Dean's Office Official Model Question Paper

The Matching Principle

The Matching Principle mandates that all expenses incurred to generate revenue during a specific accounting period must be recognized and matched against those revenues in the same period, regardless of when cash is paid.

Bank Reconciliation Statement (BRS)

A BRS is a schedule prepared periodically to explain and reconcile differences between the cash balance shown in the company’s cash book and the balance reported by the bank in its passbook/statement.

Causes of Discrepancy:

1. Cheques issued by the hotel but not yet presented to the bank for payment.
2. Bank interest or direct customer deposits credited directly by the bank but not yet entered into the cash book.

SLM vs. WDV Depreciation

• Straight-Line Method (SLM): Computes a uniform, fixed annual depreciation charge based on the asset’s historical cost: $\text{Depreciation} = \frac{\text{Cost} - \text{Scrap}}{\text{Useful Life}}$.
• Written-Down Value (WDV) Method: Applies a fixed percentage rate against the declining book value (written-down value) of the asset each year, resulting in higher depreciation in initial years.

Guest Ledger vs. City Ledger

• Guest Ledger (Transient Ledger): The record of financial transactions and current outstanding folio balances of in-house registered guests currently staying at the hotel.
• City Ledger (Non-Guest Ledger): The record of non-in-house receivables, including departed guests with outstanding balances, credit card companies, corporate credit accounts, and airline contracts.

Imprest System of Petty Cash

A mechanism where a designated petty cashier is given a fixed sum of cash. At the end of the period, the custodian presents validated expense vouchers and is reimbursed for the exact total spent, restoring the petty cash balance back to the original fixed float.

Bank Reconciliation Statement as of 31 Chaitra 2080

Machinery & Equipment Account (WDV Method at 10% p.a.)

Year 2077/78:

• 1 Baisakh 2077: To Bank (600,000 + 50,000) = Rs 650,000.
• 31 Chaitra 2077: By Depreciation (10% on 650,000) = Rs 65,000.
• 31 Chaitra 2077: By Balance c/d = Rs 585,000.

Year 2078/79:

• 1 Baisakh 2078: To Balance b/d = Rs 585,000.
• 31 Chaitra 2078: By Depreciation (10% on 585,000) = Rs 58,500.
• 31 Chaitra 2078: By Balance c/d = Rs 526,500.

Year 2079/80:

• 1 Baisakh 2079: To Balance b/d = Rs 526,500.
• 1 Kartik 2079: To Bank (New Deep Freezer) = Rs 200,000.
• 31 Chaitra 2079: By Depreciation:
  • On old machinery: $10\% \times 526{,}500 = \text{Rs } 52{,}650$
  • On new machinery (6 months: Kartik to Chaitra): $200{,}000 \times 10\% \times \frac{6}{12} = \text{Rs } 10{,}000$
  • Total Depreciation = Rs 62,650.
• 31 Chaitra 2079: By Balance c/d = $(526{,}500 + 200{,}000) - 62{,}650 = \text{Rs } 663{,}850$. (Breakdown: Old machine = 473,850; New machine = 190,000).

Year 2080/81:

• 1 Baisakh 2080: To Balance b/d = Rs 663,850.
• Sale of half of first equipment on 1 Poush 2080:
  • Book value of half equipment on 1 Baisakh 2080: $473{,}850 / 2 = \text{Rs } 236{,}925$.
  • Depreciation for 8 months (Baisakh to Mangsir): $236{,}925 \times 10\% \times \frac{8}{12} = \text{Rs } 15{,}795$.
  • Book value at date of sale: $236{,}925 - 15{,}795 = \text{Rs } 221{,}130$.
  • Sale Proceeds: Rs 180,000.
  • Loss on Sale of Machinery: $221{,}130 - 180{,}000 = \text{Rs } 41{,}130$.
• Year-End Depreciation (31 Chaitra 2080):
  • On remaining half of old machine: $236{,}925 \times 10\% = \text{Rs } 23{,}692.50$.
  • On second machine: $190{,}000 \times 10\% = \text{Rs } 19{,}000$.
  • Total Year-end Depreciation = Rs 42,692.50.
• 31 Chaitra 2080: By Balance c/d = Rs 384,232.50.

Statement of Cash Flows under NAS 7

The Statement of Cash Flows reports the cash generated and utilized by an enterprise during an accounting period, categorized into three distinct activities:

1. Operating Activities: Cash flows derived from primary revenue-producing operations.
   • Inflows: Room sales revenue, restaurant/bar collections, banquet receipts.
   • Outflows: Payments to food/beverage vendors, staff wages, utility bills, business taxes.
2. Investing Activities: Cash flows related to the acquisition and disposal of long-term non-current assets.
   • Inflows: Sale of decommissioned transport vans or replaced kitchen equipment.
   • Outflows: Construction of new hotel wings, purchase of PMS software licenses, land acquisition.
3. Financing Activities: Cash flows resulting from changes in the size and composition of equity capital and borrowings.
   • Inflows: Issuance of equity shares, securing long-term bank project loans.
   • Outflows: Repayment of debentures, bank loan principal repayments, payment of cash dividends to shareholders.

Capital Expenditure vs. Revenue Expenditure

Impact of Misclassification:

If a revenue expense (e.g., routine painting of Rs 100,000) is mistakenly capitalized:

1. Profit for the current year is artificially overstated because expenses are omitted from the P&L.
2. Fixed Assets and Equity on the Balance Sheet are overstated.
3. Subsequent years will carry distorted, inflated depreciation charges until corrected by a rectifying entry.

Financial Statements for Summit Luxury Hotel Ltd.

a. Statement of Profit or Loss for the year ended 31 Chaitra 2080

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b. Statement of Financial Position (Balance Sheet) as of 31 Chaitra 2080