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Accounting for Managers

PART A (Descriptive Type) = 27 PART B (Case Study) = 4 PART C (Short Question) = 160 Instant Downloadable Solution from AiDLo.com

PART A Descriptive Type Question


Question 1: From the following particulars, prepare a haw, reconciliation statement, showing the balance as per pass book on 31st March, 1979: The following cheques were paid into firm's current account in March, 1979, but were credited by the bank in April, 1979.A=Rs. 2,500, B=Rs. 3,500 and C=Rs. 1,900.The following cheques were issued by the firm in March, 1979 and are cashed in April, 1979.P= Rs. 2,500, Q=Rs. 4,500 and R=Rs. 4,000.A cheque of Rs. 1,000 which was received from a customer was entered in; the bank column of cash book in March, 1979. but the same was paid into the bank in Awn), 1979.The pass book shows a credit of Rs. 2,500 for interest and debit of Rs.1000 for bank charges. The balance as per cash book was Rs. 1,80,000 on 31st March, 1979. Question 2: Inder drew upon on Mohan a bill for Rs. 9,000 on 1 April for three months, forth mutual accommodation. Mohan accepted the draft. On 4 April Inder got it discounted at 6% p.a. and remitted one-third of the proceeds to Mohan. At maturity, Inder was not able to send the required sums and asked Mohan to receive two month Promissory Note for Rs 6,090 which Mohan did. Mohan go to the note discounted for Rs 6,000 and met his acceptance. Inder became insolvent just before his Promissory Note was due for payment. Only 50% was received from his estate. Give Journal entries in the books of both Inder and Mohan. Question 3(a): What do you understand by the concept of conservatism? Why is it also called the concept of prudence? Why is it not applied as strongly today as it used to be in the Past? Question 3(b): What is a Balance Sheet? How does a Funds Flow Statement differ from a Balance Sheet? Enumerate the items which are usually shown in a Balance Sheet and a Funds Flow Statement. Question 4: Journalize the following transactions in the books of Mr. Walter: a) Paid rent of building $ 12,000 half of the building is used by the proprietor for residential use. b) Paid fire insurance of the above building in advance $ 1,000. c) Paid life insurance premium $ 2,000. d) Paid income-tax $ 3,000. e) Salary due to clerk $ 500. f) Charge depreciation on furniture @ 10% p.a. for 1 month (furniture $ 12,000). g) Provide interest on capital ($ 60,000) at 15% p.a. for 6 months, h) Charge interest on drawing (10,000) at 18% p.a. for 6 months. i) Provide interest on loan to Ram ($ 100,000) at 18% p.a. for 2 months, j) Charge interest on loan to Shyam ($ 200,000) at 18% p.a. for 2 months, k) Received commission $ 1,000 half of which is in advance. I) Brokerage due to us $ 500

Question 5: Name the accounting concept violated, if any, in each of the following situations and explain them in detail. a) The Rs 1,00,000 figure for inventory on a Balance Sheet is the amount for which it could be sold on the balance sheet date. b) The Balance Sheet of a retail store which has experienced a gross profit of 40% on sales contains an item of merchandise inventory of Rs. 1,15,00,000 Merchandise inventory (at cost) Rs 69,00,000. c) Company M does not charge annual depreciation, preferring instead to show the entire difference between original cost and proceeds of sale as a gain or loss in the period when the assets is sold. It has followed this practice for many years. Question 6: From the following Trial Balance extracted from the books off M/s Jayshee Trade, Bombay, prepare Trading and Profit and Loss Alc for the year ended 31 Dec. 1992 and a Balance sheet as on that date: You are given following further information: 1. Interest of Rs.150 was due from bank but it was not received 2. It was decided to increase Reserve for bad and doubtful debts to Rs.2,800 after writing off Rs.500 as bad debts during the year. 3. Provide depreciation at 5% p.a. on building and 10% p.a. on Furniture & Fixture. 4. A Bill of Rs. 250 for printing of advertisement in newspaper remained unpaid at the end of the year. Question 7: What is meant by financial statements? Discuss the utility and significance of financial statements to various parties interested in the business concern? Question 8: What is a trial balance? What are the different columns of a trial balance? Explain the different methods of preparing trial balance. Question 9: On 1st July 1994, Raj & Co. purchased machinery worth Rs. 40,000. On 1st July 1996 it buys additional machinery worth Rs. 10,000. On 30th June, 1997, half of the machinery purchased on 1st July 19:94 is sold for Rs.9.500. The company writes off 10% on the original cost. The accounts are closed every year on 31st December. Show the machinery account for four years accounts are closed on December 31, ever year. Question 10: Balance Sheet of ASD Co. Ltd. At the end of the 2005 and 2006 are given below: Liabilities Share Capital Share Premium General Reserve Profit & Loss A/C 12% Debenture Provision for Dep. On Plant Provision Furniture for Dep. On 2005 1,00,000 --50,000 10,000 70,000 50,000 5,000 20,000 86,000 2006 1,50,000 5,000 60,000 17,000 50,000 56,000 6,000 30,000 95,000 Assets Freehold Land Plant at Cost Furniture at Cost Investments cost Debtors Stock 60,000 Cash 30,000 at 2005 1,00,000 1,04,000 7,000 60,000 30,000 65,000 45,000 2206 1,00,000 1,00,000 9,000 80,000 70,000

