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Posted By: aravindsri Member Level: Gold Posted Date: 02 Jun 2008
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2005 Indira Gandhi National Open University (IGNOU) M.B.A MS4 Accounting and Finance for Managers June 2005 Question paper
IGNOU MS4 Accounting and Finance for Managers June 2005
MANAGEMENT PROGRAMME
Term-End Examination
June, 2005
MS4 : Accounting and Finance for Managers
Time: 3 hours
Maximum Marks: 100
(Weightage 70%)
Note : Attempt any five questions. All questions carry equal marks.
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
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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.
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