Assignment – MAA – MGT402

1. Journalize the following transactions, post them into ledger accounts. (10 marks)

2020
March – 1 Commenced business with cash Rs.2,00,000
March – 2 Purchased goods for cash Rs. 30,000
March – 3 Purchased furniture for cash Rs. 16,000
March – 5 Purchased goods from Vikram on credit Rs. 5,000
March – 7 Sold goods for cash Rs. 20,000
March – 10 Sold goods to Daya on credit Rs. 25,000
March – 12 Returned goods to Vikram Rs. 1,500
March – 13 Daya returned us goods worth Rs. 500
March -15 Paid Rs. 3,500 to Vikram by cheque in full settlement of his account
March – 20 Received a cheque of Rs. 24,000 from Daya and gave a discount of Rs. 500
March – 25 Withdrew cash for personal use Rs. 2,500
March – 28 Paid rent of Rs. 5,000
March - 29 Paid salary Rs. 6,000 by cheque

Solution:

Journal Entries
Date Particulars LF Dr Cr
2020
Mar 1 Cash a/c Dr 2,00,000
To Capital a/c 2,00,000
(Being cash introduced
by the proprietor)
Mar 2 Purchase a/c Dr 30,000
To Cash a/c 30,000
(Towards purchase of goods for cash)
Mar 3 Furniture a/c Dr 16,000
To Cash a/c 16,000
(Towards purchase of furniture for
cash)
Mar 5 Purchase a/c Dr 5,000
To Vikram’s a/c 5,000
(Purchase of goods from Vikram on
credit)
Mar 7 Cash a/c Dr 20,000
To Sales a/c 20,000
(Towards sale of goods for cash)
Mar 10 Daya’s a/c Dr 25,000
To Sales a/c 25,000
(Credit Sales of goods to Daya)
Mar 12 Vikram’s a/c Dr 1500
To Purchase returns a/c 1500
(Return of purchased goods to
Vikram)
Mar 13 Sales Returns a/c 500
Dr
500
To Daya’s a/c
(Return of goods by Daya)
Mar 15 Vikram’s a/c Dr 3500
To Bank a/c 3500
(Payment to Vikram for goods
purchased on Credit)
Mar 20 Bank a/c Dr 24,000
Discount allowed a/c Dr 500
To Daya’s a/c 24,500
(Cheque payment for Cr. Sales with
discount allowed)
Mar 25 Drawings a/c Dr 2,500
To Cash a/c 2,500
 (Cash withdrawn for personal use)
Mar 28 Rent a/c Dr 5,000
To Cash a/c 5,000
(Towards rent paid in cash)
Mar 29 Salary a/c Dr 6,000
To Bank a/c 6,000
(Towards salary paid in cheque)

Ledger Accounts
Cash account
Date Particulars JF Amount Date Particulars JF Amount
Mar 1 To Capital a/c 2,00,000 Mar 2 By Purchase a/c 30,000
Mar 7 To Sales a/c 20,000 Mar 3 By Furniture a/c 16,000
Mar 25 By Drawings a/c 2,500
Mar 28 By Rent a/c 5,000
Mar 31 By Balance c/d 1,66,500
2,20,000 2,20,000

Apr 1 To Balance 1,66,500

b/d

Bank account
Date Particulars JF Amoun Date Particulars JF Amount
t
Mar 20 To Daya a/c 24,000 Mar 15 By Vikram a/c 3,500
Mar 29 By Salary a/c 6,000
Mar 31 By Balance c/d 14,500
24,000 24,000

Apr 1 To Balance 14,500

b/d

Capital account
Date Particulars JF Amount Date Particulars JF Amount
Mar 31 To balance 2,00,000 Mar 1 By Cash a/c 2,00,000
c/d
2,00,000 2,00,000
Apr 1 By Balance b/d 2,00,000
 Purchase account
Date Particulars JF Amoun Date Particulars JF Amount
t
Mar 2 To Cash a/c 30,000 Mar 31 To Balance c/d 35,000
Mar 5 To Vikram’s a/c 5,000
35,000 35,000

