Eco 02 Solved Free Assignment 2024-25 Sem 2
Course Code : ECO-02Â
Course Title : Accountancy-1Â
Assignment Number : BCA (II)/02/Assignment/2024-25
Maximum Marks : 100Â
Weightage : 25%Â
Last Dates for Submission : 31st October, 2024 (For July Session)
                      : 30th April, 2025 (For January Session)
There are five questions in this assignment which carried 100 marks. Answer all the questions. Please go through the guidelines regarding assignments given in the Program Guide for the format of presentation.
Attempt all the questions:
Q1: From the following figures prepare Trading and Profit and Loss Account of Lakshmi & Co. for the year ended December 31, 2023.Â
Rs. Stock on January 1, 2023 40,000Â
Purchases 98,000Â
Commission Received Rent 650Â
Rates and Taxes 8,600Â
Salaries & Wages 12,000Â
Sales 1,62,100Â
Returns Inwards 2,400Â
Returns Outwards 3,000Â
Sundry Expenses 2,500Â
Bank Charges 50
Discount Received 750Â
Carriage on Purchases 2,000Â
Discount Allowed 530Â
Carriage on Sales 1,700Â
Lighting and Heating 2,200Â
Postage 300
Income from Investments 500Â
Commission Paid 1,000
Interest paid on a bank 550Â
The stock on December 31, 2023 was valued at Rs. 26,000
Ans:-Â To prepare the Trading and Profit & Loss Account for Lakshmi & Co. for the year ended December 31, 2023, we will first prepare the Trading Account to determine the gross profit and then proceed with the Profit & Loss Account to calculate the net profit.
1. **Trading Account for the year ending December 31, 2023:**
| **Particulars**Â Â Â Â Â Â Â | **Amount (Rs.)** | **Particulars**Â Â Â Â Â Â Â | **Amount (Rs.)** |
|-----------------------------|------------------|-----------------------------|------------------|
| **To Opening Stock**Â Â Â Â Â | 40,000Â Â Â Â Â Â | **By Sales**Â Â Â Â Â Â Â Â | 1,62,100Â Â Â Â Â |
| **To Purchases**Â Â Â Â Â Â Â | 98,000Â Â Â Â Â Â | **Less: Returns Inwards**Â Â | (2,400)Â Â Â Â Â |
| **Less: Returns Outwards**Â Â | (3,000)Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â | 1,59,700Â Â Â Â Â |
|Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â | 95,000Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
| **To Carriage on Purchases** | 2,000Â Â Â Â Â Â | **By Closing Stock**Â Â Â Â | 26,000Â Â Â Â Â Â |
| **To Gross Profit c/d**Â Â Â | 48,700Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
|Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â | **Total**Â Â Â Â | **1,85,700**Â Â Â Â Â Â Â Â | **Total**Â Â Â Â | **1,85,700**Â Â |
 **Gross Profit = Rs. 48,700**
 2. **Profit & Loss Account for the year ending December 31, 2023:**
| **Particulars**Â Â Â Â Â Â Â Â Â Â | **Amount (Rs.)** | **Particulars**Â Â Â Â Â Â Â Â Â Â | **Amount (Rs.)** |
|-----------------------------------|------------------|-----------------------------------|------------------|
| **To Salaries & Wages**Â Â Â Â Â Â | 12,000Â Â Â Â Â Â | **By Gross Profit b/d**Â Â Â Â Â Â | 48,700Â Â Â Â Â Â |
| **To Rates and Taxes**Â Â Â Â Â Â | 8,600Â Â Â Â Â Â | **By Commission Received**Â Â Â Â | 650Â Â Â Â Â Â Â |
| **To Sundry Expenses**Â Â Â Â Â Â | 2,500Â Â Â Â Â Â | **By Discount Received**Â Â Â Â Â | 750Â Â Â Â Â Â Â |
| **To Bank Charges**Â Â Â Â Â Â Â Â | 50Â Â Â Â Â Â Â Â | **By Income from Investments**Â Â | 500Â Â Â Â Â Â Â |
| **To Discount Allowed**Â Â Â Â Â Â | 530Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
| **To Carriage on Sales**Â Â Â Â Â | 1,700Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
| **To Lighting and Heating**Â Â Â Â | 2,200Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
| **To Postage**Â Â Â Â Â Â Â Â Â Â | 300Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
| **To Commission Paid**Â Â Â Â Â Â | 1,000Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
| **To Interest Paid on Bank Loan** | 550Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
| **To Net Profit**Â Â Â Â Â Â Â Â Â | 21,670Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |Â Â Â Â Â Â Â Â Â |
|Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â | **Total**Â Â Â Â | **50,100**Â Â Â Â Â Â Â Â Â Â Â Â | **Total**Â Â Â Â | **50,100**Â Â |
 **Net Profit = Rs. 21,670**
This is the Trading and Profit & Loss Account for Lakshmi & Co. for the year ending December 31, 2023. The business made a net profit of Rs. 21,670 after accounting for all the expenses and incomes.
