QUESTION BANK

ACCOUNTING AND FINANCIAL MANAGEMENT

Second Semester
MCA – Master of Computer Applications
University of Madras
Prepared by: N Rakesh, Chennai

Unit I – Financial Accounting

1. What is the double entry system of bookkeeping? Explain the principles giving
suitable examples
2. Explain a) Going Concern concept b) Dual Aspect Concept c) Cost Concept.
3. From the following details, Calculate the operating ratio and gross profit ratio.
Cost of goods sold Rs. 1,50,000
Operating expenses Rs. 50,000
Sales Rs. 3,50,000
Sales Returns Rs. 30,000
4. Prepare Trading account for year ending 31-3-2005
Stock on 1.4.04 15000 Purchases 87000
Carriage inwards 1600 Sales 142000
Carriage outwards 900 Stock (31.3.2005) 17000
Return Inwards 2200 Return Outwards 1500
Freightinwards 900 Wages 9700

5. Define Management accounting. Differentiate it from financial accounting.

6. From the following trial Balance, prepare trading and Profit & Loss account for
the year ended 30-03-2005 and a balance sheet as on that date:

Name of Account Debit Credit

Drawings 6000
Insurance 600
General Expenses 3000
Debtors 14500
Creditors 6800
Furniture 7500
Plant & Machinery 20000
Building 45000
Stock (1-04-2004) 6000
Carriage Inwards 2400
Carriage Outwards 3200

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 Salary 15000
Freight 4000
Wages 7600
Return Inwards 800
Return outwards 700
Purchases 42000
Sales 99000
Cash at bank 3900
Capital 75000
Total 181500 181500
Adjustments:
1) Closing Stock was valued at Rs.10500
2) Prepaid insurance amounted to Rs.200
3) Outstanding expenses: Salaries Rs.600, Advertisement Rs.1000
4) Depreciation: Building – 5%, Plant & Machinery- 15%, Furniture – 20%.
5) Provide interest on capital at 4%.

Unit II – Ratio Analysis

1. What does Ratio Analysis mean.

2. How would you calculate Debt collection period

3. What do you mean by debt-equity ratio

4. Calculate the debtor’s turnover ratio from the following figures.

Cash Sales 2,00,000
Total Sales 10,00,000
Bills receivable on 1.1.95 75,000
Bills receivable on 31.12.95 1,25,000
Debtors on 1.1.95 1,00,000
Debtors on 31.12.95 1,50,000
5. What is the information furnished by a Balance Sheet. Outline a model balance
sheet.

6. Explain any two turnover ratios and their significance.

7. Explain the Return on Investment ratios and how they are calculated.

8. Explain the following turnover ratios and the way they are calculated.
i. Debtors Turnover ratio
ii. Creditors Turnover ratio
iii. Stock turnover ratio

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9. Calculate the following ratios from the given balance sheet.
a) Current Ratio
b) Liquid Ratio
c) Stock turnover Ratio
d) Debtors turnover Ratio and debt collection period

Additional information:
Sales (all Credit) 750000
Gross profit is 20% of sales
Closing stock is Rs. 10000 more than opening stock.
Balance Sheet
Share Capital 7,00,000 Land and Buildings 3,50,000
Reserves 50,000 Plant & Machinery 2,00,000
Surplus 70,000 Stock 1,55,000
Bank Overdraft 35,000 Debtors 70,000
Creditors 1,00,000 Bills Receivable 10,000
Bills payable 50,000 Cash in Bank 1,80,000
Cash in Hand 40,000

10,05,000 10,05,000

10. Calculate Gross Profit Ratio

Opening Stock 25,000
Purchases 80,000
Closing Stock 35,000
Purchases Returns 2,000
Sales 105,000
Sales Returns 5,000

11. Compute the Operating Ratio

Total Sales Rs.2,65,000
Sales Returns 15,000
Gross Profit Ratio 30%
Administrative Expenses 15,000
Selling and Distribution Expenses 10,000

12. Following is the Balance Sheet of the firm

Liabilities Rs. Assets Rs.

