MS4 test papers

MANAGEMENT PROGRAMME
December, 20061. (a) “Accounting is closely connected with control.” Elaborate this statement and discuss the role of accounting feedback in the process of control.
(b) "The cost concept of accounting meets all the three basic criteria of relevance, objectivity and feasibility.” Explain.
2. From the following balances as on 3l December 2004, prepare the Trading and Profit and Loss Account for the year ended 3l’ December 2004 and the Balance Sheet as on that date after making the necessary adjustments:
Mr. Gupta’s Capital A/C 1,65,000
Stock St January. 2004 70,200
Sales 4,34,400
Purchases 3,64,650
Carnage Inwards 27,900
Rent and Taxes 8,550
Sales Returns 12,900
Salaries 13950
Purchases Return 8,700
Sundry Debtors 36.000
Sundry Creditors 22.200
6% Bank Loan (1-1-2004) 30,000
Interest Paid on Bank Loan 1,350
Printing and Advertising 21,900
Drawings A/c 15,000
Interest Received from A.N. Sen 400
Cash at Bank 12,000
Discount received 6,300
Investments 7,500
Furniture and fittings 2,700
Discount paid 11,310
General Expenses 6,000
Audit fees 1,050
Insurance 900
Travelling Expenses 3,500
Postage and Telegrams 4,070
Cash in hand 570
9% deposit with A.N. Sen (on 1-1-2004) 45,000
Adjustments:
(a) Stock as on 3l December 2004 was Rs. 1,20,000.
(b) Sundry debtors included a sum of Rs. 3.000 from Mr. Gupta and Sundry creditors included a sum of Rs, 4,000 due to Mr. Gupta.
(c) 25% of the Printing and Advertising Is to be carried forward to the next year.
(d) Provide 5% for bad debts and 2% on the balance for discount for prompt payment.
(e) Write off depreciation at 10% on Furniture and Fittings.
(f) As on 31 December 2004, salaries and carriage inwards that remained unpaid were Rs. 1,200 and Rs. 150 respectively.
(g) Insurance paid in advance as on 31’ December 2004 was Rs. 120.
(h) Purchases to the value of Rs. 1,800 had been omitted to be entered in the books.
(i) Personal purchases of Rs. 700 made by Mr. Gupta had been included in the purchases.
(j) Provide for interest on bank loan and deposit with A.N. Sen.
(k) Furniture purchases for Rs. 1,000 on 1-1-2004 had been debited to Purchases Account.
3. Prepare an estimate of net working capital rcquirment for ABC Ltd. from the following information:
Estimated cost of production per unit
Rs. 170 which includes —
Raw materials Rs. 80/-
Direct labour Rs. 30/-
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 15 weeks
Cash at bank is expected as Rs. 25,000/-
You may assume the production is carried out evenly throughout the year (52 weeks) and wages and overheads accrue similarly.
All sales are on credit basis only.
Add 10% for contingencies.
You may state your assumptions, if any.
4. What do you understand by composite cost of capital ? How is it calculated ? What is its role In determining the optimal debt-equity mix? Explain fully.
5. What advice would you give to a company in the following situations? Give reasons also.
(a) Company prepares a cash budget taking into account the operating cash flows only.
(b) Company is following an erratic dividend policy.
(c) Company’s current ratio Is very high, but the quick
ratio is very low.
(d) Company wants to choose suitable channels for investment of Its Idle cash.
6. A foreign soft drink company Is planning to estabLish a subsidiary company In India to produce mineral water. Based on the estimated annual sales of 40,000 bottles of mineral water, cost studies show the following estimates for the Indian subsidiary:

Total Annual Costs (Rs.) Percentage of Total Annual Cost which is variable
Material 2,10,000 100%
Labour 1,50,000 80%
Factory overheads 92,000 60%
Administrative expenses 40,000 35%
The Indian production will be sold by the manufacturer’s representatives who will recewe a commission of 8% of the sale price.
You are required to
(i) Compute the sale price per bottle to enable the management to realise an estimated 10% profit on sale proceeds in India.
(ii) Calculate the break-even point in Rupee Sales as also in number of bottles for the Indian subsidiary on the assumption that the sale price is Rs. 14 per bottle.
7. What do you understand by Zero Base Budgeting ? Discuss the steps that are involved In Zero Base Budgeting and describe its advantages.
8. Write short notes on arty four of the following:
(a) Rolling Budget
(b) Shut Down and Sunk Costs
(c) Direct Material Usage (or Quantity) Variance
(d) Funds from Business Operations
(e) Continuity Concept


December, 2005


1. (a) "Accounting is a service function." Explain. What are the two facets to the role of an accountant ? Discuss.

