Question A

Part 01
The prominent objectives of accounting can be considering as follows

 Day today transaction recording

 Financial statement preparation – sort, analyses of the transactions recorded
This will provide a good overview about the financial position of the specific organization.

These statements prepare after the financial analysis would support stakeholders in decision
making related activities in order to keep business improvement process continuous. Recognition
of every transaction as well as record keeping of each and every transaction is important to avoid
negligees of any transaction. First transactions will be journaled and then they will record in a
ledger. Thereafter all these figures will be assessed after a specific time range., which is another
objective of accounting. Further business required to know the current performances, prevailing
financial situation and the profit and loss of their businesses. Further this will help to make
information available on right time efficiently.

Part 02
specific standards as well as cycles applied by the association's group of the board that is
obligatory to make the monetary statement is called as the accounting policies. These contain a
few accounting policies, aspect as well as estimating frameworks, including techniques for
introducing divulgences.

There is a difference between the policies and the principles in accounting, standards are the
guidelines and the approaches of accounting in an association's strategy for withstanding to those
standards. Apart from that accounting policies can be considered as the procedures followed in
order to pare the financial statements. The arrangements are altogether used to manage complex
accounting works on including devaluation strategies, perceiving generosity, planning
computations for research and development costs, stock assessments, as well as combination of
monetary records. The approaches could fluctuate from association to association, nonetheless, it
obligatory that the whole policies must follow the most part acknowledged standards GAAP as
well with regards to the worldwide standards of financial reporting.
The standards of accounting could be portrayed as a diagram to which an association is projected
to work. In any case, the diagram of accounting standards will in general be adaptable, and the
administration of the association has the ability to choose policies of accounting that could
advantage to the monetary revealing of the association as standards of accounting will generally
be tolerant on occasion. The inward approaches carried out by the association to rehearse,
amount, distinguish, record, as well as uncover specific qualities or exchanges in the monetary
proclamations.

The policies of accounting contrast from one association to another; notwithstanding, the
guidelines customized to set up with the specific worldwide standard of accounting or further
standard bodies like local norms and guidelines associated with the genuine expectation of
monetary detailing.

As an assurance, associations came out with its own frameworks with that guidelines in order to
ensure controlling to guarantee records of accounting will generally be submissive with the
accounting standards or inhabitant country monetary strategies.

To ensure the fiscal reports of the association have been arranged as per specific standards or
conventions, methodologies of accounting are expected to tailor in a manner that explicitly
connects with the association's activity and standards of accounting.

As indicated by the chose association, it can distinguish three approaches of accountin that the
association can rehearse while setting up its budget summaries. The pay is archived whenever
the item is purchased by the client. For this situation, the verification expected to help income
acknowledgment in the monetary explanations would be a conveyance note which is endorsed as
well as acknowledged by the client.

Accounting policies according to uses incorporates in general costs as well as exact costs like
deterioration. By and large costs, for instance; preparation phases are reported as it were
whenever the phases of preparation have been occurred, not when money given in before
preparing.
Strategies connected with consumptions by and large restrict with commitments for
acknowledgment as well concerning amount. Rules of accounting with respect to devaluation is
the idea of costs that all things considered should or should not be benefit from by the pace of
devaluation as well as the course of removal resources. An essential instance of methods of
accounting is about inventories. These rules involve with regards to what procedure the
association practice to scale its inventories. This could be either weighted normal strategy or
FIFO Method; technique in how a association controlling, adapt to the inventories. Taking a
model, for example, through rehearsing either interminable stock framework or occasional stock
framework. On the off chance that the ceaseless is being utilized by the organization, inventories
should be continually as well as be haphazardly checked.

The general approaches of the association will in general be treated as exceptionally enlightening
hence, the board at every single level expects to understand and essential to teach its staff to get
the strategies and their significance.

Part 03
Liquidity ratio Profitability ratio – gross Solvency ratio
profit margin
Current assets/ current (revenue – sold goods cost) / (net profit after tax +
liabilities (revenue x 100%) depreciation) / total liability
16 400 / 20 900 $ Million (51900 - 10500) / (51 900 x = 6000 + 5600 / 29900
100%)
= 0.78 = 11 600 / 29 900
= 41 400 / 51 900
=0.387
= 0.797

Part 04
Tangible assets purchase cannot be considered as an expense instead of that t is assets
acquisition. Since that it has no. of years to support in economic life, it is not well to deduct all
the purchase price from the profit/loss a/c. Debit of total purchase value under fixed assets
Credit for the cash a/c. In case of a cash transaction and in regarding to a credit transaction, then
in liability a/c. This is only recorded as assets purchase. Further in prior period, we need to do
accumulation with fixed assets depreciation.

Example : abc company has purchase motor car to their business on 10 th January 2022 at a price
2 000 000. Estimated life for the car is 10 years.

