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I TRANSFERRED A STOCK OF RS. 100.00 FROM HEAD OFFICE DELHI
TO MFG. UNIT OFFICE AT HARYANA AGST FORM F.AT BRANCH GOODS
ARE PROCESSED AND ADDED VALUE OF RS. 80.00 AND TRNF BACK TO
DELHI HEAD OFFICE FOR RS. 180.00 AGST FORM F FROM HARYANA .
AND HEAD OFFICE SOLD THIS TO PARTY AT RS. 200.00 . I WANT
TO KNOW HOW TO MAKE ACCOUNTING ENTRIES IN BOTH BOOKS HEAD
OFFICE AND BRANCH OFFICE. TO SETTEL ACCOUNT AND TO
CONSOLIDATE THE BOOKS AT THE END OF YEAR.
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Answer / Indira.v
[1] For the Head Office:
a. Debit Cash for Rs. 100 (Transfer Out)
b. Debit Stock (Inventory) for Rs. 100 (Transfer Out)
c. Credit Manufacturing Unit Office Account for Rs. 180 (Sales Revenue)
d. Credit Bank (Head Office) for Rs. 180 (Transfer In)
e. Record the sale to Party with Debit Sales (Revenue) for Rs. 200 and Credit Cash (Bank) or Accounts Receivable (AR) for Rs. 200
[2] For the Manufacturing Unit Office:
a. Credit Stock (Inventory) for Rs. 100 (Transfer In)
b. Debit Work-in-Progress (WIP) for Rs. 80 (Cost of Goods Sold - COGS)
c. Debit Overhead Expenses for the added value (Rs. 80)
d. Credit Bank (Manufacturing Unit Office) for Rs. 180 (Transfer Out)
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Where is Profit and Loss posted in a balance sheet?
Case Study: Deepak Hand tools Private Limited DHPL is a small sized firm manufacturing hand tools. It manufacturing plan is situated in Haryana. The company’s sales in the year ending on 31st March 2007 were Rs.1000 million (Rs.100 crore) on an asset base of Rs.650 million. The net profit of the company was Rs.76 million. The management of the company wants to improve profitability further. The required rate of return of the company is 14 percent. The company is currently considering an investment proposal. One is to expand its manufacturing capacity. The estimated cost of the new equipment is Rs.250 million. It is expected to have an economic life of 10 years. The accountant forecasts that net cash inflows would be Rs.45 million per annum for the first three years, Rs.68 million per annum from year four to year eight and for the remaining two years Rs.30million per annum. The plant can be sold for Rs.55 million at the end of its economic life. The company would need to raise debt to the extent of Rs.200 million. The company has the following options of borrowing Rs.200 million: a. The company can borrow funds from a nationalized bank at the interest rate of 14 percent for 10 years. It will be required to pay equal annual installment of interest and repayment of principal. b. A financial institution has offered to lend money to DHPL at 13.5 per annum but it needs to pay equated quarterly installment of interest and repayment of principal. Questions: 1. Should the company expand its capacity? Show the computation of NPV 2. What is the annual installment of bank loan? 3. Calculate the quarterly installments of the Financial Institution loan 4. Should the company borrow from the bank or from the financial institution?
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