(b) Asset like land is shown at its original cost in the balance sheet of a company. Justify this accounting practice by explaining the relevant accounting concepts on which it is based.

2. "The EBIT - EPS analysis is an important tool in the hands of the finance manager." Explain this analysis with the help of an example and discuss the purpose served by it.

3. From the following particulars prepare Trading and Profit and Loss account of Mr. R for the year ended 31-3-2001 and a balance sheet as on the same date :

Dr.
Rs. Cr.
Rs.
Buidings a/c 5,00,000
Machinery a/c 2,00,000
Furniture a/c 1,00,000
Cash at Bank 90,000
Cash on hand 10,000
18% p.a. loan obtained by
Mr. R on 1-6-2000 on
mortgage of building 3,00,00
R's Capital 5,20,000
Sundry Debtors/Sundry Creditors 5,00,000 4,00,000
Stock on 1-4-2000 1,20,000
Puchases/Sales 25,00,000 32,20,000
Sales Return/Purchases Return 1,20,000 1,00,000
Rent 60,000
Establishment Expenses 1,80,000
Eleciricity charges 15,000
Telephone charges 10,000
Commission on Sales 30,000
Insurance Premium 10,000
Bad Debts 20,000
Bills Receivable 75,000
45,45,000 45,45,000

You are required to provide for depreciation on buildings @ 5% p.a., on machinery @ 25% p.a., and on furniture @ 10% p.a.

Provision for bad and doubtful debts is to be made at 5% on sundry debtors.

Mr. R's manager is entitled to a commission of 10% on the net profit after charging his commission.

Closing Stock was not taken on 31-3-2001 but on 7-4-2001. The following transactions took place during the period from 1-4-2001 to 7-4-2001 :

Sales Rs. 2,50,000
Purchase Rs. 1,50,000
Stock on 7th April 2001 was Rs. 1,80,000.

The rate of Gross Profit on Sales was 20%.

Insurance Premium was paid for the year ending 30th June 2001.

Interest on mortgage loan to be provided upto 31-3-2001.

Outstanding electricity charges were Rs. 2,500.

4. (a) What do you understand by Budgetary Control ? What steps are to be taken to install an effective system of budgetary control in an organisation ? Discuss.

(b) What is meant by Performance Budgeting ? Discuss its main objectives.

5. (a) Comment on the following statements :
(a) Higher net profit margin need not necessarily lead to higher rate of return on investment.
(b) A high operating leverage is not always desirable.
(c) A company's profitability is better judged by PBIT rather than PAT.
(d) Cost of debt is always cheaper as compared to other sources of funds.
(e) From the creditors' point of view, the lower the debt ratio, the better it is.

6. The balance sheet of Best Manufacturers Ltd. as on 31st March 2004 and 2005 are as follows.

Liabilities 31-3-04
Rs. 31-3-05
Rs.
Share Capital 2,50,000 2,50,000
5% Debentures 1,00,000 80,000
Sundry Creditors 1,15,000 1,08,000
Profit & Loss A/c 20,000 27,000
Depreciation Fund 40,000 44,000
Reserve for
Contingencies 70,000 55,000
Outstanding Expenses 15,000 24,000
6,10,000 5,88,000
Assets 31-3-04
Rs. 31-3-05
Rs.
Land & Building 1,50,000 1,50,000
Machinery 82,000 90,000
Stock in trade 1,00,000 1,14.000
Sundry Debtors 85,000 81,000
Cash & Bank Balances 60,000 55,000
Temporary investments 1,31,000 95,000
Prepaid expenses 2,000 3,000
6,10,000 5,88,000

Following additional information is also available :

(a) A new machinery was purchased for Rs. 30,000 but old machinery costing Rs. 15,000 was sold for Rs. 5,000, accumulated depreciation was Rs.8,000.
(b) Rs. 20,000, 5% Debentures were redeemed by purchase from open market @ Rs. 96.
(c) Rs. 36,000 investment were sold at booK value.
(d) 12% dividend was paid in cash.
(e) Rs. 15,000 was debited to Contingency Reserve for settlement of previous tax liability.