Q2: Distinguish between:Â
a) Non-recurring and Recurring ExpensesÂ
b) Ordinary Commission and Del Credere CommissionÂ
c) Account Sales and invoiceÂ
d) Normal Loss and Abnormal Loss
Ans:- Here’s the distinction between the terms mentioned:
 a) **Non-recurring Expenses vs Recurring Expenses**
1. **Non-recurring Expenses**:
  - These are expenses that do not occur frequently or are one-time in nature.
  - They are usually related to capital expenditure, such as purchasing machinery, renovating buildings, or setting up a new business.
  - Example: The cost of purchasing a new factory, installation of machinery.
2. **Recurring Expenses**:
  - These are expenses that happen regularly, typically in the day-to-day running of a business.
  - These are operational expenses or costs that occur periodically, such as every month or year.
  - Example: Salaries, rent, utility bills, and advertising costs.
b) **Ordinary Commission vs Del Credere Commission**
1. **Ordinary Commission**:
  - This is the basic commission paid to an agent for making a sale or transaction on behalf of the principal.
  - The agent is responsible only for procuring orders or completing the sales and has no liability for bad debts.
  - Example: An agent receiving 5% commission on all sales made.
2. **Del Credere Commission**:
  - This is an additional commission paid to an agent for guaranteeing the payment from customers.
  - In this case, the agent takes on the risk of any bad debts that might occur from the customers they deal with.
  - Example: An agent receives extra commission for ensuring payment from all the customers, taking the risk of any default.
c) **Account Sales vs Invoice**
1. **Account Sales**:
  - It is a statement sent by a consignee (the person receiving the goods) to the consignor (the person sending the goods) detailing the sales made, expenses incurred, and the net proceeds due to the consignor.
  - It is prepared periodically and provides a summary of sales and related financials.
  - Example: A consignment agent sends an account sales statement to the consignor after selling goods.
2. **Invoice**:
  - An invoice is a document issued by a seller to a buyer that outlines the details of goods or services provided and the amount due for payment.
  - It includes the price, quantity, taxes, and terms of payment.
  - Example: A company sends an invoice to a customer after delivering goods, specifying the total amount owed.
d) **Normal Loss vs Abnormal Loss**
1. **Normal Loss**:
  - This is the loss that is expected or unavoidable in the regular course of business operations, such as during production, transportation, or storage.
  - It is considered part of the cost of doing business and is factored into pricing and profitability.
  - Example: Evaporation of liquids during transportation, spoilage in food processing.
2. **Abnormal Loss**:
  - This is the loss that occurs unexpectedly and is not part of the regular business process. It arisesÂ
   due to unforeseen circumstances or inefficiencies.
  - Abnormal losses are not anticipated and can often be controlled or minimized through better management.
  - Example: Losses due to accidents, theft, or natural disasters like floods.
Q3: Explain the accounting concepts which guide the accountant at the recording stage.Â
Ans:-Â Â Accounting concepts are fundamental assumptions or principles that guide accountants when recording and reporting financial transactions. These concepts ensure that financial information is presented consistently and accurately. Below are the key accounting concepts that guide accountants at the **recording stage**:
1. **Business Entity Concept**
  - The business is treated as a separate entity from its owner(s).
  - All financial transactions are recorded from the viewpoint of the business, not the owner.
  - Example: The personal expenses of the owner are not recorded in the business accounts.
2. **Money Measurement Concept**
  - Only transactions that can be expressed in terms of money are recorded in the books of accounts.
  - Non-monetary events, like employee skills or company reputation, are not recorded in financial statements.
  - Example: The purchase of machinery for Rs. 50,000 is recorded, but the skill level of an employee is not.
 3. **Going Concern Concept**
  - This concept assumes that the business will continue to operate indefinitely, unless there is evidence to the contrary.
  - This allows for the deferral of recognizing certain expenses or revenues over future periods.
  - Example: Depreciation is charged on assets assuming they will be used for several years.
4. **Cost Concept (Historical Cost)**
  - Assets and expenses are recorded at their original purchase price or cost, rather than their current market value.
  - This provides a reliable basis for recording, though it may not reflect current values over time.
  - Example: A building purchased for Rs. 5,00,000 will be recorded at that cost, even if its market value increases later.
5. **Dual Aspect Concept**
  - Every financial transaction has two effects: one debit and one credit, which are equal and opposite.
  - This is the foundation of the double-entry bookkeeping system.
  - Example: When goods are purchased for Rs. 10,000 on credit, "Purchases" are debited, and "Creditors" are credited by the same amount.
 6. **Accrual Concept**
  - Revenues and expenses are recognized when they are earned or incurred, regardless of when cash is received or paid.
