MMPC 4 Solved Assignment 2024-25: Free PDF Download

MMPC 4 Solved Assignment 2024-25 (Accounting For Managers). This assignment is for the July 2024 and January 2025 admission or re-registration cycle. This assignment is valid up to 30 April 2025.

On the other side, those students who didn’t submit the assignment previously or were rejected, also do this assignment.

MMPC 4 Solved Assignment 2024-25

1. What are the objectives of preparing Financial Statements? Describe the basic concepts of income determination.

Ans: Objectives of Preparing Financial Statements

Financial statements are prepared with several key objectives in mind:

1. Providing Information to Stakeholders:
   • Investors: To help them make informed decisions about buying, holding, or selling equity.
   • Creditors: To assess the creditworthiness and liquidity of the business.
   • Management: To evaluate the financial health and performance of the company and make strategic decisions.
   • Regulatory Authorities: To ensure compliance with legal and regulatory requirements.
   • Employees: To gauge the company’s profitability and stability which may affect job security and future compensation.
2. Assessing Financial Performance:
   • To evaluate the profitability and operational efficiency over a specific period, typically through the Income Statement.
3. Evaluating Financial Position:
   • To provide a snapshot of the company’s financial condition at a specific point in time, typically through the Balance Sheet.
4. Cash Flow Analysis:
   • To understand the inflows and outflows of cash, ensuring the company has enough liquidity to meet its obligations, typically through the Cash Flow Statement.
5. Compliance and Legal Requirements:
   • To fulfill statutory requirements and ensure the company complies with financial reporting standards and regulations.
6. Planning and Control:
   • To assist management in planning future activities and controlling current operations by comparing actual performance against budgets or forecasts.
7. Communication with Stakeholders:
   • To effectively communicate the financial results and condition of the company to various stakeholders.

Basic Concepts of Income Determination

Income determination is crucial for assessing a company’s performance and involves several fundamental accounting concepts:

1. Revenue Recognition Principle:
   • Revenue is recognized when it is earned and realizable, regardless of when cash is received. This principle ensures that income is recorded in the period in which it is earned.
2. Matching Principle:
   • Expenses are matched with the revenues they help to generate. This means expenses are recorded in the same period as the revenues they are associated with, ensuring accurate profit measurement.
3. Accrual Basis Accounting:
   • Under the accrual basis, revenues and expenses are recorded when they are earned or incurred, not necessarily when cash is received or paid. This provides a more accurate picture of a company’s financial position and performance.
4. Consistency Principle:
   • Financial statements should be prepared using consistent accounting methods from one period to the next unless a change is justified and disclosed. This allows for comparability over time.
5. Conservatism Principle:
   • When there is uncertainty in income determination, accountants should choose the method that will least likely overstate assets and income. This principle helps in not overstating the company’s financial position.
6. Materiality Principle:
   • Only information that would influence the decision-making of users should be included in the financial statements. Insignificant amounts that would not affect users’ decisions can be disregarded.
7. Going Concern Assumption:
   • It is assumed that the business will continue to operate indefinitely unless there is evidence to the contrary. This affects the valuation and classification of assets and liabilities.
8. Full Disclosure Principle:
   • All information that affects the full understanding of a company’s financial statements must be included. This includes notes to financial statements that provide additional detail and context.

By adhering to these principles and objectives, financial statements aim to present a true and fair view of the financial performance and position of a business, aiding stakeholders in making well-informed decisions.

2. In context of Cash Flow Statement, what is cash and cash equivalent? In what categories cash flows are classified and explain how cash flow in each activity is calculated as per AS-3. Describe how cash flow statement is prepared under Direct Method.

Ans: Cash and Cash Equivalents in the Context of Cash Flow Statement

Cash and Cash Equivalents refer to the company’s most liquid assets. These include:

• Cash: Actual currency held by the company, including cash on hand and demand deposits.
• Cash Equivalents: Short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Examples include treasury bills, commercial paper, and money market funds.

