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Ignou solved assignment eco 14 2014 to 2015 (demo)
1. TUTOR MARKED ASSIGNMENT
Course Code : ECO - 14
Course Title : Accountancy - II
Assignment Code : ECO – 14/TMA/2014-15
Coverage : All Blocks
Maximum Marks: 100
Attempt all the questions.
Answerof Q.N.1.
Revaluation of Assets and Liabilities on admission of a new partner:
Wheneveranewpartnerisadmitted,itisdesirable torevalue the assetsandliabilitiesof the firm to show them
at theirtrue and fairvalues.Revaluationof assetsandliabilitiesisnecessarybecausewiththe passage of time the value
of some assetsmighthave beenincreasedwhile the value of some assets might have been decreased; the same is the
case with the liabilities. Generally, no adjustments are made in this respect. Therefore, the actual values of various
assets and liabilities may be different from the values stated in the balance sheet. It is, therefore, desirable from the
point of view of the new partner as well as old partners the value of assets and liabilities should be revalued.
For the purpose of revaluation,aseparate accountisopenedwhichiscalledRevaluationAccount.Itisa nominal
account. The Revaluation account is credited if there is an increase in the value of assets or decrease in the value of
liabilities. On the other hand it is debited if there is any decrease in the value of assets or an increase in the value of
liabilities.Thisaccountisa nominal accountandis sometimesalsocalledProfit and Loss adjustment account. The profit
or Loss arisingdue torevaluationisdividedamongthe oldpartnersintheiroldratio. A Proforma of revaluation account
is given below:
RevaluationAccount
Particulars Amount Particulars Amount
Assets[decrease invalue]
Liabilities[increase invalue]
Liabilities[unrecorded]
Profittransferredto Capital A/c
[Individuallyinexistingratio]
Assets[Increase invalue]
Liabilities[Decrease invalue]
Assets[unrecorded]
Loss transferredtoCapital A/c
[Individuallyin existingratio]
Example of Revaluation Account
Manu and Tanu are partners sharing profit and losses in the ratio of 5:4. Their Balance Sheet was as follows:
Balance Sheetof Manu and Tanu as on December31, 2013
Liabilities Amount (Rs.) Assets Amount (Rs.)
Creditors
BillsPayable
Capital:
10,000
7,000
Cash inhand
Building
Machinery
7,000
30,000
20,000
2. Manu
Tanu
40,000
30,000
Investments
Debtors
Stock
10,000
10,000
10,000
87,000 87,000
Nikhil isadmittedasapartnerand assetsare revaluedandliabilities reassessedasfollows:
(i) Create a ProvisionfordoubtfuldebtondebtorsatRs.800.
(ii) Buildingandinvestmentare appreciatedby10%.
(iii) Machineryisdeprecatedby 5%
(iv) Creditorswere overestimatedbyRs.500.
Prepare revaluationaccounton the admission of Nikhil.
RevaluationAccount
Particulars Amount Particulars Amount
To Provisionfordoubtful debts
To Machinery
To ProfitonRevaluation
- Manu = (2700*5/9)
- Tanu = (2700*4/9)
800
1,000
1,500
1,200
By Building
By Investments
By Creditors
3,000
1,000
500
4,500 4,500
Answerof Q.N.2.
Journal Entries
In the Books of AB Ltd.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967
EMAIL: KUMARNIRMALPRASAD@GMAIL.COM
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM
Answerof Q.N.3.
Ledger Accounts
3. In the Books of Chaudhary Harpal Singh
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967
EMAIL: KUMARNIRMALPRASAD@GMAIL.COM
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM
Answer of Q.N.4.
COMPLETE SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS CONTACT:
KUMAR NIRMAL PRASAD, TINSUKIA (ASSAM)
CONTACT NO. 9577097967
EMAIL: KUMARNIRMALPRASAD@GMAIL.COM
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM
Answer of Q.N.5.
Meaning of funds flow statement:
The financial statementof the business indicates assets, liabilities and capital on a particular date and also the
profitor lossduringa period.Butitis possible thatthere isenoughprofitinthe businessandthe financialpositioni salso
goodand still there maybe deficiencyof cash or of working capital in business. Financial statements are not helpful in
analysingsuchsituation.Therefore,astatementof the sourcesandapplicationsof fundsispreparedwhichindicatesthe
utilisation of working capital during an accounting period. This statement is called Funds Flow statement.
In popular sense the term ‘fund’ is used to denote excess of current assets over current liabilities.
According to R.N. Anthony, “Fund Flow is a statement prepared to indicate the increase in cash resources and
the utilization of such resources of a business during the accounting period.”
According to Smith Brown, “Fund Flow is prepared in summary form to indicate changes occurring in items of
financial condition between two different balance sheet dates.”
From the above discussion, it is clear that the fund flow statement is statement summarising the significant
financial change which have occurred between the beginning and the end of a company’s accounting period.
4. Difference between Funds Flow Statement and Cash Flow Statement
Basis of Difference Funds Flow Statement Cash Flow Statement
Basis of Analysis Funds flow statement is based on broader
concept i.e. working capital.
