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SYMBIOSIS CENTRE FOR MANAGEMENT & HUMAN RESOURCE DEVELOPMENT

Suggested Answer
MA-1 Purpose of General-Purpose Financial Statements:

Decision Making: Provide information to stakeholders such as investors, creditors, and management for making
economic decisions.
Performance Evaluation: Help in assessing the financial performance and cash flows of the business.
Compliance: Ensure adherence to legal and regulatory requirements.
Accountability: Provide a record of financial activities to demonstrate stewardship over resources.
Fundamental Assumptions in Financial Accounting:
1. Going Concern: Assumes the business will continue its operations indefinitely.
2. Accrual Basis: Revenues and expenses are recognized when they are incurred, not when cash is received or
paid.
3. Consistency: The same accounting methods are applied consistently from one period to another.
Definitions:
1. Fixed Assets:
Fixed assets, also referred to as Property, Plant, and Equipment (PPE) are tangible assets that:
Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.
Are expected to be used during more than one reporting period.
Examples: Buildings, machinery, equipment, vehicles, and land.
2. Definition: Current assets are assets that are expected to be realized or consumed within the normal operating cycle
of the enterprise or within 12 months from the balance sheet date, whichever is longer. Current assets are usually used
to cover current liabilities and include assets held primarily for the purpose of being traded.
Examples: Cash, accounts receivable, inventories, and marketable securities.
3. Definition: Non-current liabilities, also called long-term liabilities, are financial obligations that are due beyond 12
months from the reporting date or beyond the operating cycle of the business.
Examples: Long-term loans, bonds payable, deferred tax liabilities, lease obligations.
4. Definition: Current liabilities are obligations that are expected to be settled within the enterprise's normal operating
cycle or within 12 months from the reporting date, whichever is longer. These are financial obligations arising from past
transactions and are required to be settled using current assets.
Examples: Accounts payable, short-term borrowings, taxes payable, accrued expenses, dividends payable.
5. Definition: Shareholders' funds, also known as shareholders' equity, represent the residual interest in the assets of
the entity after deducting liabilities. This includes share capital, reserves, retained earnings, and other comprehensive
income. Components: Share capital: The initial equity capital contributed by shareholders, Reserves: These can
include general reserves, capital reserves, and revaluation reserves. Retained earnings: Cumulative earnings
retained in the business after paying dividends.
MA-2
1. July 1:
o Debit: Purchase/Raw Materials/Goods ₹80,000
o Credit: Accounts Payable ₹80,000
2. July 3:
o Debit: Electricity Expense ₹5,000
o Credit: Cash/Bank ₹5,000
3. July 5:
o Debit: Cash/Bank ₹60,000
o Credit: Accounts Receivable ₹60,000
4. July 8:
o Credit: Sales Revenue ₹90,000
5. July 10:
o Debit: Rent Expense ₹20,000
6. July 12:
o Debit: Cash/Bank ₹1,50,000
o Credit: Bank Loan ₹1,50,000
7. July 15:
o Debit: Office Equipment ₹50,000
o Credit: Accounts Payable ₹50,000
8. July 18:
o Debit: Interest Expense ₹10,000
o Credit: Cash/bank ₹10,000
9. July 20:
o Credit: Dividend Income ₹8,000
10. July 25:
o Debit: Insurance Expense ₹12,000
MA-3
MA-4
Cash flow Statement for Year ended 31st March 2024
SR No PARTICULARS AMOUNT AMOUNT
A Cash flow from Operating Activities
Cash Received from Sales 6,00,000
Cash Received from Government Grant 20,000
Cash Paid to Suppliers -3,50,000
Cash Paid for Operating Expenses -1,00,000
Cash Paid for Insurance -7,000
Cash Paid for Advertising -15,000
Cash Paid for Office Supplies -6,000
Cash Paid for Maintenance of Equipment -8,000
Cash flow from Operating Activities beforre Tax Paid 1,34,000
Cash Paid for Income Tax -20,000
Cash Flow from Operating Activities 1,14,000 1,14,000
B Cash flow from Investing Activities
Cash Received from Sale of Old Equipment 45,000
Cash Received from Rent of Property 25,000
Cash Received from Investment Income 35,000
Cash Received from Dividend Income 10,000
Cash Paid for Purchase of Equipment -1,50,000
Cash flow from Investing Activities -35,000 -35,000
C Cash flow from Financing Activities
Cash Received from Borrowing 2,00,000
Dividends Paid -30,000
Cash Paid for Interest on Borrowing -12,000
Cash flow from Financing Activities 1,58,000 1,58,000
D Gross Cash Flow 237000
E Opening Cash Flow 70,000
F Closing Cash Flow 3,07,000

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SYMBIOSIS CENTRE FOR MANAGEMENT & HUMAN RESOURCE DEVELOPMENT

MA-1 Purpose of General-Purpose Financial Statements:

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