Explore topic-wise InterviewSolutions in .

Financial account state the Financial position of a concern.

One of the most important features of a firm under monopolistic competition is that there is free entry and exit of firms. If firms receive abnormal profits, entry of the other firms being free, the new firms will enter the market and increase the total supply. The total supply will now be shared among more firms and this will deprive all the firms of abnormal profits. If firms suffer loss in short run, some of the firms will reduce or stop its production and quit the industry. As a result, the supply will fall and firms will come at a point of no profit no loss. Thus, in the long run equilibrium, firm earns only normal profits i.e., zero abnormal profits.

Following are the factors determining elasticity of supply : 

1. Nature of the commodity – Durable goods, generally, have elastic supply while perishable goods have inelastic supply because their supply cannot be increased or decreased as a result of a change in their prices. 

2. Time – Shorter time period involved in production makes the supply inelastic while longer period makes the supply elastic because more time is available to make changes in production. 

3. Technique of production – Supply of commodities involving simple technique of production have elastic supply and commodities having complex techniques of production have inelastic supply. 

4. Future expectations – If the prices are expected to fall in future, the supply will be elastic. If the prices are expected to rise in future, producers will withhold the supply and supply will be inelastic.

According to Law of Variable Proportions, given an increase in one factor of production, other factors remaining unchanged, total production increases at an increasing rate, then at diminishing rate and finally at negative rate. 

Thus, there are three stages of the law : 

(i) Stage I – where total product increases at a higher rate. 

(ii) Stage II – where total product increases but at a diminishing rate. 

(iii) Stage III – where the total product diminishes. 

Following production schedule demonstrates the Law of Variable Proportions:

(d) All market forms.

(b) Salt whose demand will not change in spite of rise or fall in the price of the commodity. 

Market demand may be defined as the estimates of quantity demanded of the commodity per time period at various alternate prices by all households constituting a market.

(c) increase in demand.

Net Profit during the year = Divisible profits + Salary to partners – Interest on Drawings 

 = 2,50,000 + 16,000 + 40,000 – 4000 = Rs.3,02,000

(i) At equilibrium level of national income, the fundamental condition is that investment and savings must be equal to each other. In the problem, investment expenditure is given ₹3,000. It implies that at equilibrium, savings should also be 3,000. 

Savings = Income – Consumption = Y – [200 – 0.9Y]

Equation for desired savings of ₹ 3,000 will be as under : 

Y – [200 + 0. 9Y] =3,000 

Y – 200 – 0.9Y = 3,000 

Y – 0.9Y = 3000 + 200 

0.1 Y = 3,200 

Y = ₹ 32,000 , 

At 32,000 both savings and investment are equal. Therefore, equilibrium level of national income is 32,000. 

(ii) Consumption at equilibrium level will be as under : 

C = 200 + 0.9Y 

= 200 + 0.9 x 32,000 

= 200 + 28,800 

= 29,000 Savings 

= Income – Consumption 

= 32,000 – 29,000 

= ₹ 3,000

Combined capital of A and B = Rs.3,85,000+ Rs. 4,15,000= Rs. 8,00,000 

C’s Share= 1/5^th of total capital 

Remaining share= 1-1/5=4/5 

4/5 = Rs.8,00,000 

C’s capital= Rs. 8,00,000 x 5/4 x 1/5 = Rs.2,00,000

Goodwill share of C = Rs. 3,00,000 - Rs. 2,50,000 = Rs. 50,000 

Firm’s Goodwill= 50,000 x 10/2= Rs.2,50,000 

D’s share in Goodwill= Rs. 2,50,000 x 1/4= Rs.62,500

(a) Gross Domestic Product at factor cost 

= Compensation of employees + Rent + Interest + Profits + Gross domestic capital formation – Net fixed capital formation – Change in stock 

= 800 + 150 + 100 + 200 + 300 – 200 – 50 

= 1,550 – 250 

= ₹ 1,300(000) Crores 

(b) Factor Income to Abroad 

= Factor income from abroad – Net factor income for abroad Net factor income abroad = Gross national product at factor cost – Gross domestic product at factor cost 

= Gross national product at market price – Net indirect taxes – Gross domestic product at factor cost 

= 1,400- 120- 1,300 

= (-)20 Crores 

Factor Income to Abroad = 60 – (- 20) 

= ₹ 80(000) Crores

The value of multiplier depends on marginal propensity to consume (MPC). 

