MANAGEMENT PROGRAMME
Term-End Examination
December, 2006
MS4 : Accounting and Finance for Managers
Time: 3 hours
Maximum Marks: 100
(Weightage 70%)
1. (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
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