Provision for Taxation S. Creditors

TOTAL 3,91,000 4,69,000 3,91,000 4,69,000 A Plant purchased for Rs. 4,000 (Depreciation Rs 2,000) was sold for cash for Rs800 on 30th September, 2006. On 30, June 2006, an item of furniture was purchased for Rs. 2,000. These were the only transactions concerning fixed assets during 2006. A dividend of 22.5 % on original shares was paid. Question 11: The Cash book of Mr A shows Rs. 8,364 as the balance at bank as on 31st December 2006 but you find that this does not agree with the balance as per Bank Pass Book. On scrutiny, you find following discrepancies. 1. On 15th December, the payment side of the Cash Book was under cast by Rs 100. 2. A cheque for Rs. 131 issued on 25 December, was recorded in the Cash column. 3. One deposit of Rs. 150 was recorded in the Cash Book as if there is not Bank column there in. 4. On 18th December, the debit balance of Rs. 1,526 as on the previous day, was brought forward as a credit balance. 5. Of the total cheques amounting to Rs. 11,514 drawn in the last week of December, cheques aggregating Rs 7,815 were encashed in December. 6. Dividends of Rs.250 collected by the bank and subscription of Rs.100 paid by it, were not recorded in the cash book. 7. One out going cheque of Rs. 350 was recorded twice in the cash Book. Prepare Bank Reconciliation Statement as on 31 December 2006. Question 12:. "Cost may be classified in a variety of ways according to their nature and, the information needs of the manage meant". Explain. Question 13: On 31st March 2006 the following Trail Balance has been extracted from the books of a Rahul. Dr. Balance Cr. Balance Drawings account Sundry Debtors Interest on Loan Cash in Hand Opening Stock (01.04.05) Moto r Vehicles Cash at Bank Land & Building Bad Debts Purchases Sales Return Carriage outward Advertisement General expenses Bills Recoverable 3000 19100 200 3050 5839 9000 4555 12000 625 67458 7821 1404 2264 4489 6882 Rahul's Capital A/c 30000 Sundry Debtors 8401 5% Loan on Mortgage(01.04.05) 8500 Bad Debts Provision 710 Sales 111243 Purchase Returns 1346 Discounts 440 Bills Payable 2714 Rent Received 250

Carriage Inward Establishment

3929 8097

Rates, Taxes & Ins. 3891 Prepare Trading Profit & Loss account for the year ending 31.03.2006 and a Balance Sheet as on that date after considering following matters: 1. Depreciate Land & Bulding at 5% p.a. and motor Vehicles at 15% p.a. 2. Salaries amounting to Rs 700 and Rates amounting to Rs 400 are due. 3. Goods destroyed due to fire worth Rs 200. 4. A Pro v. For Doubtful debts is to be brought upto 5% of sundry debtors. 5. Stock a on 31.03.06 is Rs.6250. 6. Goods worth Rs. 500 is taken by proprietor for personal use and no entry for the same is made in books of acco unts. 7. Prepaid insurance amounted to Rs 175. 8. Provide manager's commission @ 5% on net profit after charging such commission. Question 14(a): Discuss the importance of ratio analysis for inter-firm and intra-firm comparisons including circumstances responsible for its limitations. If any Question 14(b): Why do you understand by the term 'pay-out ratio'? What factors are taken into consideration while determining pay-out ratio? Should a company follow a fixed pay-out ratio policy? Discuss fully. Question 15: From the ratios and other data given below for Bharat Auto Accessories Ltd. indicate your interpretation of the company's financial position, operating efficiency and profitability. Year I Year II Year III Current Ratio Acid Test Ratio Working Capital Turnover (times) Receivables Turnover Average Collection Period (Days) Inventory to Working Capital Inventory Turnover (times) Income per Equity Share Net Income to Net Worth Operating Expenses to Net Sales Sales increase during the year 265% 115% 2.75 9.83 37 95% 6.11 5.10 22% 10% 278% 110% 3.00 8.41 43 100% 6.01 4.05 23% 16% 302% 99% 3.25 7.20 50 110% 5.41 2.50 7.0% 25% 23%

11.07% 8.5%

Cost of goods sold to Net Sales 70% Dividend per share Fixed Assets to Net Worth Net Profit on Net Sales Rs. 3 16.4% 7.03%

71% Rs.3 18% 5.09%

73% Rs.3 22.7% 2.0%

Question 16: Bose has supplied the following information about his business for the year ended 31st March, 2004 is as follows: Assets Liabilities and On 1st 2003 Rs. Sundry debtors Stock Machinery Furniture Sundry creditors 1,81,000 1,50,000 2,50,000 40,000 1,10,000 April On 31st 2004 Rs. 1,93,000 1,40,000 ? ? 1,25,000 March,

Receipts To Opening balance To Cash sales To Receipt from debtors To Misc. receipts

Rs. 5,000 61,000 7,53,000 2,000

Payments By Payments to creditors By wages By Salaries By Drawings By Sunday office expenses

Rs. 3,50,000 1,60,000 1,50,000 40,000 1,10,000 95,000 16,000 9,21,000

To Loan from Dass @ 9% per annum (taken on 1.10.2003)

1,00,000

By Machinery purchased (on 1.10.2003) By Closing balance

9,21,000

Discount allowed totalled Rs.7,000 and discount received was Rs. 4,000. Bad debts written off were Rs. 8,000. Depreciation was written off on furniture @5% per annum and machinery @ 10% per annum under the straight line method of depreciation. The office expenses included Rs.5,000 paid as insurance premium for the year ending 30th June, 2004. Wages amounting to Rs.20,000 were still due on 31st March, 2004 Prepare trading and profit and loss account for the year ended 31st March, 2004 and the balance sheet as on that date.

Question 17 (a): What procedure would you adopt to study the liquidity of a business firm? Question 17 (b) Who are all the parties interested in knowing this accounting information? Question 17 (c) What ratio or other financial statement analysis technique will you adopt for this. Question 18: From the following particulars, determine the bank balance as per pass book of Priya & Co. as on 28th February 2008. a) Credit balance as per cash book on 28th February, 2008 was Rs. 15,000 b) Interest charged by the bank up to 28th February Rs. 500 was recorded in the pass book. c) Bank charges made by the bank Rs. 125 were also recorded only in the pass book. d) Out of the cheques of Rs. 25,000 paid into the bank, cheques of Rs. 18,750 were cleared and credited by the bankers. e) Two cheques of Rs. 7,500 and Rs. 15,000 were issued but out of them only one cheque of Rs. 7,500 was presented for payment up to 28th February. f) Dividends on shares Rs. 4,500 were collected by the bankers directly, for which Priya & Co. did not have any information. Question 19: A company manufactures a single product in its factory utilizing 600% of its capacity. The selling price and cost details are given below: Rs. Sales (6,000 units) Direct materials Direct labour Direct expenses Fixed overheads: Factory Administration Selling and Distribution 2,00,000 21,000 25,000 5,40,000 96,000 1,20,000 19,000