Apr 1 To Balance b/d 35,000

Sales account
Date Particulars JF Amount Date Particulars JF Amoun
t
Mar 31 To balance c/d 45,000 Mar 7 By Cash a/c 20,000
Mar 10 By Daya 25,000
a/c
45,000 45,000

Apr 1 By balance b/d 45,000

Purchase returns account

Date Particulars JF Amoun Date Particulars JF Amount
t
Mar 31 To Balance c/d 1,500 Mar 12 By Vikram a/c 1,500
1,500 1,500

Apr 1 By Balance b/d 1,500

Sales returns account

Date Particulars JF Amount Date Particulars JF Amount
Mar 13 To Daya a/c 500 Mar 31 By Balance c/d 500
500 500

Apr 1 To Balance b/d 500

Furniture account
Date Particulars JF Amount Date Particulars JF Amount
Mar 3 To Cash a/c 16,000 Mar 31 By Balance c/d 16,000
16,000 16,000

Apr 1 To Balance b/d 16,000

 Drawings account
Date Particulars JF Amount Date Particulars JF Amount
Mar 25 To Cash a/c 2,500 Mar 31 By Balance c/d 2,500
2,500 2,500

Apr 1 To Balance b/d 2,500

Creditor’s Ledger

Vikram account
Date Particulars JF Amount Date Particulars JF Amoun
t
Mar 12 To Purchase returns 1,500 Mar 5 By Purchase a/c 5,000
a/c
Mar 15 To Bank a/c 3,500

5,000 5,000

Debtor’s Ledger

Daya account
Date Particulars JF Amoun Date Particulars JF Amount
t
Mar 10 To Sales a/c 25,000 Mar 13 By Sales returns a/c 500
Mar 20 By Bank a/c 24,000
Mar 20 By Discount 500
allowed a/c
25,000 25,000

Expenses Ledger

Rent account
Date Particulars JF Amount Date Particulars JF Amount
Mar 28 To Cash a/c 5,000 Mar 31 By Balance c/d 5,000
5,000 5,000

Apr 1 To Balance b/d 5,000

 Salary account
Date Particulars Amount Date Particulars Amount
Mar 29 To Bank a/c 6,000 Mar 31 By Balance c/d 6,000
6,000 6,000

Apr 1 To Balance b/d 6,000

Discount account
Date Particulars JF Amount Date Particulars J Amount
F
Mar 20 To Daya a/c 500 Mar 31 By Balance c/d 500
500 500

Apr 1 To Balance b/d 500

2. Prepare accounting equation for each of the following transactions and thereafter prepare
the balance sheet : (5 marks)

i. Govind started business with cash Rs.60,000

ii. He purchased furniture Rs.10,000
iii. He paid rent Rs.2,000
iv. He purchased goods on credit from Hindustan Traders Rs.30,000
v. He sold goods Rs. 25,000
Solution:
i. Govind started business with cash Rs. 60,000
Assets = Liabilities + Capital
Cash
60,000 = 0 + 60,000

ii. He purchased furniture Rs. 10,000

Assets Liabilities + Capital

=
Cash Furniture
Old balance 60,000 + 0 = 0 + 60,000
New transaction -10,000 + 10,000 = 0 + 0
New balance 50,000 + 10,000 = 0 + 60,000

iii. He paid rent Rs.2,000

 Assets Liabilities + Capital
=
Cash Rent Furniture
Old balance 50,000 + 0 + 10,000 = 0 + 60,000
New transaction -2,000 + 2,000 + 0 = 0 + 0
New balance 48,000 + 2,000 + 10,000 = 0 + 60,000

iv.He purchased goods on credit from Hindustan Traders Rs. 30,000

Assets Liabilities + Capital

=
Cash Rent Furniture Stock Creditors

Old balance 48,000 + 2,000 + 10,000 + 0 = 0 + 60,000

New 0 + 0 + 0 + 30,000 = 30,000 + 0
transaction
New balance 48,000 + 2,000 + 10,000 + 30,000 = 30,000 + 60,000

v.He sold goods Rs. 25,000

Assets Liabilities + Capital

=
Cash Rent Furniture Stock Creditors

Old balance 48,000 + 2,000 + 10,000 + 30,000 = 30,000 + 60,000

New +25,000 + 0 + 0 + -25,000 = 0 + 0
transaction
New 73,000 + 2,000 + 10,000 + 5,000 = 30,000 + 60,000
balance