This will be recorded as

Description Debit Credit

Car a/c 2 000 000
Cash a/c 2 000 000
(purchase of the car )

Profit/ loss a/c 200 000

Car a/c 200 000
(Depreciation for the year
2020)

Here is an example for the record keeping of the fixed assets purchase in financial statement. So
total expense with considered to the motor car purchase in 200 000.00

Part 05
Under the accrual concept the revenue is recorded when it is earned not when it is received. As
well as that the expenses also are recorded when the assets are used not when it is paid. So, this
conclude the idea of it is not necessarily required to get cash at the same time in order to
recognize it as a revenue. This is same for expenses as well. So as per that in statement of cash
flow, records will be kept only for the generation or outflow of the cash from the company
within a specific time frame. This doesn’t’ consider about the revenue or either expenses So it is
not considered as revenue or either expense, accrual concept is violated when preparing the
statements of cash flow.

Income is considered as a top revenue. Same time called as gross revenue. This includes all the
cash come to the company. Profit is called as the amount remains after doing all the expenses. At
the same time this is called as the net revenue. If a company could not distinguish both of these
separately this would affect the organization’s’ decision making as well.

Part 06
Stakeholders means the set of people who affect or get affected by the company. There are both
internal and the external stakeholders for companies

Owner Owners always are interest about the business. They are subjected to all the
profit, they can get more value over the investment they have made over the
company at the same time if the company get loss then the owners will
receive nothing on the investment
Employees They work for the company for a salary. They will do the responsibilities
allocated to them on provision of services or in producing the goods for the
business. Employees are responsible for the survival of a company and
company needs to have employees to operate in normal procedure.
Customers Customers purchase the services or the products from the company.
Customers are essential for a company for its survival. Customers generate
main revenue for the company
Competitors Competitors produce similar or alterative product or services to the
company’s products. Strong competitors will add a threat over the
company. Competitors will watch over your company and always will to
increase the sells of them than yours
Investors Investors spend money or their assts over the company. They will support
for the survival of the company with significant tangible or intangible assts.
They will watch over the performances of the company and they will
receive a return over the investment they have done.
Government Government will enforce rules regulations, laws policies and procedures
which will affect the company procedures as well. Further company has to
pay taxes and other necessary charges to operate to the government.
Question B
Part 01
Change in the total cost, when quantity produced is increased by one unit is considered as the
marginal cost. Further this is called as the cost incurred in producing additional unit. This
supports the business in understanding the optimized production level. It talks about the cost in
delivering the one more product to its customer. This is mainly will be important in production
industry in making decision which are crucial.

Relevant cost is also important in decision making. There are some costs which are irrelevant in
decision making. This is called a sunk cost. This means these costs have been bearded in past
and now cannot be now recovered.

Part 02
a.
Break Even Point = (Total Fixed Cost)/ Contribution

=70000/ 16

=4375 Units.

Contribution = Sales price per unit – Variable cost per unit

= 35-19

=Rs.16.00

Margin of safety = (Current sales level- BEP)/ Current sales level*100%

= (7000-4375)/7000*100%

= 2625 / 7000*100%

= 37.5%
BEP is production capacity which is total revenue equal to total cost. Here the profit is zero in
production. As per the equation it is 4375. Further this means the cost of production 4375 is
same as the revenue earned from 4375 of items.

Margin of safety means the sales quantity which can go over the BEP . this is what generate
profit to the company. When the margin of safety is high then the risk is lower for the
business. According to the example here this range is 37.5% from total sales of 7000 units, the
profitable volume. Similarly, company has 37.5% quantity from its sales in total as profit after
the BEP.

b.
Alternative 01 Alternative 02
BEP BEP

70 000 /12 = 5834 units 75 000 / 12 = 6250 units

Profit Profit
Sales (9000 units 270 000 Sales (10 000 units 280 000
30 per unit) 28 per unit)
Less: Less:
Direct material 45 000 Direct material 50 000
Direct labor 72 000 Direct labor 60 000
Production OD- 40 000 Production OD- 40 000
fixed fixed
Variable 18 000 175 000 Variable 20 000 170 000
Gross profit 95 000 Gross profit 110 000
Less; admin, Less; admin, 30 000
selling, selling, distribution
distribution
Fixed 30 000 Fixed 30 000
 Variable 27 000 57 000 Variable 5000 65 000
Net profit 38 000 Net profit 45 000

The best out of these is to go with the alterative 2. Since the BEP is 6250, the company can go
for 45 000 profit. In the option 01 it can only generate a profit of 38 000. Through the original
budget also they only can have 42 000 as profit. So alternative 2 is the best option. They can get
a higher profit from that.

c.
d.
In maximizing the sales when there is a shortage in labor, machine hours or any this can
negatively affect over the business. These are called as limiting factors. These are considered as
the constraints of production resources.

The process which determines the factors of limiting as given here,

1. Determine the extreme sales quantity

To check whether the restricting element is existing the association needs to compute the most
elevated measure of sales that can be achieved with practically no restricting factors which
influences too the creation of different items.