12.5% of factory overheads and 20% of selling and distribution overheads are variable with production and sales. Administrative overheads are wholly fixed. Since the existing product could not achieve budgeted level for two consecutive years, the Company decides to introduce a new product with marginal investment but largely using the existing plant and machinery. The cost estimates of the new product are as follows:

Cost elements

Rs. per unit

Direct materials Direct labour Direct expenses Variable factory overheads Variable selling and distribution overheads

16.00 15.00 1.50 2.00 1.50

It is expected that 2,000 units of the new product can be sold at a price of Rs. 60 per unit. The fixed factory overheads are expected to increase by 10%, while fixed selling and distribution expenses will go up by Rs. 12,500 annually. Administrative overheads remain unchanged. However, there will be an increase of working capital to the extent of Rs. 75,000, which would take the total cost of the project to Rs. 8.75 lakh. The company considers that 20% pre-tax and interest return on investment is the minimum acceptable to justify any new investment. You are required to (a) Decide whether the new product be introduced. (b) Make any further observation/recommendations about profitability of the company on the basis of the above data, after making assumption that the present investment is Rs. 8 lakh. Question 20(a): What is Master Budget? How it is different from Cash Budget? Question 20(b): What are the various methods of inventory valuation? Explain the effect of inventory valuation methods on profit during inflation. What are the provisions of Accounting Standard 2 (AS-2) with regards to inventory valuation? Question 21: From following figures extracted from the books of Mr. XYZ, you are required to prepare a Trading & Profit & Loss Account for the year ended 31st March, 2008 and a Balance Sheet as on that date after making the necessary adjustments.

$ Mr. XYZ's Capital Mr. XYZ' Drawings Plant & Machinery Freehold property Purchases Rtuens outwards Salaries 228,800 13,200 99,000 66,000 110,000 1,100 13,200 Stock 1.4.2007 Wages Sundry creditors Postage & Telegrams Insurance Gas & fuel Bad debts

$ 38,500 35,200 44,000 1,540 1,760 2,970 660

Office Expenses Discount A/c (Dr.) Sundry Debtors Loan to Mr. Krish @10% p.a. Balance on 1.4.2007 Cash at bank Bills payable

2,750 5,500 29,260 44,000

Office rent Loose tools Factory lighting Provision for doubtful debts Interest on loan to Mr. Krish

2,860 2,900 1,100 880 1,100 2,640 231,440

29,260 5,500

Cash in hand Sales

Adjustments: a) Stock on 31st March, 2008 was valued at $ 72,600 b) A new machine was installed during the year costing $15,400 but it is not recorded in the books as on payment was made for it. Wages $ 1,100 paid for its erection has been debited to the wages account. c) Depreciate: a. Plant & machine by 33.33% b. Furniture by 10% c. Freehold property by 6% d) Loose tools were valued at $ 1.760 as on 31.3.2008 e) Of the sundry debtors Rs.660 are bad and should be written off. f) Maintain a provision of 5% on sundry debtors for doubtful debts. g) The manager is entitled to a commission of 10% of the net profits after charging such commission. Question 22: Following is the Trial Balance of M/s. Trinity Foods as on 30th June 2007 (after closing Nominal Accounts). Prepare a Balance Sheet on the basis of this trial balance. Particulars Cash Capital Bank Furniture Ram Rahim Trading & Profit & Loss 50,000 47,000 77,000 25,000 15,000 Debit (Rs.) 10,000 100,000 Credit (in Rs.)

162,000

162,000

Question 23: Given below are the financial statements of Safal Enterprises, using the tool of ratio analysis comment on the profitability and liquidity position of the firm for the year 2006-07. Total no. of

shares outstanding for the firm is 2.69crores. In the view of growth opportunities in the near future the firm has been maintaining a policy of 45% payout. Summarized P & L of Safal Enterprises For the year ended 31 March 2006 Particulars ( Rs. In crores) Sales Other income Cost of sales Gross margin Operating expenses Administration Selling & distribution Profit before interest & tax (PBIT) Interest Profit before tax (PBT) Provision for taxes Profit after tax (PAT) 12.44 4.42 24.18 3.00 21.18 7.94 13.24 14.36 5.36 29.26 4.01 25.26 9.47 15.79 132.00 12.00 102.96 29.04 144.00 15.00 110.02 33.98 2007

Balance Sheet of Safal Enterprises

31/03/06 Particulars

31/03/07

(Rs in crores) Assets Fixed assets Current assets Inventory Accounts receivable Cash Less: Current liabilities Net current assets 14.56 13.20 1.50 8.55 20.71 16.64 15.43 1.75 11.25 22.57 31.25 37.50

Total Assets Liabilities &owners equity Share capital Reserves & Surplus Debt(bng term) Total

51.96

60.07

27.00 4.96 20.00 51.96

27.00 6.36 26.71 60.07

Question 24: Given below are the balance sheets of the two firms- Gloria Ltd and Victoria Ltd as on 31st March 2007. Gloria Ltd. Assets Cash and Bank balance Marketable securities Sundry debtors Prepaid expenses Current Assets Fixed Assets (Net) Total Assets 12.70 10.00 22.00 93.50 1.12 139.32 589.00 728.323 Liabilities and Owners Equity Sundry creditors Notes payable Long term debt Equity 6.75 6.56 130.01 585.00 26.45 6.45 345.00 512.00 38.60 21.00 23.70 162.45 2.14 247.90 642.00 889.895 Victoria Ltd.