You are required to prepare a Schedule of Changes in Working Capital and a Statement showing the Sources and Application of Funds.

7. A toy manufacturer earns an average net profit of Rs. 3 per piece wiih a selling price ol Rs. 25 by producing and selling 60,000 pieces at 60% of the potential capacity. Composition of his cost is as follows :

Direct material Rs.4
Direct wages Re.1
Works overhead Rs.6 (50% fixed)
Sales overhead Re. 1 (25% varying)
During the current year he intends to produce the same number but anticipates that -
(a) his fixed charges will go up by 10%
(b) rates of direct labour will increase by 20%
(c) rates of direct material will increase by 5%
(d) selling price cannot be increased.

Under these circumstances he obtains an order for a further 20% of his capacity. What minimum price will you recommend for accepting the order to ensure that the manufacturer gets an overall profit of Rs. 1,80,500 ?

8. Write explanatory notes on :
(a) Absorption Costing
(b) Break-even Point
(c) Methods of Depreciation
(d) Net Present Value Method


December, 2005

Note : Attempt any five questions. All questions carry equal marks.
1. (a) "Accounting is a service function." Explain. What are the two facets to the role of an accountant ? Discuss.

(b) Asset like land is shown at its original cost in the balance sheet of a company. Justify this accounting practice by explaining the relevant accounting concepts on which it is based.

2. "The EBIT - EPS analysis is an important tool in the hands of the finance manager." Explain this analysis with the help of an example and discuss the purpose served by it.

3. From the following particulars prepare Trading and Profit and Loss account of Mr. R for the year ended 31-3-2001 and a balance sheet as on the same date :

Dr.
Rs. Cr.
Rs.
Buidings a/c 5,00,000
Machinery a/c 2,00,000
Furniture a/c 1,00,000
Cash at Bank 90,000
Cash on hand 10,000
18% p.a. loan obtained by
Mr. R on 1-6-2000 on
mortgage of building 3,00,00
R's Capital 5,20,000
Sundry Debtors/Sundry Creditors 5,00,000 4,00,000
Stock on 1-4-2000 1,20,000
Puchases/Sales 25,00,000 32,20,000
Sales Return/Purchases Return 1,20,000 1,00,000
Rent 60,000
Establishment Expenses 1,80,000
Eleciricity charges 15,000
Telephone charges 10,000
Commission on Sales 30,000
Insurance Premium 10,000
Bad Debts 20,000
Bills Receivable 75,000
45,45,000 45,45,000

You are required to provide for depreciation on buildings @ 5% p.a., on machinery @ 25% p.a., and on furniture @ 10% p.a.

Provision for bad and doubtful debts is to be made at 5% on sundry debtors.

Mr. R's manager is entitled to a commission of 10% on the net profit after charging his commission.

Closing Stock was not taken on 31-3-2001 but on 7-4-2001. The following transactions took place during the period from 1-4-2001 to 7-4-2001 :

Sales Rs. 2,50,000
Purchase Rs. 1,50,000
Stock on 7th April 2001 was Rs. 1,80,000.

The rate of Gross Profit on Sales was 20%.

Insurance Premium was paid for the year ending 30th June 2001.

Interest on mortgage loan to be provided upto 31-3-2001.

Outstanding electricity charges were Rs. 2,500.

4. (a) What do you understand by Budgetary Control ? What steps are to be taken to install an effective system of budgetary control in an organisation ? Discuss.

(b) What is meant by Performance Budgeting ? Discuss its main objectives.

