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Handbook Of Cost & Management Accounting

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Question:

Describe about the Handbook of Cost & Management Accounting?

 

Answer:

1: In the books of Quigley Co

Journal entries  
                                                                                                               Dr.                       Cr.

Date

Particulars

Amount ($)

Amount ($)

31/12/2015

 Dr. Depreciation account

 Cr. Machine account

160238

 

160238

 

 

Machine account

 

Date

Particulars

Amount($) (Dr)

Date

Particulars

Amount (Cr) ($)

1//1/2015

To balance b/d

1081925

31/12/2015

By Depreciation

160238

 

 

 

31/12/2015

BY Balance c/d

921688

 

 

1081925

 

 

1081925


Workings

Note 1Calculation showing depreciation

Cost of asset

 $ 1,402,400

Residual value

 $ 120500

Life of the assets

 8 years

Depreciation (1402400-120500)/8

 $160238

 

 

Balance as on 1/1/2015[1402400-(160238*2)]

 $ 1081925


Note 2

The asset is purchased in the year 2013 and here the machinery account is shown in the year 2015. So the opening balance of Machine in as on 1/1/2015 is calculated after deducting two years depreciation (Kimmel, Weygandt & Kieso, 2007).

2: In the books of Marks company


Ratio analysis

Current asset

1130000

Current liabilities

345000

Current ratio

3.275362319

Quick assets

746000

Quick liabilities

345000

Acid Test ratio

2.162318841

Net sales

2408000

Account receivable

338000

Receivable turnover

7.124260355

Cost of goods sold

1644000

Average inventory

364500

Inventory turnover

4.510288066

Gross profit

764000

Sales

2408000

Profit on sales

32%

Earnings

262000

Number of shares

117200

EPS

2.235494881

Net profit

262000

Equity

1172000

Return on common stock                                                  22%

MPS

80

EPS

2.235

PER

35.79418345

Debt

402000

Assets

2714000

Debt to assets

0.148120855

Total value of shares

1172000

Number of shares

117200

Book value

10


Note: Marks sold 35000 shares at the middle of the year, so the total number of equity shares is getting reduced at the end of the year and as the ratios are calculated at the end of the year so the number of shares is taken as 117200 (Paramasivan & Subramanian, 2009).

Note 2: Amount of current assets consists of cash account receivable and Inventories.

Note3: Quick asset means current assets minus inventories and quick liabilities means current liabilities minus bank overdraft. As here no overdraft balance is given so the quick liability is same as the current liability (Shapiro & Sarin, 2009).

Note 4: here the balance of inventory and accounts receivable at the timer of calculating the turnover period is taken on average basis i.e. average of balances of 2014 and 2015.

Note 5: Here Debt to total asset ratio is calculated on the basis of total asset consisting of current and noncurrent assets (Srivastava, 2008).

Note 6; all the relevant ratios are calculated by taking the balances of 2015 only.

 

3: Calculation showing the amortization of lease schedule (2014-2019)

 

Year

Annual lease

payment($)

Interest($)

Principal($)

Balance($)

1

3,407,500

701000

243585

457415

2,950,085

2

2,946,815

701000

202123

498877

2,744,692

3

2,744,692

701000

183932

517068

2,227,624

4

2,227,624

701000

137396

563604

1,664,020

5

1,664,020

701000

86672

614328

1,049,692

6

1,049,692

701000

31382

669618

380,074

7

380,074

380074

0

380074

0


Note : The effective rate of interest is assumed to be 9%.

Calculation showing the depreciation

Sum of digits methods = 1+2+3+4+5+6+7 = 28

1st year (2014) = (3407500*1)/28 = 121696.4

2nd year (2015)= (3407500*2)/28 = 243392.9

In the books of Hughey (Lessee)

Journal entries

For the year ended December 2014

   

(Dr)

(Cr)

Date

Particulars

Amount ($)

Amount ($)

1.1.2014

Dr. Asset under Lease A/c

3407500

 
 

Cr. Lease payable

 

3407500

 

(Being asset is acquired under lease agreement)

1.1.2014

Dr. Lease Payable

701000

 
 

Cr. Bank

 

701000

 

(Being first installment paid)

   

31.12.2014

Dr. Depreciation

121696

 
 

Cr. Provision for Depreciation

121696

 

(Being depreciation charge on the assets)

31.12.14

Dr. interest

243585

 
 

Cr. Interest Payable

 

243585

 

(Being interest payable on lease)

 

31.12.2014

Dr. Interest payable

243585

 
 

Dr. Lease Payable

457415

 
 

Cr. Bank

 

701000

 

(Being interest and a part of principal amount is repaid)

31.12.2014

Dr. Profit and loss

121696

 
 

Cr. Depreciation

 

121696

 

(Being amount of depreciation charged at the end of the year to P&L A/C)


(Stittle & Wearing, 2008)

4: Milnar Company

Partial cash flow statement

For the year ended 31/12/2015

Cash flow from operating activities

Cash flow from Investing activities

i) Sale of machine

 $                      95,000.00

ii) Purchase of machine

 $                 (138,000.00)

Workings

 

Machine account

 

Date

Particulars

Amount($) (Dr)

Date

Particulars

Amount (Cr)

1//1/2015

To balance b/d

 $            695,000.00

31/12/2015

By Bank

 $        95,000.00

 

To Profit and loss

 $              64,000.00

31/12/2015

BY Accumulated depreciation

 $        40,000.00

 

To Bank

 $            138,000.00

 

By Balance c/d

 $     762,000.00

   

 $            897,000.00

   

 $     897,000.00

 

 

Accumulated depreciation

 

Date

Particulars

Amount($) (Dr)

Date

Particulars

Amount (Cr)

1//1/2015

To Machine

 $              40,000.00

31/12/2015

By Balance b/d

 $     144,000.00

 

To balance c/d

 $            188,000.00

31/12/2015

 

 

 

 

 $              40,000.00

 

 

 $     144,000.00


Note 3

Here nothing will come under the head cash flow from operating activities as no information regarding the regular operations of the business is mentioned here (Hoque, 2005).

 

References

Hoque, Z. (2005). Handbook Of Cost & Management Accounting. London: Spiramus.

Kimmel, P., Weygandt, J., & Kieso, D. (2007). Financial accounting. Hoboken, NJ: John Wiley.

Paramasivan, C., & Subramanian, T. (2009). Financial management. New Delhi: New Age International (P) Ltd., Publishers.

Shapiro, A., & Sarin, A. (2009). Foundations of multinational financial management. Hoboken, N.J.: John Wiley & Sons.

Srivastava, R. (2008). Multinational financial management. New Delhi: Excel Books.

Stittle, J., & Wearing, B. (2008). Financial accounting. Los Angeles: SAGE Publications.

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