Accounting Definations

Accounts Assignment On Marginal Costing and Accounting Definitions

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Self Assessment Question of  Marginal Costing

1. To obtain the break-even break-even point in rupee sales volume, total fixed costs are divided by a) Variable cost cost per unit b) Contribution margin per unit unit c) Fixed cost cost per unit d) Profit/volume Profit/volume ratio 2. The break even even point is the point point at which a) There is no profit no loss b) Contribution margin is equal to fixed cost c) Total revenue is equal to total cost d) All of the above 3. Margin of safety is referred to as

a) Excess of actual sales over fixed expenses b) Excess of actual sales over variable expenses

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4. The break even even analysis may may be described as

a) Comparison between production and sales b) Comparison to make out capacity utilization c) Comparison between target set and actual achievement d) Comparison between sales and cost 5. An increase increase in sales price

a) Does not effect the break-even point b) Lowers the net net profit c) Increases the break even point d) Lowers the break even even point 6. Fixed cost per per unit decreases when a) Production volume increases b) Production volume decreases c) Variable cost per unit decreases d) Prime cost per unit decreases 7. Within a relevant range, the amount amount of variable costs per per unit

a) Differs at production level

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8. Each of the following would affect affect the break even point except except a change in the a) Number of units sold b) Variable cost per unit c) Total fixed cost d) Sales price per unit 9. Margin of safety a) Profit/P.V Ratio b) Profit*Sales/Sales-Variable cost c) Excess sales over break even sales/Actual sales d) All of them 10. Under marginal costing system, the contribution margin discloses the excess of  a) Revenue over fixed cost b) Projected revenue over break even point c) Revenue over variable cost d) Variable cost over fixed cost

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Answer Key

1) Contribution margin per unit

2) All the above 3) Excess of actual sales over break even sales

4) Comparison between sales and cost 5) An increase in sales price 6) Production volume increases

7) Increase as production increases 8) Total fixed cost

9) All the above 10) Revenue over variable cost

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Accounting Definitions Fixed Assets Accounting view

Fixed assets refers to those assets which are held for the purposes of providing or producing goods or services and those that are not be held for resale in the normal course of business. It may be classified as under:

1)

Tangible fixed assets –

Refers to those fixed assets which can be seen and touched. For e.g. Land and Building, Plant and Machinery and Furniture and Fixtures.

2)

Intangible fixed assets-

Refers to those fixed assets which cannot be seen and touched. For e.g. Goodwill, Patent, Trademark, Copyright.

Managerial view

It is the investment done by the Organisation for doing the production. It is also included in the total market value of the Organisation. It helps Organisation to take loan or credit from the market.

Example: 1)Mr. X purchases a machinery of Rs. 10 lakh.

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Debtors

Accounting view

Debtors are person and/or other entities who owe to an enterprise an amount for buying goods and services on credit. The total amount standing against such person and/ or entities on the closing date, is shown in the balance sheet as sundry debtors on the assets side

Managerial view Debtors means the money of the organization is blocked with the outsiders and we have to spend money to recover the blocked money. It affects the liquidity of the company as

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Profit

Accounting view Profit is the excess of revenue over the expenses to earn that revenues. Profit = Revenue – Expenses

Types of Profit:

1)

Revenue profit

Profit earned by a company in ordinary course of business

2)

Capital profit

Excess of proceeds realized from sale, transfer, or exchange of assets of business not held by company for sale in ordinary course of business.

3)

Gross profit

Excess of proceeds of goods and services sold during certain period over their cost before

taking into account administrative, selling and financing expenses.

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5)Net

profit

Excess of revenue over expenses of business. Income tax is paid on this profit.

6)Profit

after Tax

Profit left after paying income tax. From this amount -dividend on preference share is paid -dividend on equity share is paid -remaining is kept as reserve of company (also known as retained earning)

Managerial view It is the return for the Organisation for performing the business process. It helps the Organisation to increase the position in the market as the value of shares increases so the return to stake holders investment are also very good . It increases the liquidity liquidit y of the Organisation. Increase in PAT means that their reserve is also increasing so if they want any expansion/diversification in their business in future so they will not borrow full amount from outside.

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Discount Accounting view

Discount is the deduction in the price of the goods sold .It is offered in two ways .Offering deduction of agreed percentage of list price at the time of selling goods is one way of giving .Such discount is called “Trade discount”. It is generally offered by manufacturer to wholesellers and by wholeseller to retailers. After selling the goods on credit basis the debtors may be given certain deduction in amount due in the case if they pay the amount on the amount payable . Hence, it is called as cash discount .Cash discount acts as an incentive that encourages prompt payment by the debtors.

Managerial view It is the benefit for the Organisation as Organisation has to pay less amount then the due amount after using the other’s money for its own business for a certain period of time.

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Capital

Accounting view Capital is the excess of assets over external liabilities. IT refers to amount invested in an enterprise by the Proprietors(in case of proprietorship) or partners (in case of partnership concern). This amount is increased by the amount of profits earned and the amount of  additional capital introduced and is decreased by the amount of losses incurred and the amount withdrawn (weather in the form of cash or kind). It represents the owners claim on the assets of the enterprise.

Managerial view It is the investment done by the entrepreneur to run the Organisation and use the facilities available to him. It helps the outsider to know the present position of the Organisation in the market. So that the Organisation can borrow money from the market and run its business.

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Creditor

Accounting view Creditors are the person or other entities who have to be paid by an enterprise an amount for providing the enterprise goods and services on credit. The total amount standing to the favour of such person or entities on the closing date, is shown in the Balance Sheet as Sundry Creditors on the Liabilities side

Managerial view

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Goodwill

Accounting view Goodwill is an intangible assets which tells the present position of the organization in the market. It is mainly taken into consideration at the time of admission , retirement, or death of any partner or at the time of sales of business. It is the reputation of the business in the market which can be cashed at any time

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Long term loan

Accounting view Loans taken by the organization which are for more then 5 years are known as Long term loan. Usually all long term loans are secured loans they are for the longer period of time so some assets are mortgaged. Generally long term loans are take for the advancement of  the business or to introduce new technologies in the business. Interest rate is also less as loan is for the longer period of time.

Managerial view

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Interest on long term loan Accounting view

It is the return on the money taken from the market for the longer period of time .As the time period is long so interest is always less then short term loan.

Managerial view

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Provisions for expenses Accounting view

An amount written of or retained by way of providing for: a)depreciation b)doubtful debts c)diminution in value of assets or d)known liability amount of which cannot be determined with substantial accuracy

Managerial view

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Bibliography