5. (a) Comment on the following statements :
(a) Higher net profit margin need not necessarily lead to higher rate of return on investment.
(b) A high operating leverage is not always desirable.
(c) A company's profitability is better judged by PBIT rather than PAT.
(d) Cost of debt is always cheaper as compared to other sources of funds.
(e) From the creditors' point of view, the lower the debt ratio, the better it is.

6. The balance sheet of Best Manufacturers Ltd. as on 31st March 2004 and 2005 are as follows.

Liabilities 31-3-04
Rs. 31-3-05
Rs.
Share Capital 2,50,000 2,50,000
5% Debentures 1,00,000 80,000
Sundry Creditors 1,15,000 1,08,000
Profit & Loss A/c 20,000 27,000
Depreciation Fund 40,000 44,000
Reserve for
Contingencies 70,000 55,000
Outstanding Expenses 15,000 24,000
6,10,000 5,88,000
Assets 31-3-04
Rs. 31-3-05
Rs.
Land & Building 1,50,000 1,50,000
Machinery 82,000 90,000
Stock in trade 1,00,000 1,14.000
Sundry Debtors 85,000 81,000
Cash & Bank Balances 60,000 55,000
Temporary investments 1,31,000 95,000
Prepaid expenses 2,000 3,000
6,10,000 5,88,000

Following additional information is also available :

(a) A new machinery was purchased for Rs. 30,000 but old machinery costing Rs. 15,000 was sold for Rs. 5,000, accumulated depreciation was Rs.8,000.
(b) Rs. 20,000, 5% Debentures were redeemed by purchase from open market @ Rs. 96.
(c) Rs. 36,000 investment were sold at booK value.
(d) 12% dividend was paid in cash.
(e) Rs. 15,000 was debited to Contingency Reserve for settlement of previous tax liability.

You are required to prepare a Schedule of Changes in Working Capital and a Statement showing the Sources and Application of Funds.

7. A toy manufacturer earns an average net profit of Rs. 3 per piece wiih a selling price ol Rs. 25 by producing and selling 60,000 pieces at 60% of the potential capacity. Composition of his cost is as follows :

Direct material Rs.4
Direct wages Re.1
Works overhead Rs.6 (50% fixed)
Sales overhead Re. 1 (25% varying)
During the current year he intends to produce the same number but anticipates that -
(a) his fixed charges will go up by 10%
(b) rates of direct labour will increase by 20%
(c) rates of direct material will increase by 5%
(d) selling price cannot be increased.

Under these circumstances he obtains an order for a further 20% of his capacity. What minimum price will you recommend for accepting the order to ensure that the manufacturer gets an overall profit of Rs. 1,80,500 ?

8. Write explanatory notes on :
(a) Absorption Costing
(b) Break-even Point
(c) Methods of Depreciation
(d) Net Present Value Method


June, 2005


1. (a) Explain the Continuing concept and the Periodicity concept and discuss their significance.

(b) "Accounting is closely connected with control." Elaborate this statement and discuss the role of accounting feedback in the process of control.

2. The following is the Trial Balance of a trader as at 31st December, 2002 :

Debit Balances:

Stock (1-1-2002) 46,800
Sales Return 8,600
Purchases 2,43,100
Freight and Carriage 18,700
Rates, Rent etc. 5,700
Salaries and Wages 9,300
Sundry Debtors 24,000
Bank Interest 900
Printing and Advertisement 14,500
Cash at Bank 8,000
Investments 5,000
Fumiture and Fittings 1,800
Discounts 7,540
General Expenses 3,910
Audit Fees 700
Insurance 600
Travelling Expenses 2,330
Postage and Telegrams 870
Cash in hand 380
Deposit with Pran 30,000
Drawings A/c 10,000
-------------
4,42,730
-------------
Credit Balances:

Capital A/c 46,800
Sales 2,89,600
Purchases Returns 5,800
Sundry Creditors 14,800
Bank Loan at 6% 20,000
Income from Investments 250
Discounts 4,190
-------------
4,42,730
-------------
Adjustments :