Thus, Multiplier = \(\frac{1}{1-MPC}\)

Accordingly, the range of investment multiplier is one to infinity. Minimum value of multiplier is one because minimum value of MPC Can be zero. Maximum value of multiplier is infinity because maximum value of MPC can be one. Investment multiplier and marginal propensity to consume are positively related. If marginal propensity to consume rises, the value of multiplier also rises. Suppose MPC = \(\frac{3}{4}\)(0.75), the multiplier will be \(\frac{1}{1-(\frac{3}{4})}\) = 4 

If MPC rises to (0.80), the multiplier will be \(\frac{1}{1-(\frac{4}{5})}\) = 5 

Investment multiplier and marginal propensity to save are negatively related. If marginal propensity to save rises, investment multiplier falls. Suppose MPS = the multiplier will be \(\frac{1}{\frac{1}{4}}\) = 4. If MPS rises to \(\frac{1}{3}\), the multiplier will be \(\frac{1}{\frac{1}{3}}\) = 3.

Gross National Income (GNP_FC) by Income Method 

= Rent + Compensation of employees + Interest + Profit + Factor income from abroad – Factor income to abroad + Consumption of fixed capital 

= 40 + 150 + 40 + 100 + 10 – 15+ 15

= 355 – 15 

= ₹340 Crores. 

Gross National Income (GNP_FC) by Expenditure Method 

= Private final consumption expenditure + Government final consumption expenditure + Net domestic capital formation + Consumption of fixed capital + Exports – Imports + subsidies – Indirect taxes + Factor income from abroad – Factor income to abroad 

= 220 + 85 + 50+ 15 + 20-25 + 10-30+ 10- 15 

= 410 – 70 

= ₹340 Crores

The limitations of Single entry system of bookkeeping are as follows : 

(a) As double entry system is not followed, a trial balance cannot be prepared and accuracy of accounts cannot be ensured. 

 (b) Correct ascertainment and evaluation of financial result of business operations cannot be made. 

(c) Analysis of profitability, liquidity and solvency of the business cannot be done. This may cause a problem in raising funds from outsiders and planning future business activities. 

(d) The owners face great difficulty in filing an insurance claim with an insurance company in case of loss of inventory by fire or theft. 

(e) It becomes difficult to convince the income tax authorities about the reliability of the computed income.

Creditor is not an internal user of management information.

All of these 

The price of investment is Convention of conservatism

Double entry system is used in Financial accounting.

d) Direct labour

h) Direct labour 

Amount of salary paid to Suresh should be debited to  Salaries account

(b) Overhead

d. All of these

d. Semi variable cost

b) Unlike principles of physical sciences.

d. Semi variable cost

c. Direct materials, direct labor, factory overhead, and administrative overhead.

d. All of these

The primary objective of management accounting is Provide management complete and true information

The return of goods by the customer should be debited to Sales return a/c

Sales made to Mahesh for cash should be debited to Cash account

Bad debt amount should be credited to  Debtors account

a) Managerial accounting information is prepared primarily for external parties such as stockholders and creditors; financial accounting is directed at internal users.

b)Real account- credit what comes in

Return of goods by a customer should be debited to Sales return account

d) All of these

sales part of formula is wrong

c) Both (a) and (b).

a. Current assets

d. Transaction, source document, journal entry, ledger account, trial balance. 

c. Posting only the debit portion of a particular journal entry.

d) Payment of current period rent

The trial balance is Provides a listing of the balance of each account in active use.

Sales not be included on a balance sheet.

b)  Rs.1900.

d. Journal ization is the process of converting transactions and events into debit/credit format.