Total

728.323

889.895

Can the financial positions of the two firms be compared assuming that the two firms fall in the same industry? Question 25: Find out the cost of raw material purchased from the data given below: Particulars Prime cost Rs. 200,000

Closing stock of raw material Direct labour cost Expenses on purchases'

20,000 100,000 10,000

Question 26:The product of a manufacturing concern passes through two processes A and B and then to finished stock. It is ascertained that in process A normally 5% of the total input is scrap which realizes Rs. 80 per tone. From the following information relating to process A for the month of August 2007, prepare process A account Materials Cost of materials Wages Manufacturing overheads Output 500 tonnes Rs. 125 per tonne Rs. 14,000 Rs. 4,000 415 tonnes

Question 27: Ahmedabad Company Ltd. manufactures and sells four types of products under the brand name Ambience, Luxury, Comfort and Lavish. The sales mix in value comprises the following: Brand name Ambience Luxury Comfort Lavish Percentage 33 1/3 412/3 16 2/3 8 1/3 _____ 100 The total budgeted sales (100%) are $ 600,000 per month. The operating costs are: Ambience 60% of selling price Luxury Luxury 68% of selling price Comfort Comfort 80% of selling price Lavish Lavish 40% of selling price The fixed costs are $. 159,000 per month. A) Calculate the breakeven point for the products on an overall basis. b) It has been proposed to change the sales mix as follows, with the sales per month remaining at $. 6,00,000:

Brand Name

Percentage

Ambience Luxury Comfort Lavish

25 40 30 05 -------100

Assuming that this proposal is implemented, calculate the new breakeven point.

PART B Case Study 1


BHARAT COMPANY AND VISHAL COMPANY Comparative financial Information for Bharat Co. and Vishal Co. for the years 1988 and 1989 is given below 4. Vishal Co. revalued its fixed assets in the beginning of 1989 increasing its fixed assets by 200% and net increase of Rs.400 crores on account of revaluation was credited to revaluation reserve included in the reserve. Questions From the financial information given above, you are required to compute various financial ratios so as to discuss the following:1. Which company has got a better liquidity position to pay off its short-term commitments? 2. What is the rate of return on the total investment for both the Companies? 3. Which company bas got a better rate of return? Is the difference in the rate of return (above) due to a better rate of profit on the business conducted or due to a higher volume of business per rupee invested? 4. Which company provides the highest safety margin to its debenture holders? 5. What is the return available to preference sha reholders in Bharat Co.?

6. Which company appears to have a higher return per rupee invested in operating assets? 7. Calculate the operating cycle for both the companies. Which company is in a better position as regards the operating cycle? (Operating cycle is the time of conversion of current assets into each position) 8. Comment on the depreciation policy as reflected in the financial information of two companies. 9. Assuming the market value of the equity shares of Bharat Co. is twice that of its book value, while that for Vishal Company is one-and-a-half times of its book value. Which company ba s a higher price-earning ratio? What is the dividend yield for both?

Case Study 2
The Chief Cost Accountant of a company running an orchard with an adequate supply of labour, presents the following data and requests yo u to advice about the area to be allo tted fo r the cultivation of various types of fruits, which would result in maximization of profits. The company contemplates growing Apples, Lemons, Oranges and Peaches:

Particulars Selling Price per Box Seaso n's yield in boxes per acre Costs: Material per Acre Labour Cost: Growing per Acre Picking and packing cost per box Transport cost per box

Apples (Rs.) 15 500 Rs. 270 Rs. 300 Rs. 1.50 Rs 3

Lemons 15 150 Rs. 105 Rs. 225 Rs. 1.50 Rs 3

Oranges 30 100 Rs. 90 Rs. 150 Rs. 3 Rs 1.50

Peaches 45 200 Rs. 150 Rs. 195 Rs. 4.50 Rs 4.50

The total fixed costs in each season would be Rs. 2,10,000. The following limitations are also placed before you. (a) The area available is 450 acres but out of this, 300 acres are suitable for growing only Oranges and Lemons. The balance of 150 acres is suitable for growing any of the four fruits. (b) As the produce may be hypothecated to banks area allotted for any fru it should be demarcated in complete acres and not in fractio ns o f acres. (c) The marketing strategy of the company requires the compulsor y production of all

the four types of fruits in a season and the minimum quantity of any one type to be 18,000 boxes. Calculate the total that would accrue if your advice is fo llowed. 1. Differentiate between Fixed Installment And reducing Balance Metho d of Depreciation with Suitable example. 3. On Ist June 2003, Anand Tyres company. purchased Machinery worth Rs. 760000/and incurred Rs 40000/- on installation. On Ist October 2003 it buys additional second hand machinery worth Rs. 285000/-and incurred Rs. 15000/- on overhauling of Machinery. On Ist July 2005, half of the Machinery which was purchased on Ist April 2003 is sold for Rs. 115000/- The company writes o ff Depreciation at 10% o n Straig ht Line method. The accounts are closed every year on 31 December. From Ist Jan 2005 , company has changed the method of depreciation fro m Straight Line method to Written down value metho d Prepare Machinery Account for three years and aslso caslculate profit or loss on sale of Machinery. 4. What do you mean Accounting equation? What are its constituents? Briefly explain with suitable example, purpose of preparation of Accounting Equation?

Case Study 3
Geeta & Company has experienced increased production costs. The primary area of concern identified by management is direct labor. The company is considering adopting a standard cost system to help control labor and other costs. Useful historical data are not available because detailed production records have not been maintained. To establish labor standards, Geeta & Company has retained an engineering consulting firm. After a complete study of the work process, the consultants recommended a labor standard of one unit of production every 30 minutes, or 16 units per day for each worker. The consultants further advised that Geeta's wage rates were below the prevailing rate of Rs per hour 'Geeta's production vice-president thought that this labor standard was too tight, and from experience with the labor force, believed that a labor standard of 40 minutes per unit or 12 units per day for each worker would be more reasonable, the president of Geeta & Company believed the standard should be set at a high level to motivate the workers and to provide adequate information for control and reasonable cost comparison. After much discussion, management decided to use a dual standard. The labor standard of one unit every 30 minutes, recommended by the consulting firm, would be employed in the plant as a motivation device, while a cost standard of 40 minutes per unit would be used in reporting. Management also concluded that the workers would not be informed of the cost standard used for reporting purposes. The production vice president conducted several sessions prior to

implementation in the plant, informing the workers of the new standard cool system and answering questions. The new standards were not related to incentive pay but were introduced when wages were increased to Rs 7 per hour. The standard cost system was implemented on January 1, 2007. At the end of six months of operation, these statistics on labor performance were presented to executive management:

Jan 5,100 3,000

Feb 5,000 2,900

Mar 4,700 2,900

Apr 4,500 3,000

May 4,300 3,000

June 4,400 3,100

Production (units) Direct labor hours Quantity Variances: Variance based on labor standard (one unit each 30 minutes) Variance based on cost standard (one unit each 40 minutes)

Rs.3150 U*

Rs2,800 Rs3,850U U

RS5.250 U RS.5.950U Rs6,300 U

Rs.3,033 Rs.2,800F F

Rs.1,633 -0F Rs.933 U RS.1.167 U

*U = Unfavorable; F = Favorable Materials quality, labor mix, and plant facilities and conditions have not changed to a significant extent during the six month period.

Questions: 1. Describe the impact of different types of standards on motivations, and specifically, the likely effect on motivation of adopting the labor standard recommended for Geeta & Company by the engineering firm.

2. Please advise the company in reviewing the standards.

Case Study 4
Bajaj Auto Limited: The Unprecedented Growth Story Bajaj Auto Limited is the flagship company of the Bajaj Group. The company manufactures two & three wheelers. Mr. Rahul Bajaj is the present Chairman of the company. The company was incorporated in the year 1945 as M/s Bachraj Trading Corporation Private Ltd. The promoters hold about 30% equity, whereas Indian public holds about 26% and institutional investors have more than 27% stake in the company. The products manufactured by Bajaj Auto are scooters, motor cycles, auto spares parts, machine tools, steel and engineering products. The company also produces threewheelers as goods carriers such as pick-up or delivery vans and passenger carriers such as auto-rickshaws. Bajaj Auto has a network of 498 dealers, 1,500 authorized service centres and 162 exclusive three-wheeler dealers spread across the country. Bajaj Auto has also diversified into the general as well as life insurance business through its subsidiaries Bajaj Allianz General Insurance Company Ltd, respectively. The Bajaj brand has presence in many countries such as Sri Lanka, Mexico, Bangladesh, Columbia, Peru, Egypt, etc. The main competitors of the company in the two-wheelers and three-wheelers segment are- Hero Honda Motors Ltd, Kinetic Motor Co Ltd, LML ltd, Maharashtra Scooters Ltd, and TVS Motor Co. Ltd. The company sold close to 23 lakh vehicles in 2005-06, which is a record performance in its history. The sales of motorcycles manufactured grew by 32% in 2005-06 compared to a market growth of below 19%. For the fifth successive year, the company raised its market share in the motorcycle segment. Today it stands at almost 31%. Sales increased by almost 31% to an all-time high of Rs 9,285 crore in 2005-06. the export of the company in all its product categories has also been unprecedented during the FY 2005-06 as is reflected in the figures given below:

Table A Product-wise exports of Bajaj Auto Ltd

2005-06 Product

2004-05

Growth (in percentage) 33 34 14 27

(in numbers) 165,288 174,907 75,297 250,204 123,946 130,945 65,765 196,710

Motorcycles Total two-wheelers Three-wheelers Total vehicles

Even more impressive has been the growth in company's operating EBITDA, which increased by 47% to touch Rs 1805 crore during 2005-06. Consequently the operating EBITDA margin grew by 220 basis points to 17.9% of the sales and operating income. Earnings per share have been risen from Rs 75.60 to Rs 111.00 in the current year. Dividend too has grown to Rs 40 per share (400%) for the year ended 31 st March 2006 as against Rs 25 per share in 2005. Over the past few years, Bajaj Auto has focused on his technology development, and product development in anticipation of market needs, scaling up its manufacturing facilities, implementing best-in-class production systems, rationalizing vendors, slashing costs while upgrading quality, restructuring dealerships, and distribution channels. These capabilities enabled the company to create exciting new products, which have set benchmarks in styling, design, and technology. The company's products are creating a customer pull at all price points and the company has now transformed from being a price warrior to a price leader. The results of these strategies are reflected in its financial statements as follows (refer Table B and C): Table B Profit and Loss Account for Bajaj Auto Ltd for the year ended

March 2003 (Rs in crore) 4987.05 297.10 32.92 5317.07 4335.16

March 2004

March 2005

March 2006

Sales Other income Change in stocks

5721.44 507.04 10.87 6239.35 5017.92

7078.06 516.41 -11.57 7582.90 6286.91

9284.84 602.52 50.10 9937.46 8131.87

Expenditure Profit & Loss

PBDIT Interest Depreciation PBT Tax provision PAT

981.91 1.12 171.42 809.37 274.44 534.93

1221.43 0.94 184.32 1036.17 285.41 750.76

1295.99 0.67 185.66 1109.66 349.32 760.34

1805.59 0.34 191.28 1613.97 509.37 1104.60

Dividends

159.81

285.37

288.64

461.50

Table C Assets and Liabilities of Bajaj Auto Ltd as on 31 March 2006

Mar 05 Liabilities Rs in crore

Mar 06 Assets

Mar 05 Rs in crore Gross assets fixed

Mar 06

Net Worth

4447.16

5349.79

2870.02

3092.28

Paid up Equity capital

101.18

101.18

Capital WIP Less: cumulative depreciation Net Assets fixed

9.14

25.26

Bonus Equity capital

114.17

114.17

1660.32

1834.19

Minority interest Reserves & Surplus Free reserves Share reserves premium

89.46 4256.52 4233.28 87.07 4146.21

148.79 5099.82 5076.58 285.78 4790.80

1205.64 5273.83 9.20 224.70 3116.05

1230.77 6865.43 6.43 274.47 5799.11

Investments Deferred assets Inventories Receivables tax

Other free reserves

Specific reserves

23.24

23.24

Sundry debtors Debtors exceeding months

176.97

302.54

Borrowings

1229.17

1469.44

0.20

1.13

Deferred liabilities

tax

139.90

87.58

Advances/loan s to corporate bodies Group/associat e companies Other companies Advance payment of tax Other receivables Cash & Bank balance Intangible/DR E not written off

