Financial and Management Accounting-I Exam 2022

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Questions and Answers

Explain the meaning of accounting and provide context for how it is utilized in a business.

Accounting is a system of recording and summarizing financial transactions to provide information for decision-making. In business, it helps track income and expenses, monitor financial performance, and aid in making investment and operational decisions.

Which of the following is NOT considered an objective of accounting?

To manage production processes (correct)
To provide information for decision-making
To monitor financial performance
To track income and expenses

Identify two limitations of accounting?

Some limitations of accounting include reliance on historical data, which may not reflect current trends, and the subjectivity inherent in accounting estimates and judgments.

Explain the significance of accounting in business.

Accounting is crucial for business success as it provides essential financial information for decision-making, investors, and stakeholders. Through accounting, a business can track performance, identify areas for improvement, and make strategic decisions to enhance its financial well-being. Signup and view all the answers

What does IFRS stand for?

International Financial Reporting Standards Signup and view all the answers

What are advantages of adopting IFRS?

All of the above (D) Signup and view all the answers

What are some challenges faced by businesses when adopting IFRS in India?

Challenges include adapting to new reporting requirements, aligning with existing Indian GAAP, and potential complexities for small and medium-sized enterprises (SMEs). Signup and view all the answers

Write a note on ethical issues in accounting.

Ethical issues in accounting encompass matters like integrity, objectivity, and professional competence. Accountants are expected to adhere to ethical codes of conduct, ensuring trustworthiness and transparency in their work. Examples of ethical dilemmas include conflicts of interest, confidentiality breaches, and misrepresentation of financial data. Signup and view all the answers

From the given transaction, identify the type of account for "Salary Paid":

Expense (A) Signup and view all the answers

From the given transaction, identify the type of account for "Machinery Purchased for Cash":

Asset (D) Signup and view all the answers

From the given transaction, identify the type of account for "Outstanding Salary":

Liability (C) Signup and view all the answers

From the given transaction, identify the type of account for "Building Sold":

Asset (B) Signup and view all the answers

From the given transaction, identify the type of account for "Received Cash from Ramesh"

Asset (C) Signup and view all the answers

What are the heads of accounts involved in the transaction "Salary Paid"?

The heads of accounts involved are Salary Expense and Cash. Signup and view all the answers

What is the type of accounts for 'Salary Paid' and 'Cash'?

Salary Paid is an Expense account and Cash is an Asset account. Signup and view all the answers

When recording a transaction, which account is debited and which account is credited for "Salary Paid"?

For the transaction 'Salary Paid', the Salary Expense account is debited, and the Cash account is credited. Signup and view all the answers

What are the heads of accounts involved in the transaction "Machinery Purchased for Cash"?

The heads of accounts involved are Machinery and Cash Signup and view all the answers

What is the type of accounts for 'Machinery' and 'Cash'?

Machinery is an Asset account, and Cash is also an Asset account. Signup and view all the answers

When recording a transaction, which account is debited and which account is credited for "Machinery Purchased for Cash"?

For the transaction 'Machinery Purchased for Cash', the Machinery account is debited, and the Cash account is credited Signup and view all the answers

What are the heads of accounts involved in the transaction "Outstanding Salary"?

The heads of accounts involved are Salary Expense and Salary Payable. Signup and view all the answers

What is the type of accounts for 'Salary Expense' and 'Salary Payable'?

Salary Expense is an Expense account, and Salary Payable is a Liability account Signup and view all the answers

When recording a transaction, which account is debited and which account is credited for "Outstanding Salary"?

For the transaction 'Outstanding Salary', the Salary Expense account is debited, and the Salary Payable account is credited Signup and view all the answers

What are the heads of accounts involved in the transaction "Building Sold"?

The heads of accounts involved are Building, Accumulated Depreciation, Cash, and Profit or Loss on Sale of Building. Signup and view all the answers

What is the type of accounts for 'Building', 'Accumulated Depreciation', 'Cash', and 'Profit or Loss on Sale of Building'?

Building and Accumulated Depreciation are Asset accounts, Cash is an Asset account, and Profit or Loss on Sale of Building is an Equity account. Signup and view all the answers

When recording a transaction, which account is debited and which account is credited for "Building Sold"?

The accounts debited and credited will depend on whether there is a profit or loss on the sale. If there is a profit, the Cash account will be debited, and the Building account, Accumulated Depreciation, and Profit on Sale of Building accounts will be credited. Signup and view all the answers

What is the type of accounts for 'Cash' and 'Ramesh'?

Cash is an Asset account, and Ramesh can be considered a Debtor. Signup and view all the answers

When recording a transaction, which account is debited and which account is credited for "Received Cash from Ramesh"?

For the transaction 'Received Cash from Ramesh', the Cash account is debited, and the Ramesh account (a Debtor account) is credited. Signup and view all the answers

Which of the following account is credited in the Trading Account?

