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Accounts

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MANAGEMENT PROGRAMME
f*. CN l\, C\I

Term-End Examination june, 2009 MS-4: ACCOUNTING AND FINANCE FOR MANAGERS
MaximumMarks : 1.00 70%) frVeightage

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Tirne: 3 hours

Alt carry equal Nofe : Attempt any five questions, questions marks.Useof caluilatoris allowed.

1.

(a)

'ManagementAccounting is an extensionof financial Accounting'. Explain how is ManagementAccounting..an effective tool of financial control ? Discuss. Explain the cost conceptu.,a tn. conceptof shown at cost conservation. Why are assets even when this market prices far exceeds the cost ? Give reason.

(b)

2.

(a)

Why are Reservescreated at the time of preparing the final accounts? Distinguish between General Reserve and Specific Reserveand give their examples. P.T.O.

(b)

Distinguish between capital expenditure and revenue expenditure. IuVhat will be the effect on net profit, if the accountant treats a capital expenditure as revenue expenditure.Discuss.

3.

Distinguish between : (a) Gross Working Capital and Net Working Capital.
Current Ratio and Quick Ratio. Direct Labour Rate Variance and Direct. Labour Efficiency Variance. (d) Committed Fixed Costs and Disentionarv
J

(b) (c)

Fixed Costs.

4.

(u)

In what way is financial leverage related to operating leverage ? Discuss with an example.

(b)

How would you appraise the technical feasibility and financial viabilrty of a project ? Explain.

5.

What do you understand by Zero Base Budgeting ? Discuss the steps that are involved in the preparation of Zero Base Budget and describeits advantagesover a traditional budget.

6.

Explain fully the following statements: (u) (b) (c) "A very high current ratio is not desirable. "CashBudget is a statementof all incomes and expenses during a given period." "Weighted averagecost of capital would always be higher, if the market value weights are used." Companieswith very high profits generally have a low pay out ratio.

(d)

7.

Following details have been extracted from the annual budget of a manufacturing company for the year 2007 and 2008 :
Per Per Unit Rs. Annual Rs.

Particulars Selling Price Direct Materials Direct Labotrr Production overheads: Variable Fixed Administra tive over hea ds-fixed Selling and Distribution overheads: Variable Fixed

300 64 48 32 40,00,000 30,00,000

20,00,000

Currently the company is operating on a margin of safety of 25%. To improve its profitability further, the company is considering the following options. P.T.O.

(a)

Reduceselling price by 5%. Salesvolume is expected to increase by 2A% also fixed production overheads will increase by Rs. 2lakh and fixed selling and disfribution over heads by Rs 3 lakh.

(b)

Increaseselling price by 5%. This will cause a drop in salesvolume by fi%. To arrest further fall in sales,an increaseof Rs 2 lakh will be required under fixed selling and distribution overheads.

(.)

Production can be increased by 15% by introducing an incentive schemefor labour. This will be increasedirect labour cost by 25%.An additional expenditureof Rs 3lakh would be required under fixed selling and distribution overhead to market the increasedproduction.

Required : (u) Current level of production/sales and profit earned. (b)
Assuming that (i), (ii) and (iii) above are mutually exclusive and other views remain unchanged, options. evaluate each of these

(.)

If the company is able to reduce raw material cost by Rs 5 per unit by making bulk purchases and reduce the fixed overhead costs by 2 lakh by suitable economymeasures, what selling price per at unit should it sell its current production to earn a 10%increasein current profit ?

8.

The Balance Sheets of ABC Manufacturing Company Ltd. as on December31, 20A7 and 2008 are as follows :
Liabilities 31,12.200731.12,2008 Assets Rs. Rs. Rs.
Share Capital
5o/o

31j22007 31,12.2008 Rs, Rs.

2,50,000 250,000

Land+ 1,50,000 1,50,000 Buildings

1,0 0 ,0 0 0 80,,000 Machinery 82,000 90,000 Debentures Sunday Stock in 1 ,00,000 1,14,000 1 , 1 5 , 0 0 0 108,000 creditors Trade Profit& Sundry 81,000 20,000 27,000 85000 Loss A/c Debtors Cash& Depreciation 40,000 60,000 55,000 44,000 Bank Fund Balance
Resenefor 70,000 contingency Outstanding 15000

55,000 lnwstments 1 ,31,000 95,000 24000
Prepaid

Temp

2,000

3,000

6,1 0 ,0 0 0 5 ,9 9 ,0 0 0

6,10,000 588,000

The following additional information is also available. (u) A new machinery was purchased for Rs. 30,000and old machinery costing Rs. 15,000 was sold for Rs. 5,000. Accumulated depreciationwas Rs. 8,000.

MS-4

P.T.O.

(b)
t.r

Rs 20,00A5o/o debentures were reduced by purchasefrom open market @ Rs 96. Rs 36,000investments were sold at book value. \2% dividend was paid in cash Rs.15,000 was debited to Contingency Reserve to settlement of previous tax liability.

(c)

(d) (e)

You are required to prepare : (a) a statementof changesin Working Capital, and a statement showing the sources and application of funds.

(b)

-oOo-

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