62.29

33.66

Current liabilities &provision s Sundry Creditors Other liabilities Provisions current

4284.64

7773.20

34.44

19.41

833.86 1169.04 2281.74

1404.40 3674.37 2694.43

27.85 1823.60 1053.19 266.88

14.25 1869.40 3593.51 476.48

4.57

27.32

Total Liabilities

10100.8 7

14680.0 1

Total Assets

10100.8 7

14680.0 1

Notwithstanding its excellent financial performance in the years following its major strategic shift, the management of the firm believes in the philosophy that the quest for perfection is eternal. To preclude the complacency from setting in, the management not only sets higher standards it also continuously monitors its performance and benchmarks with the industry performance in general and their closest competitors' results in particular.

Discuss 1. Is the profitability performance of the firm satisfactory? If not, how can it be improved? 2. How attractive is the firm from the short-term and long-term lenders, perspective? Does the firm appear to be the favorite destination in the automobile sector (twowheelers and three-wheelers segment) for the lenders? 3. How efficient is the firm been in utilizing the resources at its disposal? How do you think the company can improve upon its efficiency?

PART C Short Question Set 1


1. What is Accounting? What are its objectives and limitations? 2. Distinguish between Book-keeping and Accounting. 3. Explain briefly the meaning of 'financial transactions'. 4. Distinguish between fixed assets and floating assets. 5. Write notes on creditors for goods. 6. What do you mean by material facts in accounting? 7. Explain the term 'Dual Aspects' briefly. 8. Differentiate between gross income and net income. 9. What is the meaning of double entry accounting? 10. What do you understand by Money Measurement Concept? 11. Explain the convention of consistency. 12. Explain the meaning of expenses. Also differentiate between direct and indirect expenses.

13. What is a Balance Sheet? 14. What do you understand by trial balance? 15. What is an Income Statement? 16. Define Financial Analysis. 17. What is the importance of financial statements for creditors? 18. What do you mean by accounting ratios? 19. What is a current asset? 20. What is a current liability? 21. How would you determine whether an asset is current asset or a current asset? 22. What is current ratio? What does in indicate? 23. How do you compute 'Stock-turnover rate'? What does it indicate? 24. Differentiate between gross profit ratio and operating profit ratio. 25. How is working capital turnover ratio calculated? 26. What is an operating ratio? How do you calculate it? What does it indicate? 27. Illustrate the method of determining debtors turnover ratio? What does it indicate? 28. Explain any three accounting ratios based on sales. 29. What is a funds flow statement? 30. Is depreciation a source of funds? Give reasons in support of your answer. 31. Enumerate four heads of sources and application of funds. 32. Distinguish between funds flow statement and position statement

33. Which transactions do not affect the flow of funds? 34. What type of transactions result in the flow of funds? 35. What do you understand by overheads? 36. Distinguish between overhead apportionment and over-head absorption. 37. Why are the following items added to profit to calculate the fund from operations? (i) Depreciation; ii) Loss on sale of fixed assets; iii) Goodwill written off; iv) Transfer to General Reserve. 38. What is a Cash Flow Statement? 39. Explain the meaning -Non-Cash Items". 40. Enumerate the "Sources of Cash".

Multiple Choice Question Set 1


1. Accounting principles are generally based on: (a) Practicability (b) Subjectivity (c) Convenience in recording. (d) None of the above 2. Explain briefly the Dual Aspect Concept of Accounting: 3. In case of Debt becoming bad, the amount should be credited to: (a) Debtor's account (b) Bad Debt account (c) Sales Account (d) None of the above 4. Explain the term "Accounting Cycle". 5. Explain the term Ledger Posting? 6. When a firm maintains "Three Column Cash Book" it need not maintain: (a) Cash account in the Ledger (b) Bank Account in the Ledger (c) Discount Account in the Ledger (d) Both Cash & Bank Account in the Ledger

7. What is Contra Entry? 8. Purchases book is used to record: (a) All purchases of goods (b) All credit purchases (c) All credit purchases of goods (d) All credit purchases of assets other than goods. 9. Explain the Imprest system of "Petty Cash Book". 10. Cost of Goods Sold = Op stock + Net Purchases __ Expenses on Purchasing Goods __ Cl. Stock. 11. Interest on drawing is: (a) Expenditure for the business (b) Expense for the business (c) Gain for the business. 12. Distinguish between Error of Omission, Error of Principle and Error of Commission. 13. What do you understand by the term Depreciation, Depletion and amortization. Also give example of each. 14. Distinguish between "Straight Line Method of Depreciation" and "Diminishing Balance Method" of providing depreciation. Which method of depreciation is suitable for Plant & Machinery and why? 15. Define financial ratios. 16. Give any three formulas of Solvency Ratios. 17. What is the need for Financial Analysis? How Ratio analysis technique helps in it? 18. Write short note on market value/ Book value of shares. 19. Tax paid is (a) Application of Fund (b) Source of Fund (c) No Flow of Fund (d) None of the above 20. Distinguish between Funds Flow Statement and Cash Flow Statement. 21. Cash from operation is equal to (a) Net Profit plus increase in outstanding expense (b) Net Profit plus increase in debtors

(c) Net Profit plus increase in stock (d) None of the above 22. Define Cost Accounting. How is it different from Management Accounting and Financial Accounting? 23. Explain Out of Pocket Cost? 24. Define Activity Base Costing, Back Flush Costing Life cycle Costing. 25. Give few examples of purely financial charges. 26. How is Direct cost differ from indirect cost? 27. Distinguish between LIFO and FIFO methods of inventory valuations. 28. Why do we require proper inventory valuation. 29. Define Budget and Budgetary Control. 30. Define Master Budget, Programme Budget, Production Budget and Cash budget. 31. Define Zero Base Budgeting. Give limitations of ZBB. 32. How Standard Costing differs from Historical Costing? 33. List major uses of Standard Costing. 34. Direct Material Cost Variance Analysis with the help of an example. 35. Define marginal costing, Break - Even analysis P/V Ratio. 36. Show Break - Even point, angle of incidence and Margin of safety graphically with the help of an example. 37. When fixed Cost is Rs 10000 and P/V/Ratio is 50%, the Break even po int is _____ (a) Rs 40000 (b) Rs. 35000 (c) Rs. 20000 (d ) Rs. 45000 38. When P/V ratio is 40% and Sales Value Rs 10000 the variable cost will be _____ (a) Rs. 2000 (b) Rs. 6000 (c) Rs. 8000 (d ) Rs 7000 39. Contribution margin is also known as ____________. 40. Define absorption costing.