Sales (C) Signup and view all the answers

What is the formula for calculating Gross Profit?

Sales - Cost of Goods Sold (D) Signup and view all the answers

Which of the following is not a component of the Cost of Goods Sold?

Direct Expenses (C) Signup and view all the answers

What is the purpose of preparing a Balance Sheet?

To show the financial position of a business at a particular point in time (B) Signup and view all the answers

Which of the following is not a component of a Balance Sheet?

Expenses (C) Signup and view all the answers

What is the basic accounting equation?

Assets = Liabilities + Equity (B) Signup and view all the answers

Explain the difference between Absorption Costing and Marginal Costing.

Absorption costing (also known as full costing) allocates all manufacturing costs, both fixed and variable, to products. Marginal costing only includes variable manufacturing costs when calculating the cost of goods sold, with fixed manufacturing costs treated as a period cost. Absorption costing typically results in a higher cost per unit, while marginal costing provides a lower cost per unit. Signup and view all the answers

Which method of costing is more typically used for internal decision-making?

Marginal Costing (B) Signup and view all the answers

Explain the difference between Normal Loss and Abnormal Loss.

Normal loss is an expected loss incurred during the production process, considered an inherent part of manufacturing. Abnormal loss is an unexpected and avoidable loss, often due to factors like accidents or negligence. Normal loss is usually absorbed as a cost in the production process, while abnormal loss is treated as an expense and recorded separately. Signup and view all the answers

What is the purpose of preparing a Trial Balance?

The Trial Balance lists all account balances at a specific time to ensure that the total debits equal the total credits in the accounting system. Its main purpose is to confirm the mathematical accuracy of the accounting records before preparing financial statements. Signup and view all the answers

Explain the difference between a Trial Balance and a Balance Sheet.

A Trial Balance is an internal accounting document listing all account balances to check for mathematical accuracy. A Balance Sheet is an externally reported financial statement presenting the financial position of a company at a specific time, showing assets, liabilities, and equity. Signup and view all the answers

What is Activity Based Costing (ABC) and what are some factors to consider when adopting it?

ABC is a costing method that assigns overhead costs to products based on their actual consumption of activities. Factors to consider when adopting ABC include identifying key activities, determining cost drivers for each activity, and assigning overhead costs based on the activities used by each product. Signup and view all the answers

How is ABC different from the traditional costing system?

Traditional costing systems typically allocate overhead costs based on a single cost driver, such as direct labor hours or machine hours. ABC, however, allocates overhead costs based on multiple activities and cost drivers, providing a more accurate cost allocation to products. Signup and view all the answers

What is the formula to calculate Break-Even Point (BEP) in units?

The formula for calculating Break-Even Point in units is: BEP (units) = Fixed Costs / (Sales Price Per Unit - Variable Cost Per Unit) Signup and view all the answers

What is the formula to calculate the sales required to achieve a target profit?

The formula to calculate the sales required to achieve a target profit is: Required Sales = (Fixed Costs + Target Profit) / (Sales Price Per Unit - Variable Cost Per Unit) Signup and view all the answers

What formula can be used to calculate the sales required to earn a profit of 10% of sales?

The formula used to calculate sales required to earn a profit of 10% of sales can be derived as follows: Target Profit = 10% of Sales. Rearranging the formula for calculating sales required for target profit, we get: Required Sales = (Fixed Costs + (10% * Sales)) / (Sales Price Per Unit - Variable Cost Per Unit). Simplifying the equation, we can find the required sales revenue to achieve a 10% profit margin. Signup and view all the answers

Explain the difference between Overhead Expenses and Direct Expenses.

Overhead expenses refer to indirect costs incurred in running a business and are not directly related to the production of a specific product. These include costs like rent, utilities, and administrative expenses. Direct expenses, on the other hand, are costs directly traceable to the production of a specific product, such as raw materials and direct labor. Signup and view all the answers

What is a Reconciliation Statement and what is its purpose?

A Reconciliation Statement is a document that reconciles the differences between two sets of accounting data, often used to reconcile differences between the financial statements produced by the cost accounting system and the financial accounting system for a business. It is used to identify discrepancies and explain the reasons for those differences. Signup and view all the answers

What is the purpose of Job Costing and how is it used?

Job Costing is a method used to track costs associated with individual jobs or projects. It is used to calculate the total cost of a job, including direct materials, direct labor, and overhead expenses, to determine the profitability of specific projects. Signup and view all the answers

Flashcards

What is the core function of accounting?

Keeping track of a business's financial activities.

What are the main components of accounting?

Objectives, limitations, and significance are key aspects of accounting.

What are the objectives of accounting?

Goals of accounting include providing accurate financial info, helping business decisions, and complying with regulations.

What are the limitations of accounting?

Limitations include the focus on historical data, the possibility of errors, and subjectivity in accounting.