Balance sheet
Liabilities Amount Assets Amount
Capital 60,000 Cash 73,000
Creditors 30,000 Furniture 10,000
Stock 5,000
Rent(Expenses) 2,000
90,000 90,000
3. Hitesh Chemicals Ltd. acquired a machine on 1st October 2016 at a cost of Rs.50,00,000. It
charges depreciation on straight line method at the rate of 10% every year. The company
purchased a new machine worth Rs.10,00,000 on 1st April 2017. Show the Machinery
Account and Depreciation Account for the year ending 31st March 2017, 2018 and 2019.
(10 marks)

Solution:

Machinery1 a/c
Date Particulars Amount Date Particulars Amount
2016-17 2016-17
Oct 1 To Bank a/c 50,00,000 Mar 31 By Depreciation1 2,50,000
(Towards a/c
purchase of (10% on
machinery1) Rs.50,00,000 for
6 months)
Mar 31 By Balance c/d 47,50,000
50,00,000 50,00,000

2017-18 2017-18
Apr 1 To Balance b/d 47,50,000 Mar 31 By Depreciation1 5,00,000
a/c
(10% on
Rs.50,00,000 for
12 months)
Mar 31 By Balance c/d 42,50,000
47,50,000 47,50,000

2018-19 2018-19
Apr 1 To Balance b/d 42,50,000 Mar 31 By Depreciation1 5,00,000
a/c
(10% on
Rs.50,00,000 for
12 months)
Mar 31 By Balance c/d 37,50,000
42,50,000 42,50,000

2019-20 2019-20
Apr 1 To Balance b/d 37,50,000

Machinery2 a/c
 Date Particulars Amount Date Particulars Amount
2017-18 2017-18
Apr 1 To Bank a/c 10,00,00 Mar 31 By 1,00,000
(Towards 0 Depreciation2
purchase of a/c
machinery2) (10% on
Rs.50,00,000
for 12 months)
Mar 31 By Balance c/d 9,00,000
10,00,00 10,00,000
0

2018-19 2018-19
Apr 1 To Balance b/d 9,00,000 Mar 31 By 1,00,000
Depreciation2
a/c
(10% on
Rs.50,00,000
for 12 months)
Mar 31 By Balance c/d 8,00,000
9,00,000 9,00,000

2019-20 2019-20
Apr 1 To Balance b/d 8,00,000

Depreciation a/c- Machinery 1

Date Particulars Amount Date Particulars Amount
2016-17 2016-17
Mar 31 To Machinery1 a/c 2,50,000 Mar 31 By Profit & Loss a/c 2,50,000

2,50,000 2,50,000
2017-18 2017-18
Mar 31 To Machinery1 a/c 5,00,000 Mar 31 By Profit & Loss a/c 5,00,000

5,00,000 5,00,000
2018-19 2018-19
Mar 31 To Machinery1 a/c 5,00,000 Mar 31 By Profit & Loss a/c 5,00,000

5,00,000 5,00,000

Depreciation a/c- Machinery 2

Date Particulars Amount Date Particulars Amount
2017-18 2017-18
Mar 31 To Machinery2 a/c 1,00,00 Mar 31 By Profit & Loss a/c 1,00,000
 0

1,00,00 1,00,000
0
2018-19 2018-19
Mar 31 To Machinery2 a/c 1,00,00 Mar 31 By Profit & Loss a/c 1,00,000
0

1,00,00 1,00,000
0

The value of machinery after depreciation at the end of year 2019 is:
Machinery 1- Rs. 37,50,000
Machinery 2- Rs.8,00,000

4. The following are the key Financial Ratios of ABC Ltd for the year 2017, 2018 and 2019.
Analyse the different ratios and give suitable relevant interpretations for each category of
ratios. (15 marks)

Ratios March 2019 March 2018 March 2017

Investment Valuation Ratios
Dividend Per Share (Rs) 6 11 10.5
Operating Profit Per Share (Rs) 81.68 133.04 123.87
Net Operating Profit Per Share (Rs) 457.87 743.68 719.54