Multiple Choice Question Set 2


1. Which of the following statements is true concerning assets? (a). They are recorded at cost and adjusted for inflation. (b). They are recorded at market value for financial reporting because historical cost is arbitrary. (c). Accounting principles require that companies report assets on the income statement. (d). Assets are measured using the cost concept. 2. When the concept of conservation is applied to the Balance Sheet, it results in (a). Overstatement of Capital (b). Understatement of Capital (c). Overstatement of Assets (d). Understatement of Assets. 3. Which of the following is a correct expression of the accounting equation? (a). Assets - Liabilities + Owners' Equity (b). Assets = Liabilities - Owners' Equity (c). Assets + Owners' Equity = Liabilities (d). Assets = Liabilities + Owners' Equity 4. How is the balance sheet linked to the other financial statements? (a). The beginning retained earnings balance on the statement of retained earnings becomes the amount of retained earnings reported on the balance sheet. (b). Retained earnings is added to total assets and reported on the balance sheet. (c). Net income increases retained earnings on the statement of retained earnings, which ultimately increases retained earnings on the balance sheet. (d). There is no link between the balance sheet and the other statements. 5. The process of recording the economic effects of business transactions in a book of original entry: (a). Double entry system (b). Debit (c). Credit (d). Journalizing 6. If the sum of the debits and credits in a trial balance is not equal, then (a). There is no concern because the two amounts are not meant to be equal. (b). The chart of accounts also does not balance. (c). It is safe to proceed with the preparation of financial statements.

(d). Most likely an error was- made in posting journal entries to the general ledger or in preparing the trial balance. 7. Z Ltd had Rs. 1800 of supplies on hand at January 1, 2006. During 2006, supplies with a cost of Rs. 7,000 were purchased. At December 31, 2006, the actual supplies on hand amounts to Rs. 2,300. After the adjustments are recorded and posted at December 31, 2006, the balances in the Supplies and Supplies Expense accounts will be: (a). Supplies, Rs7, 000; Supplies Expense, Rs2, 300. (b). Supplies, Rs1, 800; Supplies Expense, Rs7, 000. (c). Supplies, Rs2, 300; Supplies Expense, Rs6, 500. (d). Supplies, Rs2, 300; Supplies Expense, Rs3, 900. 8. In the statement of changes in financial position, uses of resources are defined as: (a). Transaction debits (b). Fund increases (c). Transaction credits (d). Fund decreases 9. Most firms elected to define funds in the statement of changes in financial position as: (a). Cash (b). Working capital (c). Current assets (d). Owners' Equity 10. The funds flow statement included: (a). All sources and uses of resources. (b). Only cash transactions. (c). Only transactions affecting current assets. (d). Only transactions affecting fund accounts. 11. Which of the following is not an example of a non-fund adjustment to income required in preparing the statement of changes in financial position when funds were defined as working capital? (a). Depreciation expense (b). Gain from asset disposal (c). Interest expense (d). Amortization of premium on debt 12. In the cash flow statement, cash is defined as: (a). Quick assets (b). Literal cash on hand or on demand deposit, plus cash equivalents. (c). Literal cash on hand or on demand deposit, plus marketable securities. (d). All of the above

13. Flexible budgets (a). Accommodate changes in the inflation rate. (b). Accommodate changes in activity levels. (c). Are used to evaluate capacity utilization. (d). Are static budgets that have been revised for changes in prices. 14. Which of the following statements regarding changing inventory methods is true? (a). A change in inventory methods can be justified if the change is made to better match profits with revenue. (b). The effect of changing inventory method does not need to be disclosed. (c). Tax advantages are valid justification for changing inventory methods. (d). One place that the reader of an annual report would be able to identify that a company changed inventory methods is the footnotes to the financial statements. Use the information presented below to answer the questions that follow. Solid Co. received a non-interest-bearing note from Y Ltd. on October 1, 2006. The amount of the note due at the maturity date is Rs6, 200. The note was accepted by Solid for merchandise sold to Bedrock with a selling price of Rs6, 000. The note is due in 3 months. 15. The difference of Rs200 between the amount of the note (Rs. 6,200) and the sales price of the merchandise (Rs. 6,000) (a). Is the interest explicitly included in the amount of the note. (b). Will be recorded in a contra account, Discount on Notes Receivable, by Co. (c). Will be recorded as interest revenue on October 1, 2006. (d). Is an error made in preparing the note. 16. Which of the following combination of financial statements would provide the most in-depth information to help under stand a company's liquidity? (a). Income statement and statement of cash flows. (b). Balance sheet and statement of cash flows. (c). Balance sheet and income statement. (d). Statement of retained earnings and statement of cash flows. 17. Y Ltd sold equipment for Rs4, 000. This resulted in a Rs1, 500 loss. What is the impact of this sale on the working capital? (a). Reduces working capital. (b). Increases working capital. (c). Has no affect on working capital at all. (d). The increase offsets the decrease. 18. If a company's asset turnover rate increased from 2005 to 2006, which of the following cone usions can be made? (a). The company was less efficient during 2006 in using its assets to produce profits. (b). The company produced more sales in 2006 for each dollar invested in assets.