  - This concept ensures that financial statements reflect the true financial position of the business.
  - Example: Revenue earned in December but received in January is recorded in December.
 7. **Realization Concept**
  - Revenue is recognized only when it is earned, not when cash is received.
  - The revenue is realized when goods or services are provided to the customer, irrespective of when payment is made.
  - Example: A sale made on credit in June will be recorded as revenue in June, even if the payment is received later.
8. **Matching Concept**
  - This concept states that expenses should be matched with the revenues they help to generate.
  - In other words, expenses are recorded in the same period in which the related revenues are earned.
  - Example: If sales are made in a particular period, the cost of goods sold related to those sales should be recorded in the same period.
 9. **Conservatism (Prudence) Concept**
  - The conservatism concept states that accountants should anticipate potential losses and liabilities but not recognize future profits until they are realized.
  - This ensures that financial statements are cautious and do not overstate the business's financial position.
  - Example: Recording provisions for doubtful debts even if the debtor has not defaulted yet.
10. **Materiality Concept**
  - Only information that is significant or "material" enough to affect decisions of users should be recorded and reported.
  - Trivial items are disregarded, and this helps to avoid cluttering financial statements with unnecessary details.
  - Example: Stationery purchased for a nominal amount may be recorded as an expense immediately rather than being capitalized.
 11. **Consistency Concept**
  - The same accounting methods and policies should be applied consistently over time.
  - This allows for comparability of financial statements between periods.
  - Example: If a business uses the straight-line method of depreciation, it should continue using it unless a valid reason for change arises.
12. **Full Disclosure Concept**
  - Financial statements should disclose all material information necessary for users to make informed decisions.
  - This ensures transparency in financial reporting.
  - Example: Contingent liabilities, such as pending lawsuits, should be disclosed in the notes to the financial statements.
These accounting concepts ensure that financial records are maintained in a consistent, reliable, and transparent manner, helping both internal and external users understand the financial position of the business.
    b) Distinguish Single-Entry System from Double-Entry System.Â
Ans:-Â Â a) **What is a Single-Entry System?**
The **Single-Entry System** is a simplified method of accounting where only one side of each transaction is recorded, typically focusing on cash and personal accounts. Unlike the double-entry system, it does not maintain complete records of all aspects of transactions, particularly real and nominal accounts.
**Features of Single-Entry System**:
1. **Incomplete Records**: Only partial records of transactions are maintained, usually covering cash transactions and personal accounts (debtors and creditors).
2. **Personal and Cash Accounts**: It focuses primarily on personal accounts (debtors and creditors) and cash accounts, ignoring real (assets) and nominal accounts (expenses and revenues).
3. **No Trial Balance**: Since all transactions are not recorded completely, it is not possible to prepare a trial balance for checking arithmetical accuracy.
4. **Suitability**: It is mainly used by small businesses where transaction volumes are low, and there is no need for detailed financial records.
5. **Subjective Profits**: The profit or loss is determined through comparison of capital between two periods, which can be less accurate.
6. **Simple and Easy**: It is easy to maintain and less costly because fewer accounts are involved and less detail is tracked.
 **Limitations of Single-Entry System**:
1. **Inaccuracy**: The lack of systematic recording makes it difficult to accurately determine the financial position and results of operations.
2. **No Complete Records**: Real accounts (assets and liabilities) and nominal accounts (expenses and income) are not fully recorded, leading to incomplete financial data.
3. **Lack of Internal Control**: It’s difficult to track errors or fraud since a trial balance or reconciliation process is not available.
4. **Difficulty in Preparing Financial Statements**: Without complete records, preparing accurate financial statements like a balance sheet or profit and loss account is challenging.
5. **No Standardized System**: There are no set rules or formats for recording transactions, leading to inconsistency.
6. **Limited Suitability**: It is unsuitable for medium or large businesses where detailed financial information is needed for decision-making.
b) **Distinction Between Single-Entry System and Double-Entry System**:
| **Basis**Â Â Â Â Â Â Â Â | **Single-Entry System**Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â | **Double-Entry System**Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â |
|-------------------------|---------------------------------------------------------------|----------------------------------------------------------------|
| **Recording of Entries** | Records only one side of the transaction (usually cash or personal accounts). | Records both debit and credit aspects of every transaction.   |
| **Scope**        | Incomplete; focuses on cash and personal accounts.      | Complete system covering personal, real, and nominal accounts. |
| **Accounts Maintained** | Maintains cash accounts and personal accounts (debtors and creditors). | Maintains all accounts (personal, real, and nominal).      |
| **Trial Balance**    | Trial balance cannot be prepared due to incomplete records.  | Trial balance can be prepared to check arithmetic accuracy.   |
| **Financial Statements** | Difficult to prepare accurate financial statements (profit & loss, balance sheet). | Easy and systematic preparation of financial statements.    |
| **Accuracy**Â Â Â Â Â Â Â | Lacks accuracy and does not provide a true picture of financial position. | Provides accurate and complete information about the financial status. |
| **Error Detection**   | Errors and fraud are difficult to detect.           | Easier to detect errors and fraud due to the double-entry nature.|
| **Suitability**     | Suitable for small businesses with fewer transactions.    | Suitable for all types of businesses, especially large ones.  |
| **Cost and Effort**   | Less costly and less effort required.             | More costly and involves more effort due to complexity.     |
| **Profit Calculation**Â Â | Profit or loss is calculated by comparing capital between two periods. | Profit or loss is calculated through detailed accounts (revenues and expenses). |
Q5: Define Depreciation. Explain the need and significance of depreciation. What factors should be considered for determining the amount of depreciation?