(i) Closing stock was valued at Rs. 78,600.
(ii) A quarter of the amount spent under the head 'Printing and Advertising' is to be carried forward to the next year.
(iii) Reserve 2%, for discount on Debtors and create a Bad Debts Reserve at 5%.
(iv) Deprecialion @ 10% p.a is to be provided on Furniture and Fittings.
(v) Wages due on 31st December 2002 Rs. 300, and Salary owing Rs. 500.
(vi) Prepaid insurance Rs. 80.
(vii) Furniture which stood at Rs. 600 in the books on 1st January 2002 was disposed of for Rs. 290 on 30th June, in part exchange for new furniture costing Rs. 520. A net invoice of Rs. 230 was passed through the Purchases Day Book.
(viii) A neon-sign costing Rs. 100 is included in advertising.
(ix) Private purchase amounting to Rs. 600 has been included in the Purchases Day Book.
(x) Charge full year's interest on deposit with Plan at 7% p.a.
(xi) Provide for interest on Bank loan for the amount due.
(xii) Purchase invoice amounting to Rs. 400 had been omitted from the books.

With the help of the above information prepare Profit and Loss Account and Balance Sheet of the trader.

3. A factory, engaged in manufacturing plastic buckets is working at 40% capacity and produces 10,000 buckets per month. The present cost break-up for one bucket is as under :

Materials - Rs. 20
Labour - Rs. 6
Overheads - Rs. 10 (60% fixed)

The Selling price is Rs. 40 per bucket.

If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At 90% capacity, the selling price falls by 5% accompanied by a similar fall in the price of materials.

You are required to prepare a statement showing the profits at 50% and 90% capacities- Also determine the break-even points at each of these Production levels. materials.

4. "lf debt is a cheaper source of finance, then why is every firm not a 99% debt firm ?" Comment on this statement. What other factors are taken into consideration while determining the capital structure of a company ? Explain.

5. (a) ABC Ltd., a profit earning company with accumulated reserves, in tends to expand its capacity by financing it partly by the issue of new equity capital. It has paid dividends regularly during the pastyears. During 2004 it has suffered loss due to prolonged industrial unrest. The directors of the company differ on the question of distribution of dividend for the year 2004. Some of them want to skip dividend in view of the loss sustained by the company and also its expansion programme.

As financial adviser, what advice would you give to the Board of Directors ? Give reasons for your answer.

(b) Explain the concept of Operating Leverage. What is its practical utility ? Discuss.

(6) Distinguish between :
(a) Absorption Costing and Marginal Costing
(b) Net Profit Margin and Return on Capital Employed
(c) Direct Labour Rate Variance and Direct Labour Efficiency Variance
(d) Operating Cash Flows and Financial Cash Flows
(e) Earnings yield and Dividend yield

7. Discuss the characteristics and relative merits and demerits of the different methods of appraising capital investment proposals. Which method would you prefer ard why ?

8. The Balance Sheets of H Ltd. as on December 31, 2002 and 2003 are given below :
Balance Sheets of H Ltd.
Liabilities 31.12.2002 31.12.2003
Share Capital 6,00,000 8,00,000
Capital Reserve 20,000
General Reserve 3,40,000 4,00,000
Profit & Losss A/c 1,20,000 1,50,000
Debentures 4,00,000 2,80,000
Current Liabilities 2,40,000 2,60,000
Proposed Dividend 60,000 72,000
Provision for Tax 1,80,000 1,70,000
Unpaid Dividends 8,000
19,40,000
21,60,000
Assets 31.12.2002 31.12.2003
Fixed Assets 16,00,000 19,00,000
Less Depreciation 4,60,000 5,80,000
11,40,000 13,20,000
Investment 2,00,000 1,60,000
Current Assets 5,60,000 6,60,000
Preliminary Expenses 40,000 20,000
19,40,000 21,60,000


Additional Information :

During the year 2003 the Company
(i) Sold one machinery for Rs. 50,000, the cost of which was Rs. 1,00,000 and the depreciation provided on it was Rs. 40,000.
(ii) Provided Rs. 1,80,000 as depreciation.
(iii) Sold some investment at a profit of Rs. 20,000 which was credited to Capital Reserve.
(iv) Redeemed 30% of the Debentures @ Rs. 105.
(v) Decided to value stock at cost, whereas previously the practice was to value stock at cost less 10%. The stock according to books on 31.12.2002 was Rs. 1,08,000. The stock on 31.12.2003 was correctly valued at Rs. 1,50,000.
(vi) Decided to write off fixed assets costing Rs. 28,000 on which depreciation amounting to Rs. 20,000 has been provided.