(c). The company was more profitable in 2005. (d). The company is over-invested in assets in 2006. 19. X Ltd's master budget calls for the production of 6,000 units of product monthly; The master budget includes indirect labor of Rs. 396,000 annually; X Ltd considers indirect labor to be a variable cost. During the month of September, 5,600 units of product were produced, and indirect labor costs of Rs. 30,970 were incurred. A performance report utilizing flexible budgeting would report a flexible budget variance for indirect labor of:(a). Rs. 170 unfavorable. (b). Rs. 170 favorable. (c). Rs. 2,030 unfavorable. (d). Rs. 2,030 favorable. 20. Which of the following is not an advantage for using standard costs for variance analysis? (a). Standards simplify product costing. (b). Standards are developed using past costs and are available at a relatively low cost. (c). Standards are usually expressed on a per unit basis. (d). Standards can take into account expected changes planned to occur in the budgeted period. 21. The main purpose of cost accounting is to(a). Maximize profits, (b). Provide information to management for decision making (c). help in fixing selling price (d). To watch cash flows 22. Conversion cost is total of: (a). Direct material and direct wages (b). Direct material, direct wages, and production overheads (c). Direct wages and production overheads. (d). None of the above. 23. A cost, which does not involve cash outlay, is called: (a). Historical cost (b). Imputed cost (c). Out of pocket cost. (d). Explicit cost. 24. Committed fixed costs are those, which: (a). Arise from yearly budget appropriations (b). Are incurred because management can afford (c). Arise from additional capacity. (d). All of above

25. Cost of research undertaken at the request of the customer should be: (a). Charged to costing profit and loss account (b). Charged to selling overheads (c). Recovered from the customer. (d). All of above 26. Salaries due for the month of March will appear (a). On the Receipt side of the Cash Book (b). On the Payment side of the Cash Book (c). As a contra entry (d). Nowhere in the Cash Book. 27. Liabilities of business are Rs. 11,220 and owner's equity is Rs. 15,000. The assets of the business will be. (a). Rs. 3,780. (b). Rs. 26,220. (c). Rs. 11,220. (d). Rs. 15,000. 28. An entry of Rs. 320 has been debited to Eknath's account at Rs. 230. If is an error of (a). Principle. (b). Omission. (c). Commission. (d). Compensatory. 29. Unearned revenues are: (a). Prepayments. (b). Liabilities. (c). Temporary accounts. (d). Both a and b above. 30. The revenue recognition principle requires that sales revenues be recognized: (a). When cash is received. (b). When the merchandise is ordered. (c). When the goods are transferred from the seller to the buyer. (d). None of the above. 31. All of the following are "other receivables" except: (a). Petty cash. (b). Interest receivable. (c). Income taxes refundable. (d). Advances to employees.

32. Depreciation is depsndent on a number of estimates. When a change in an estimate is required, the change is ma (a). in the current year. (b). in the future year. (c). to prior periods. (d). both a and b above. 33. In order to pay a dividend: (a). the corporation must have adequate retained earnings. (b). the board of directors must declare a dividend. (c). the corporation must have adequate cash. 34. Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income are referred to as: (a). Investing activities. (b). Financing activities. (c). Operating activities. (d). All of the above. 35. All of the following are used in preparing a statement of cash flows except: (a). A trial balance. (b). Comparative balance sheet. (c). Current income statement. (d). Additional information. 36. Depreciation is result of (a). Usage. (b). Time. (c). Obsolescence. (d). All of the above. 37. Outstanding Expenses are the examples of (a). Personal Accounts. (b). Real Accounts. (c). Nominal Accounts. (d). None of the above. 38. Liquid Assets are inclusive of all current assets except (a). Inventories. (b). Prepaid Expenses. (c). Cash. (d). Both (a) and (b) above.

39. Management Accounting is mainly related to (a). Presentation of Figures from Financial Accounting. (b). Presentation of Figures from Cost Accounting. (b). Principles (c). Both (a) and (b) above. 40. Variance Analysis is done with regards to actuals with(a). Standards. (b). Budgeted Figures. (c). Benchmarks (d). All of the above.

True or False- Set 1


Mark 'True' or 'False': 1. 2. Accounting is a language of business. Accounting is a service function.

3. Accounting records only those transactions and events which are financial character. 4. 5. Drawings reduce capital. Capital is increased by profit and decreased by losses.

6. The system of recording transaction on the basis of their two old aspects is called double entry system. 7. 8. 9. Purchases made from B for cash should be debited to B. Earnings of revenue means increase in Cash/Bank balance The balance of an account is always known by the side which is shorter.

10. The return of goods by a customer should be debited to Returns Inwards Account.

11.

Goods bought for resale are referred to as Stocks

12. If the business has any liability, the proprietor's capital must be more than the total assets. 13. 14. 15. 16. 17. 18. Withdrawal of money by the owner is an expense for the business. Ledger is called the book of final entry. Cash book is used to record all receipts and payments of cash. Sales book is used to record all credit sales. The journal is not a book of original entry. Goodwill is an intangible asset.

19. Salaries & Wages appearing in the trial balance are shown on the liabilities side of the balance sheet. 20. The profit & loss account is one of the financial statements.

21. Share having preferential right as to dividend and repayment of capital are termed as equity share capital. 22. Shares which are not preference shares are called equity shares.

23. The amount of share premium received by the company is shown under the heading reserves & surplus in the company's balance sheet. 24. Debenture holders are not the member of the company.

25. There are no legal restrictions, similar to shares, for issue of debentures at discount. 26. 27. Fixed cost per unit remains constant. Direct cost is that cost which can not be easily allocated to cost units.

28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40.

Selling overheads form a part of cost of production. Manufacturing and administrative overheads are different. Total fixed cost remains unaffected by the change in volume of output. Variable cost per unit remains fixed. In chemical industries unit costing is used. The output of a process is transferred to next process. Good units bear the abnormal loss arising in the process costing. Excess of pre-estimated loss over actual loss is known as abnormal loss. Marginal costing is a method of ascertaining cost. A firm earns no profit or incurs no loss at BEP. Margin of Safety implies 'Break Even Point'. In marginal costing, stock is valued at fixed costs. Sales below BEP mean profit.

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