Management Accounting

It is the application of funds. It would decrease the balance in bank account. The decrease in current assets means decrease in working capital and the decrease in working capital indicates that there is application of funds. Working capital is excess of current assets over current liabilities.

The cash received from interest on investment is the cash received from the ordinary item. As when we invest somewhere we can expect to receive, the interest with surety. Hence, it is the cash inflow from the ordinary item.

It will result in inflow of cash of Rs. 22,000. The cost of furniture is Rs. 20,000 and is sold at a profit of Rs. 2,000. Hence, the inflow of cash would be Rs. 22,000.
Selling price = Cost price + Profit
Cost price is Rs. 20,000 and profit is Rs. 2,000.
Hence, selling price is Rs. 20,000 + Rs. 2,000 =  Rs. 22,000.
The price at which the furniture is sold is Rs. 22,000 would be the inflow of cash.

It is based on cash basis. In cash flow statement, only cash inflow and cash outflow are recorded. It is based on cash basis of accounting.

By the excessive working capital, the funds remain idle as the company has more funds than required. When funds remain idle, no profit is earned on idle funds. Hence, proper rate of return is not earned on the investment of the company.

It is an item of non - operating activity. Since the payment is made to acquire or purchase fixed asset, which is not the principal revenue earning activity of the business.

It is an item of financing activity. By issuing of debentures, we get finance for our business from the debenture holders in the form of borrowings or loan.

The relation between cash dividends and retained earnings is reciprocal. The retained earning is the part of profits which is not distributed as profits and is kept by the company. If the company decides to distribute major part of profits as dividend in the form of cash, then obviously it would have less earnings left to be retained or kept and vice-versa.

It is an internal factor affecting the dividend policy as it is concerned with the company in particular. If the company needs funds for larger profitable projects, the company would retain the major part of the earnings and distribute less dividends.

It is an example of current liability. It is the amount payable to concerned department or employee in the current accounting period.

There wll be no effect on inflow or outflow of cash. Since the bills accepted by us are dishonoured on due date, no payment will be made to creditors. Hence, there will be no inflow or outflow of cash.

It is 4 years.
Pay back period =  Initial Investment / Annual Cash Inflow
Initial investment required in project is of Rs. 1,00,000. Annual cash inflow is of Rs. 25,000
Hence, Pay back period = Rs. 1,00,000 / 25,000 = 4 years

It uses the finance, which comes under the scope of public finance.

This is not the form of dividend. The kind means that dividend is given in form of goods or assets other than cash, which is not possible.

It is not a feature of equity shares. The equity shares cannot be redeemed or paid back during the life time of the company because it has no maturity period. It is debentures and redeemable preference shares, which have fixed maturity period.

It is the stock dividend, which is also known as issue of bonus shares. In the stock dividend, the company issues additional or bonus shares in proportion to their existing equity shares in the company. Hence, stock dividend is also known as issue of bonus shares.

There will be no effect on the working capital.
Stock coming in is of Rs. 20,000 and cash paid is of Rs. 5000, i.e. current assets are increased by Rs. 15,000. However, the creditors, i.e. current liabilities are also increased by Rs. 15,000. Thus, the net effect on working capital is nil.

By the issue of bonus shares, the profits of the company are converted into share capital. The bonus shares are allotted by capitalizing the reserves and surplus. Hence, issue of bonus shares results in the conversion of the company's profits into share capital.

Debentures are borrowed source of funds. Debentures acknowledge that the debt is owned to the company or the loan is given to the company. The debenture holders are the creditors of the company, i.e. outside party. Debenture indicates that the money is borrowed from the debenture holders.

It would result in inflow of cash of Rs. 91,000.
Since the machine is purchased for Rs. 1,00,000 and the depreciation till 30th June is Rs. 5,000. Hence, the value of machinery on 30th June is (Purchase price -  Depreciation), hence value is, (Rs. 1, 00,000 -  Rs. 5,000 Rs.=  95,000)
It is sold at a loss of Rs. 4,000.
Hence, the selling price would be Value Loss. Value = Rs. 95,000 Loss = Rs. 4,000
Hence, selling price would be 95000 - 4000 = Rs. 91000

It is a cash transaction. As the amount is received from debtors, they would pay us the cash. Hence, it is a cash transaction. As there is inflow or coming in of cash, it is a cash transaction.

This is not any type of dividend policy, which is followed by the company.

As explained earlier cash is needed for transaction, precautionary and speculative motive. Hence, cash is needed for all of these motives.

It is Rs. 7,500 The working capital is excess of current assets over current liabilities.
Current assets are stock, debtors and cash at bank.
The stock is of Rs. 5,000;
Debtors are of Rs. 4,000;
Cash at Bank is of Rs. 3,000.
Hence, total current assets = Rs. 5,000 + Rs. 4,000 +  Rs. 3,000 =  Rs. 12,000 Current liabilities are creditors, overdraft and outstanding liabilities.
Hence, total current liabilities = Rs. 3,000 + Rs. 1,000 +  Rs. 500  = Rs. 4,500
Therefore, working capital is of Rs. 12,000 -  Rs. 4,500 = Rs. 7,500

It is external source of finance. In public deposits, the funds are accepted from the public in the form of deposits. As the public has deposited the funds, which is an outside party, it is an external source of finance. The deposits are to be paid back to the public.