MP Taps and Fittings Enterprise
Preparation of final accounts i.e., Trading and Profit & Loss (P/L) account, Cash Flow Statement and Balance Sheet is the basic requirement for all the business entities. While the format for preparing these final accounts has been specified as per schedule VI of the Companies Act 2013 for the public limited companies, the same is not mandatory for sole proprietors. However, the sole proprietors have to still prepare these financial statements, i.e., P/L account, Balance Sheet and Cash Flow statement at the end of each financial year for various purposes like calculating their tax liability and filing tax returns, applying for business loan, making capital expenditure decisions etc., apart from determining their business profitability and financial position.
The recording of business transactions and preparation of final accounts are based on Generally Accepted Accounting Principles (GAAP), accounting standards issued by Institute of Chartered Accountants of India (ICAI). These principles are rule of actions adopted by the accountants universally while recording accounting transactions which comprise of concepts and conventions. While the accounting concepts are basic assumptions on which accounting is based, the conventions are customs or traditions which guide the accountant while preparing financial statements.
Taking the above into consideration, the case describes the various situations and transactions where the recording of business transactions would be done using the various accounting concepts and conventions practiced by accountants in India as well as abroad.
It begins with a brief history about the formation of sole proprietorship business entity ‘MP Taps and Fittings Enterprise’ and then talks about various business activities and transactions during the year. Through this, the case tries to bring to the light the importance of recording the business transactions and treatment of the adjustment entries while preparing the financial statements.
Prerequisite Conceptual Understandings (PCUs)
• S N Maheshwari & S K Maheshwari, “An Introduction to Accountancy”
• Asish K Bhattacharyya, “Indian Accounting Standards: Practices, Comparisons, and Interpretations”
• http://www.icai.org/post.html?post_id=8660/Accounting Conventions and Standards, September 1st2014 (accessed date: March 12th 2015)
Case Positioning and Setting
MBA program – Financial Accounting course – To discuss various issues pertaining to the treatment of business transactions and preparation of final accounts
Expected Learning Outcomes
• Understand the application of accounting principles in recording of financial transactions
• Analyze the treatment of adjustment entries in the preparation of final accounts
• Understand the concept of Return On Investment (ROI) and its importance
• Discuss the concept of providing for future losses or cash requirements
• Analyze the differences between book profit and cash profit
It would include questioning students in a way that helps them evaluate the concepts behind the statements and questions. Students would use domain knowledge and apply concepts relevant to the case to solve the stated problems.........