Cash flow statement is based on narrow
concept i.e. cash, which is only one of the
elements of working capital.
Objective The object funds flow statement is to
disclose the magnitude, direction and
causes of changes in working capital.
The object of cash flow is to disclose the
magnitude, direction and causes of changes in
cash and cash equivalents.
Source Funds flow statement tells about the
various sources from where the funds
generated with various uses to which they
are put.
Cash flow statement starts with the opening
balance of cash and reaches to the closing
balance of cash by proceeding through sources
and uses.
Usefulness Funds flow statement is more useful in
assessing the long-term financial position.
Cash flow statement is more useful in
assessingthe short-termfinancialpositionof the
business.
Schedule of Changes
in Working Capital
In fundsflowstatement changes in current
assets and current liabilities are shown
throughthe schedule of changes in working
capital.
In cash flow statement changes in current
assets and current liabilities are shown in the
cash flow statement.
Causes Funds flow statement shows the causes of
changes in net working capital.
Cash flow statement shows the causes of
changes in cash.
Principal of
Accounting
Funds flow statement is based on the
accrual basis of accounting.
In cash flow statement, data are obtained on
accrual basis which are converted into cash
basis.
Compulsion There isno prescribedformforpreparation
of Funds flow statement.
Cash flow statement is compulsory to be
preparedinprescribedproformaasgiveninAS –
3.
Relationship Funds flow statement can be prepared
fromthe cash flowstatementunder indirect
method.
But a cash flow statementcannot be prepared
from funds flow statement.
Financial Health Sound fund position does not necessarily
mean sound cash position.
But sound cash position is always followed by
sound fund position.
Significance of Funds Flow statement in Financial Management
5. Funds Flow Statement is an analytical tool in the hands of financial manager. The basic purpose of this
statement is to indicate on historical basis the changes in the working capital i.e., where funds came from and where
there are usedduringa given period. The utility of this statement can be measured on the basis of its contributions to
the financial management. It generally serves the following purposes:
(1) Analysis of Financial Position. The basic purpose of preparing the statement is to have a rich into the
financial operationsof the concern. It analyses how the funds were obtained and used in the past. In this sense, it is a
valuable tool for the finance manager for analyzing the past and future plans of the firm and their impact on the
liquidity. He can deduce the reasons for the imbalances in uses of funds in the past and take necessary corrective
actions. In analyzing the financial position of the firm, the Funds Flow Statement answers to such questions as-
1. Why were the net current assets of the firm down, though the net income was up or vice versa?
2. How was it possible to distribute dividends in absence of or in excess of current income for the period?
3. How was the sale proceeds of plant and machinery used?
4. How was the sale proceeds of plant and machinery used?
5. How were the debts retired?
6. What became to the proceeds of share issue or debenture issue?
7. How was the increase in working capital financed?
8. Where did the profits go?
Though it is not an easy job to find the definite answerers to such questions because funds derived from a
particular source re rarely used for a particular purpose. However, certain useful assumptions can often be made and
reasonable conclusions are usually not difficult to arrive at.
(2) Evaluation of the Firm's Financing. One important use of the statement is that it evaluates the firm'
financingcapacity.The analysisof sourcesof fundsrevealshow the firm'sfinanceditsdevelopment projects in the past
i.e., from internal sources or from external sources. It also reveals the rate of growth of the firm.
(3) An Instrumentfor Allocationof Resources. In modernlarge scale business, available funds are always short
for expansionprogrammesandthere isalwaysaproblemof allocation of resources. It is, therefore, a need of evolving
an orderof prioritiesforputtingthroughtheirexpansionprogrammeswhich are phased accordingly, and funds have to
be arranged as different phases of programmes get into their stride. The amount of funds to be available for these
projects shall be estimated by the finance with the help of Funds Flow Statement. This prevents the business from
becoming a helpless victim of unplanned action.
(4) A Tool of Communicationto Outside World.FundsFlow Statementhelpsingathering the financial states of
Business.Itgivesaninsightintothe evolutionof the presentfinancial position and gives answer to the problem 'where
have our resourcesbeenmoving'?Inthe presentworldof credit financing, it provides a useful information to bankers,
creditors, financial, it provides a useful information and government etc. regarding amount of loan required, its
proposes,the termsof repaymentansourcesforrepaymentof loan etc. the financial manager gains a confidence born
out of a study of Funds Flow Statement. In fact, it carries information regarding firm's financial policies to the outside
world.
6. (5) Future Guide.Ananalysisof FundsFlow Statementsof several yearsrevealscertainvaluable information for
the financial manager for planning the future financial requirements of the firm and their nature too i.e. Short term,
long-term or midterm. The management can formulate its financial policies based on information gathered from the
analysisof suchstatements.Financialmanagercan rearrange the firm's financing more effectively on the basis of such
information along with the expected changes in trade payables and the various accruals. In this way, it guides the
management in arranging its financing more effectively.