Prepare the Funds Flow Statement for the year 2003.


June - 1999


Section A

1. 'Accounting is the oldest financial information system'. Discuss. Also bring out the role and functions of accountant in modern business.

2. What is a Budget? Explain the meaning, objectives and the process of performance budgeting. Distinguish between performance budgeting and traditional budgeting.

3. (a) "In managing cash the finance manger faces the problem of compromising the conflicting goals of liquidating and profitability." Comment

(b) List out the important factors which influence the requirement of working capital of a manufacturing firm.

4. The Modern Furniture Ltd. manufactures office chairs. It follows standard costing system. The direct material cost standards for its ‘Executive’ brand are established as follows:

Production schedule for the month of December’97: 5,000 chairs (Executive)
Direct material cost per chair:
Material A 10 kgs @ Rs. 30 per kg: Rs. 300
Material B 5 kgs @ Rs. 50 per kg: Rs. 250

Production records for the month of December’97 showed as follows:

Executive chairs manufactured: 6,000
Direct material used:
Material A: 60,000 kgs
Material B: 32,000 kgs

There was no closing stock in the month of November’97. You are required to

(a) Calculate direct material cost variances.
(b) Write a brief report indicating the extent and of total Direct material cost variance.

5. Distinguish between any three of the following

(a) Payback method and Net present value
(b) LIFO and FIFO
(c) Gross working capital and Net working capital
(d) Direct cost and Indirect cost
(e) Profit and Loss A/c and Balance Sheet

Section B

6. Read the following case carefully and answer the questions given a the end of the case.

Singh & Co is a small bottling company, founded by Jaswant Singh at the turn of the century. It was founded at the site of a mineral spring 40 miles from Shimla and distributes bottled water through Himachal Pradesh and Uttar Pradesh. Its cash sales have stabilized at Rs. 90 lakhs compared to cash expenses of Rs. 50 lakhs on its bottled-water operations.

There is considerable excitement in the office of Vijay Singh, the president and grandson of the founder. The company has been offered a 5-year lease on a well-known mineral spring near Palamput. The water from this spring has certain medicinal properties that make it valuable to physicians nationwide. Mr. Viswanathan, the company’s financial manager has just worked up figures on the possibility of taking over the lease.

Viswanathan estimates that an operation at the new mineral spring would increase the firm’s sales from Rs. 90 to Rs. 150 lakhs each year over the 5-year period. He also estimates an increase in cash expenses from Rs. 50 to Rs. 90 lakhs.

Viswanathan’s plan is to move the water by tank truck from the spring to the company’s main facilities for bottling. The problem is capacity. At the present level of sales, the firm cannot handle the additional bottling needs of the new spring. A check with a machinery foundry indicates that it will cost approximately Rs. 65 lakhs to purchase, transport and install new bottling machinery capable of handling the new spring. This machinery will replace the existing machinery and will have a 25 year service life. It will be depreciated at 20/32/24/16/8 percentages over a 5-year period.

The company’s existing machinery has been working fairly well. It is carried on the books at a Rs. 10 lakhs value, although it could be sold for only Rs. 5,00,000. The company is using staring line method of depreciation on this machine. It is expected to have zero salvage value at the end of 5 years.

Viswanathan has mentioned that the new operation would tie up an additional Rs. 3,00,000 in inventories and Rs. 4,00,000 in receivables during the life of the project. The firm has the funds to finance these amounts.

Viswanathan thinks the firm should seriously consider the new project and Vijay singh is also favorably inclined. But as Viswanathan left the office, Vijay Singh heard to call out, “I want to know our rate of return on the project first. If we’re not making our normal 12 percent after taxes, forget it,” The firm’s tax rate is 40 percent.

Questions:
1. What is the rate of return on this project?
2. What is the net present value at 12 percent?

Note:
Year – PV Factor
1 – 0.893
2 – 0.797
3 – 0.712
4 – 0.636
5 – 0.567