2. Determine the limiting factors.

The business needs to then recognize the factors which are restricting the production

3. Analyzing and measurement of the contribution per unit of output in every product

This can be deducted though reduction in variable cost for a unit though the product selling price

4. Estimate the contribution to a unit of limiting factors for each product.

Commitment created from an item for every unit of restricted

 5. asset consumed Do priority product rank

The highest contribution of the limiting component that has been determined in number 4, is
expected to rank as first. Besides, the second most noteworthy should be positioned second and
bad habit versa.

6. Accumulate the production quantity

Products which rank first in 05 th number must produce the highest sales. The products which
ranked in lowers might be generated, once the whole requirement for production is met with
greater ranked products.

C.
Part 01
Contribution from funds in a company to achieve the long term assets for the company growth.
Similarly, we can express it as the overall decision from the management in considered to the
funds and on behalf of the investments for getting the maximum output through them. In taking
decisions on capital investments they have to do consideration on some facts.

These investments must match with the organizations vision mission and the long term
objectives. Cash flow must generate a positive return on investment. Further they must make
sure whether the company has enough funds to purchase assets which is required by
organizational projects to acquire. To reduce the risk n this, they must pick the best opportunity
for the business.

Part 02
Project A

Year NPV
0 -250000.00
1 62500.00
2 55803.57
3 49824.62
 4 44486.27
5 39719.88
NPV 2334.33

Internal Rate of Return

0 = NPV = Cash Flow (year 0)+ (CF1/(1+IRR)) + (CF2/(1+IRR)²) + (CF3/(1+IRR)³) + (CF4/

(1+IRR)4) + (CF5/(1+IRR)5)

=12.376%

Pay Back Period

4 years and 11 months

Assumption: considered the discount rate in calculation in payback period

Project B

NPV

Year NPV
0 -150000.00
1 41964.29
2 37468.11
3 33453.67
4 29869.35
5 26669.06
NPV 19424.48

Pay Back Period

4 years and 3 months

 Better to go with project B

Part 03
 Ignorance to the time value for the money – cash flow from the early years has more
weight than the cash flow gets from the latter years. As an example, when there are two
projects and they have the same payback period, consider when one project has more
cash fow in early years and the other project has more cash floe in latter years. It gives no
sense over which project to go with this type of situations
 Ignore the profitability of the project – when a project has a shorter pay back period it
never implies it is profitable. Guess that if the cash flow end in the pay back period or
reduced, this kind of project has no profit and not a good investment
 No consideration on ROI – some business think about the capital investment required to
pass a certain mark of the return rate, if not project is declined. This payback period has
no consideration n rate of return
 Ignore the cash flow receive after the payback period – in some cases the higher cash
flow may happen after the payback period. They might have higher returns n investment.

Accounting rate of return

 This is required in capital budgeting.

 In order to earn the profit, if accounting rate of return is equal or higher than the required
rate of return then it means that plan can be accepted.
 Anyway, this method has no care over the time value of the money or the risks in long
term funds.
 This is accumulated via the revenue assessing but this can be changed with the
depreciation.
 This shows the information which are deceptive in accessing the investments during
some months. This has further no consideration over the timing of the expected cash
flow.

Internal rate of return

 While do the comparison, IRR is more crucial since the it consider the time value of
money.
  Anyone can accumulate the interest rate with internal rate of return, in a way that current
value of future cash flow is equal to the capital required.
 This is much simpler, easy to understand and calculate
 Here if the IRR is higher than the cost we have to bear with capital the plan is accepted.

Part D
01.
Budgeting is important due to following factors

 As a income and expense prediction

 To the purpose of the decision making
 To observe the business performances

Here in a business plan the income and expense budget is prepared to see the profitability of the
business. The main reason is to see the financial structure of the company which is important for
decision making.

For the business continuation expenses of the business required to budget well. The requirement
of budgeting is to see the actual performances of the business against the predictions. This is
important for project planning as well. This is used to see whether business is is operating under
profit or loss.

02.
Cash budget

month April may June

Starting cash balance 1 500 1 400
Cash sales 2 000 2 600 3 600
Sales cash in credit 4 400 6 400 8000
base
- Cash purchases (600) (800) (1 000)
- Credit purchase (4 500) (5400) (7 200)
payment
- salary (800) (1000) (1 400)
- OD payment (1 100) (1 400) (1 700)
 Sales asset proceed 500
- Machinery (5 000) (5 000)
purchase
Bank loan 5 000
At hand cash 1 400 (3 200) 300
balance

April – for the cash requirement current operation will be satisfied. When it is over 1 400
forward to next month

May – for the month of May cash collected and the surplus cash is not satisfied for the business
operation

June – in order to bear all the payments available cash will be enough though there is no cash
surplus from previous month.

In order to identify the deficiency of the financial activities short term budgeting strategy will be
crucial. So as that it is recommend having a OD from a bank cost of finance is lower than any
other way of financing.

03.

Incremental budgeting is called as a new budget can be prepared with some marginal alterations
to the prevailing budget. In other words, we can express it as use the current budget in order to
get a new budget with additions or removal of some expenses. This can be considered as a most
traditional way of budgeting. There are advantages such as simple to calculate, easily
understandable, stable, reduce the internal competition, stability of money, stability of the
operation.