Profitability Ratios
Operating Profit Margin (%) 17.83 17.88 17.21
Net Profit Margin (%) 11.58 12.99 11.75
Return On Capital Employed (%) 12.24 11.16 11.47
Return On Net Worth (%) 10.68 10.89 11.41
Return on Long Term Funds (%) 12.71 11.85 11.99

Liquidity Ratios
Current Ratio 0.41 0.35 0.47
Quick Ratio 0.25 0.21 0.31

Solvency Ratios
Debt Equity Ratio 0.31 0.35 0.38
Long Term Debt Equity Ratio 0.26 0.27 0.32
Interest Cover (times) 10.82 15.98 15.55

Management Efficiency Ratios

Inventory Turnover Ratio (times) 7.72 7.79 8.96
Debtors Turnover Ratio (times) 36.41 53.93 57.17

Solution:
Liquidity Ratios Analysis:
The ratio of current assets to current liabilities is not close to the ideal ratio and hence the
company’s liquidity position isn’t satisfactory. Conventionally, a ratio of 2:1 would be
satisfactory. Closer analysis shows that the current assets of the firm are probably tied up in
slow moving inventory and slow paying receivables.
The quick ratio of 1:1 is considered ideal. The quick ratio has been lower than the ideal in
the last three years. Though the liquidity ratios have improved in 2019 the firm still struggles
to meet the ideal standards.
Management Efficiency Ratios Analysis:
There is a decrease in the Inventory turnover ratio in the year 2018 and 2019 which
indicates that the inventory is not selling fast as compared to the year 2017.The company
should reduce their inventory level to improve this ratio or they could attract high inventory
carrying cost.
Debtors turnover ratio has decreased which indicates the management’s inefficiency in
collecting debts on time over the years. There is an increased time lag between the credit
sales and cash collection thereby affecting the liquidity of the company.
Solvency Ratios Analysis:
 There is decline in the interest coverage ratio year 2019. It implies even if the firm’s EBIT
declines 1/10 of present level, the operating profits available for servicing the interest on
loan would be equivalent to the claims of the lenders. From the lenders point of view, the
ability of the firm to handle fixed-charge liabilities has lessened as compared to previous
years. A lower ratio here indicates the firm does not have the ability to offer assured
payment of interest to lenders.
Total debt to equity and long term debt equity ratio has been stable over the last two
years around 0.31 to 0.35 and 0.26 to 0.27 respectively. This indicates a small claim of
creditors and therefore lesser borrowing from lenders. For the company the servicing of
debts is less burdensome.

Profitability Ratios:
The capital employed has been used most efficiently in the year 2019 with efficient use of
long-term funds of owners and lenders. There is a decrease in the return on ordinary
shareholders’ equity (net worth) due to the decrease in net profit in the year 2019. The
return for ordinary shareholders has been on a decline in last 3 years. This indicates that
there is less efficiency in deployment of equity resources.
Though the operating efficiency of the business is marginally greater than the ideal ratio of
10% the company must consider looking at its borrowing policy as its interest cost is taking
away most of its operating profits. Operating profit margin has reduced from 2018
indicating that the percentage of profit per unit of sale has come down reason could be
certain costs have gone up. A marginally low operating profit ratio in the year 2019 indicates
operational flaws and improper management of resources. Net profit margin is low
compared to 2018 this implies that the income generated as a percentage of revenue has
decreased.

Investment Valuation Ratios Analysis:

Dividends paid to equity shareholders in the year 2019 is the lowest of the three years due
to the decrease in the operating profit per share. The reason possibly be:
1) Increase in shares of the company
2) More appropriately could be the decrease in operating and net-operating profit per
share.
The net operating profit was around Rs.743 in the year 2018 but has decreased by Rs.300
per share. This further shows that there is a decrease in the operating efficiency of the
business.
Overall, the company’s liquidity position is not satisfactory and payment of short-term obligations is
a concern. The firm must reduce their inventory level and collect debts efficiently in order to
increase its liquidity. In spite of the decrease in solvency ratios the firm is still able to pay interest on
the liabilities. The company has been efficient in using the long-term funds by lenders and owners of
the firm. The firm should work towards earning a satisfactory return for its equity holders.