Categories of Cash Flows

As per Accounting Standard 3 (AS-3) on Cash Flow Statements, cash flows are classified into three main categories:

1. Operating Activities:
   • Cash flows from the primary revenue-generating activities of the enterprise.
   • Examples include cash receipts from sales of goods and services, cash payments to suppliers for goods and services, and cash payments to and on behalf of employees.
   • Calculation:
     • Indirect Method: Start with net profit before tax, adjust for non-cash items (depreciation, amortization), changes in working capital (inventory, receivables, payables), and other items like interest and taxes.
     • Direct Method: Present major classes of gross cash receipts and gross cash payments.
2. Investing Activities:
   • Cash flows from the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
   • Examples include cash payments to acquire fixed assets (property, plant, equipment), cash receipts from the sale of fixed assets, and cash advances and loans made to other parties.
   • Calculation: Sum up the cash inflows and outflows from purchasing or selling long-term investments and assets.
3. Financing Activities:
   • Cash flows related to changes in the size and composition of the equity capital and borrowings of the enterprise.
   • Examples include cash proceeds from issuing shares or other equity instruments, cash payments to owners to acquire or redeem the entity’s shares, and cash proceeds from issuing debentures, loans, notes, bonds, and other short- or long-term borrowings.
   • Calculation: Sum up cash inflows and outflows from borrowing, repaying loans, and equity transactions.

Preparation of Cash Flow Statement under Direct Method

The Direct Method of preparing the Cash Flow Statement involves reporting major classes of gross cash receipts and gross cash payments. Here’s how it is typically prepared:

1. Cash Flows from Operating Activities:
   • Cash Receipts from Customers: Start with sales revenue and adjust for changes in accounts receivable.
   • Cash Payments to Suppliers: Begin with cost of goods sold and adjust for changes in inventory and accounts payable.
   • Cash Payments to Employees: Start with wages and salaries expense and adjust for changes in wages payable.
   • Cash Payments for Other Operating Expenses: Include payments for rent, utilities, and other operating expenses.
   • Cash Payments for Income Taxes: Include tax payments made during the period.
   • Net Cash Provided by (Used in) Operating Activities: Sum the cash inflows and outflows from the above items.

Example:

Cash Receipts from Customers

– Cash Payments to Suppliers

– Cash Payments to Employees

– Cash Payments for Other Operating Expenses

– Cash Payments for Income Taxes

= Net Cash Provided by Operating Activities

2. Cash Flows from Investing Activities:

• Cash Payments for Purchase of Fixed Assets: Report the total cash spent on acquiring fixed assets.
• Cash Receipts from Sale of Fixed Assets: Report the total cash received from selling fixed assets.
• Cash Payments for Investments: Include cash paid for purchasing investments.
• Cash Receipts from Sale of Investments: Include cash received from selling investments.
• Net Cash Provided by (Used in) Investing Activities: Sum the cash inflows and outflows from the above items.

Example:

Cash Payments for Purchase of Fixed Assets

+ Cash Receipts from Sale of Fixed Assets

+ Cash Payments for Investments

+ Cash Receipts from Sale of Investments

= Net Cash Provided by (Used in) Investing Activities

3. Cash Flows from Financing Activities:

• Cash Proceeds from Issuing Shares: Report cash received from issuing equity.
• Cash Payments for Repurchasing Shares: Report cash spent on buybacks of equity.
• Cash Proceeds from Borrowings: Report cash received from loans and borrowings.
• Cash Repayments of Borrowings: Include cash spent on repaying debt.
• Dividends Paid: Include cash paid to shareholders as dividends.
• Net Cash Provided by (Used in) Financing Activities: Sum the cash inflows and outflows from the above items.

Example:

Cash Proceeds from Issuing Shares

– Cash Payments for Repurchasing Shares

+ Cash Proceeds from Borrowings

– Cash Repayments of Borrowings

– Dividends Paid

= Net Cash Provided by (Used in) Financing Activities

The Direct Method provides a clear view of cash flows by directly listing the sources and uses of cash. This method helps users understand the exact cash movements during the period, facilitating better analysis and decision-making. By classifying cash flows into operating, investing, and financing activities, it allows stakeholders to see how the company generates and uses its cash resources.

3. What is an Annual Report? Discuss in brief the contents of an annual report and describe the non audited information contained in an Annual Report of any company.

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4. What is Human Resource Accounting? How can it be used as a decision tool by Management?

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5. A) Compute Profit when –

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B) Compute Sales When –

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Conclusion

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