MS04 : ACCOUNTING AND FINANCE FOR MANAGERS
DEC 2003
Note : Attempt any three questions. All questions carry equal marks.
1(a) Explain the Business Entity concept, Accrual concept and Consistency concept of Accounting.
(b) Identify the groups of people, who would be interested in Accounting information of an organisation and discuss their needs.
2 Mr. A.K. Gupta runs a general store. His Trial Balance as on
31st March 2002
was as follows:
Additional Information
(a) After preparing the above Trial Balance,
on the same day Mr. Gupta purchased a running business of Mr. Gaur for Rs.
6,00,000. He took over stock of Rs. 3,25,000, Debtors of Rs. 2,65,000,
Furniture worth Rs. 75,000 and Creditors of Rs. 75,000. No entry was passed for
this transaction.
(b) Closing Stock as on
31st March 2002
was not valued. Mr. Gupta earned a uniform rate of Gross
Profit of 25% on the Net Sales.
(c) Provision for Doubtful Debts is to be
maintained at 7% on Debtors.
(d) Purchases include purchase of old
furniture on
1st January 2002
worth Rs. 45,000.
(e) Sales include sale of old furniture on
Rs. 16,000 on
1st October
2001
(written down value of such furniture of 1st April
2001 was Rs. 26,000).
(f) Furniture was to be depreciated by 10%
p.a.
You are required to prepare the Trading
Account and Profit and Loss Account of Mr. Gupta for the year ended
31st March, 2002
and also a Balance Sheet as on the same date, after
giving effect to the above mentioned information.
3 Prepare an estimate of net working capital
requirements for ABC Ltd. adding 10% for contingences from the information
given below :
Estimated cost per unit of production Rs. 170
includes raw materials Rs. 80, direct labour Rs. 30 and overheads (exclusive of
depreciation) Rs. 60. Selling price is Rs. 200 per unit. Level of activity per
annum 1,04,000 units.
Raw
material in stock : average 4 weeks, work in progress (assume 50% completion stage): average 2 weeks
Finished goods in stock : average 4 weeks
Credit allowed by suppliers : average 4 weeks
Credit allowed to debtors : average 8 weeks
Lag
in payment of wages : average 1.5 weeks
and
Cash at Bank is expected to be Rs. 25,000.
You may assume that production is carried on
evenly throughout the year (52 weeks) and wages and overheads accure similarly.
All sales are on credit basis only. You may state your assumptions, if any.
4(a) What do you understand by ‘Trading on
Equity’? How does it affect EPS? Explain with an example.
(b) What is a Capital Structure and what are
the features of an appropriate Capital Structure?
5 Indira Industries produces only one
article, the prime cost standards for which have been established as follows:
Materials - 5 kg @ Rs. 4.20 Rs. 21
Labour - 2 hours @ Rs. 3 Rs. 6
The production schedule for the month of
April 2003 required completion of 5000 pieces. But the actual production was of
5120 pieces. Purchase for the month of April 2003 amounted to 30,000 kg of
material at the total invoice price of Rs. 1,35,000.
Production records for the month of April
2003 showed the following actual results:
Material used 25,700
kgs
Direct Labour 15,150 hours Rs. 48,480
Calculate the appropriate material and labour
variances.
6 Explain the Net Present Value method of
Capital Budgeting. Why is Profitability Index considered useful? What are the
limiting factors in the reliability of Capital Budgeting techniques including
the discounted cash flow techniques?
7 Comment on any four of the
following statements:
(a) ‘Flexible budget is desirable over fixed
budget’
(b) Ageing schedule is a better indicator of
the quality of debtors.
(c) “Divided, investment and financing
decisions are interdependent and there is often a trade off”.
(d) Matching approach of financing working
capital is the most appropriate one.
(e) “Weighted average cost of capital
includes post-tax cost of debt.
8 Following are the final accounts of a
company for the years ended
31st March 2001
and 2002.
Balance Sheet
Calculate relevant ratios and give your comments on the profitability
and leverage position of the company during the year 2002 |