Ans:-Â Â **Definition of Depreciation:**
**Depreciation** refers to the systematic allocation of the cost of a tangible fixed asset over its useful life. It represents the reduction in the value of an asset due to wear and tear, obsolescence, or the passage of time. Depreciation is a non-cash expense recorded to account for the decline in the asset's value.
For example, if a company purchases machinery for Rs. 1,00,000 with a useful life of 10 years, it may depreciate the asset by Rs. 10,000 annually (under the straight-line method) to reflect the asset's decreasing value.
**Need and Significance of Depreciation:**
1. **Accurate Profit Determination**:
  - Depreciation is essential to allocate the cost of a fixed asset over its useful life, allowing businesses to accurately determine their annual profits.
  - By charging depreciation, businesses match the cost of using assets to the revenues they generate in the same period, following the **matching concept** of accounting.
2. **True Valuation of Assets**:
  - Depreciation helps reflect the current or book value of an asset, as opposed to its original purchase cost.
  - This ensures that the balance sheet provides a realistic representation of the asset's value at any given time.
3. **Fund for Replacement**:
  - Charging depreciation helps accumulate funds for the eventual replacement of the asset at the end of its useful life.
  - This allows businesses to plan for future investments in new equipment or assets.
4. **Tax Savings**:
  - Depreciation is a non-cash expense that reduces taxable income, which in turn decreases the amount of taxes a business needs to pay.
  - It provides a legitimate way to lower tax liabilities while reflecting actual usage and value loss of assets.
5. **Compliance with Accounting Standards**:
  - Depreciation is required by accounting principles and standards, such as the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
  - It ensures that businesses follow a uniform and consistent approach to accounting for fixed assets.
6. **Prevents Overstatement of Profit**:
  - Without depreciation, assets would continue to appear at their full cost in the financial statements, which could lead to an overstatement of profits and financial health.
  - Depreciation provides a clearer picture of true profits by accounting for the cost of asset usage.
**Factors to Consider in Determining the Amount of Depreciation**:
1. **Cost of the Asset**:
  - The initial purchase cost of the asset, including any expenses incurred to bring it to its current condition (installation, delivery, etc.), is the basis for calculating depreciation.
  - This cost is spread over the asset's useful life.
2. **Estimated Useful Life**:
  - The useful life of the asset is the period over which the asset is expected to be productive or useful for the business.
  - This can vary based on factors like wear and tear, technological changes, and the nature of the asset.
  - Example: Machinery might have a useful life of 10 years, while a computer might have a shorter useful life of 5 years.
3. **Salvage or Residual Value**:
  - This is the estimated value of the asset at the end of its useful life, i.e., what the business expects to recover from selling or disposing of the asset.
  - Depreciation is charged on the difference between the asset's original cost and its salvage value.
4. **Depreciation Method**:
  - The method chosen for depreciation can affect the annual depreciation expense. Common methods include:
   - **Straight-Line Method**: Equal depreciation is charged each year over the asset's useful life.
   - **Reducing Balance (Diminishing Balance) Method**: A fixed percentage is charged on the book value, resulting in higher depreciation in the early years.
   - **Units of Production Method**: Depreciation is based on usage or output rather than time.
5. **Expected Usage or Wear and Tear**:
  - The extent to which an asset is expected to be used impacts its depreciation. High-usage assets, such as factory equipment, may depreciate faster than low-usage assets.
  - Physical wear and tear, as well as obsolescence due to technological advancements, must be factored in.
6. **Legal or Regulatory Requirements**:
  - In some cases, tax laws or government regulations may specify depreciation rates or methods for certain types of assets, which need to be followed.
  - For instance, tax authorities may prescribe rates for depreciation under tax laws.
7. **Technological Obsolescence**:
  - Rapid changes in technology can render certain assets obsolete before their physical useful life is over.
  - Depreciation should account for the likelihood of such obsolescence, especially in industries with fast technological advancement (e.g., IT or electronics).
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