MS-4

MANAGEMENT PROGRAMME

Kzt Term-End Examination

December, 2009
(:))

MS-4 : ACCOUNTING AND FINANCE FOR

MANAGERS

Time : 3 hours Maximum Marks : 100

(Weightage 70%)

Note : Attempt any five questions. All questions carry equal

marks. Use of calculators is allowed.

(a) What do you understand by Internal Audit ?

How do the functions of an internal auditor
differ from that of External Auditor ?

(b) Explain the consistency concept and Accrual

Concept of Accounting. How is the Accrual
Concept adhered to while preparing the final
accounts of a company ?

(a) What are intangible assets of a firm ? Why

are they shown in the Balance Sheet ? What
is meant by amortisation of such assets ?
Give reason for the same.

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(b) What do you understand by Appropriation

of profit of a company ? How are the profits
appropriated ? How will the profits to be
appropriated, affected, if the company issues
debentures, instead of equity shares to
finance its activities ? Discuss how ?

3. Distinguish between :
FIFO and LIFO methods of Inventory
valuation.
Rights Shares and Bonus Shares
(c) Direct Material Price Variance and Direct
Material Usage Variance
(d) Imputed Costs and Opportunity Costs.

4. What do you understand by Break-even analysis ?

Discuss the assumptions underlying the break-even
analysis. How do these assumptions make the
break-even analysis unrealistic ? Explain and
prepare a Break-even chart assuming relevant
figures.

5. (a) What do you understand by Flexible Budget ?

How does it differ from a Fixed Budget ?
Explain its utility to a business organisation.
(b) What do you mean by Control Ratios ?
Explain the three important control ratios
and discuss their significance.

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6. Explain fully the following statements :

Operating cycle plays a decisive role in
estimating the working capital requirement
of a firm.
As there is no explicit cost of retained
earnings, they are free of cost.
Depreciation acts as a tax shield
An investor in shares considers not only its
E.P.S. but also P.E. ratio.

7. A company, manufacturing a consumer product

and marketing through its network of 400 depots
all over the country, is considering closing down
the depots and resorting to dealership
arrangement. The total turnover of the company
is Rs. 200 crore per annum. Average turnover,
costs etc in respect of a depot is given below :
Average Turnover Rs. 50 lakh
Average Inventory Rs. 5 lakh
Administration Expenses Rs. 50,000 p.a
Staff Salary Rs. 80,000 p.a
The inventory carrying cost is 16% p.a., which is
the rate for working capital finance.
Marketing through dealers would involve

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 engaging dealers for each area. The dealers will
assure a minimum sale for each area. This would
result in increasing the capacity utilisation from
75% as at present to 90%. The Company's P/V
Ratio at present is 10% and the Break even point
is at 50%of the capacity. Current profit is
Rs. 150 lakh.
Marketing through dealers would involve
payment of a commission of 5% on sales, but 50%
of the existing Depot Staff will have to be
absorbed in the company. Dealers will deposit
Rs. 5 crore with the company on which interest
at 12% p.a. will be paid. You are required
to work out the impact on profitability of
the company by accepting the proposal as
above, and
to give your reaction if the commission to
dealers is reduced to 4% on sales.

8. You have the following information on the

performance of Premier Co. Ltd. and also the
industry averages :
Determine the indicated ratios for the
Premier Co. Ltd., and
Indicate the company's strengths and
weakness as shown by your analysis.

MS-4 4 P.T.O.
 Balance Sheet as on 31st December, 2008.
Equity Share Capital 24,00,000 Net fixed Assets 12,10,000
10% Debentures 4,60,000 Cash 4,40,000
Sundry Creditors 3,30,000 Sundry Debtors 5,50,000
Bills Payable 4,40,000 Stock 16,50,000
Other Current legend 2,20,000
38,50,000 38,50,000

Profit & Loss A/c for the year ending 31st Dec. 2008.
Sales 55,00,000
Less Cost of Goods sold :
Materials 20,90,000
Wages 13,20,000
Factory overhead 6,49,000 40,59,000
Gross profit 14,41,000
Less Selling & Distrubution cost 5,50,000
Administration & General Expenses 6,14,000 11,64,000
Earnings before interest & tax 2,77,000
Less interest charges 46,000
Less Taxes (50%) 1,15,500
Net Profit 1,15,500

Industry
Ratios Considered
Ratios
Current Ratio 2.4
Debtors Turnover 8.0
Stock Turnover 9.8
Total Assets Turnover 2.0
Net Profit Margin 3.3%
Net Profit /Total Assets 6.6%
Net Profit/Net worth 10.7%
Total Debt/Total Assets 63.5%
-o0o-

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