market value of stocks
8.5 Donated capital
8.6. Changes in accounting policies
8.8. Earning per share (EPS)
8.9. Stock split and repurchase
8.10. Statement of stockholders equity
8.11. Statement of retained earnings
8.12. Statutory books
8.13. Financial statements

Unit-9: Special Type of Liabilities

9.1. What are bonds
9.2. Bond interest
9.3. Accounting for bonds payable
9.3.1 Issue at par
9.3.2 Discount
9.3.3 Premium
9.4. Year-end adjustments for bond interest expense
9.5. Bond sinking fund
9.6. Investment in Corporate Securities
9.7. Short-term and Long-term Investment
9.8. Investment in marketable securities
9.9. Accounting for marketable securities
9.10. Sale of investment
9.11 Accounts of Holding Companies and Non Profit Accounting
9.12. Accounting for parent, subsidiary and affiliates
9.13. Recording inter company transactions
9.14. Methods of accounting for consolidations
9.14.1 Consolidated balance sheet
9.14.2 Consolidated income statements
9.14.3 Other consolidated financial statements
9.15 Accounting of payroll

Recommended Books:
1. Financial and Managerial Accounting by Williams, Haka, Bettner
2. Accounting Information System by Romney, Steinbart

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