Share Capital 30,000 Fixed Assets 16,500
Reserves 3,500 Cash 1,000
Creditors 8,000 Debtors 6,000
Bills Payable 2,000 Bills Receivable 2,000
Stock 17,500
Prepaid Expenses 500
Total 43,500 Total 43,500

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 Compute the current ratio and the liquid ratio.

13. With the following ratios and further information given below, prepare a Trading,
Profit and Loss account and Balance Sheet
Gross Profit ratio 25%
Net profit ratio 20%
Stock turnover ratio 10
Net profit/Capital 1/5
Capital to Total Liabilities 1/2
Fixed Assets/Capital 5/4
Fixed Assets/Total Current Assets 5/7
Fixed Assets Rs.10,00,000
Closing Stock Rs.1,00,000

Unit III – Marginal Costing

1. Define Variable cost

2. What is Breakeven Point

3. From the following figures calculate a) P/V Ratio b) Breakeven Point and
c) Sales to earn a profit of Rs.120,000
Sales 4,00,000
Variable Cost 3,75,000
Fixed Cost 1,80,000

4. From the following particulars find out the Breakeven Point

Variable Cost per unit Rs.15
Fixed Expenses Rs.54,000
Selling price per unit Rs.20
What will be the revised breakeven point if the selling price is increased by 25%.

5. Given below are information for two consecutive periods

Sales Profit
Period I 1,20,000 12,000
Period II 1,40,000 14,000

a) Compute the P/V Ratio and the Breakeven Point

b) Calculate the profit/loss when sales are Rs.2,00,000
c) Calculate the profit/loss when sales falls down to Rs.60,000
d) Calculate the sales required to earn a profit of Rs.25,000
e) What is the margin of safety in the first and second periods.

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 6. How can breakeven point be determined by breakeven chart. Explain with an
illustration.

7. Fixed Cost Rs.40,000

Breakeven Point Rs.100,000
Calculate (a) P/V Ratio (b) Profit when sales is Rs.200,000 and (c) Required Sales
to achieve a profit of Rs.100,000

8. What is meant by break-even analysis? Explain the practical significance of

break-even analysis.

9. From the following information in two consecutive years

Year Sales Profit

2005 120,000 9,000
2006 140,000 13,000

Calculate the following

a) Profit/Volume Ratio
b) Breakeven Point for sales
c) Profit when sales are Rs.100,000
d) Sales required to earn a profit of Rs.20,000
e) Margin of Safety in 2006

Unit IV – Budgetary Control

1. What is a budget

2. Differentiate between fixed and flexible budget.

3. What are the different types of functional budgets.

4. What do you mean by Budgetary Control. Explain the objectives of Budgetary

control.

5. What is a flexible budget.Under what circumstances would you recommend

flexible budgeting.

6. What is Zero base budgeting

7. Prepare a Production Budget for the three month period Jan to Mar from the
following information
Product Estimated Sales Stock on Jan 1 Stock on Mar 31

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 A 50,000 6000 7000
B 40,000 7000 4000
C 50,000 5000 8000
8. For a company producing 720 units, Prepare a flexible budget for production at
900 units and 1200 units.

Materials Rs.120 per unit

Labours Rs.40 per unit
Variable Expenses – Rs.10 per unit
Factory Overheads – Rs.80 per unit
(60% variable)
Administrative Overheads – Rs.50 per unit
(40% variable)

9. Summarized below are the income and expenditure forecasts for the months of
March to July 2003

Month Sales Purchases Wages

March 60,000 36,000 9000
April 62,000 38,000 8000
May 64,000 33,000 10000
June 58,000 39,000 8500
July 56,000 39,000 9500
Prepare cash budget for 3 months starting on 1st May 2003 keeping in view the
following information:
i. Cash balance as on 1st May 2003 was Rs.18000
ii. Period of credit allowed by suppliers are two months
iii. Period of credit allowed to customers one month

Unit V – Capital Budgeting

1. What do you mean by the time value of money.

2. Explain the process of capital budgeting

3. What are the factors to be noted in appraising a project

4. Explain the process of discounting and how it is useful for capital budgeting.

5. Calculate the payback period for a project requiring an investment of Rs.300,000

and generating the following cash inflows: Rs.50,000, Rs.80,000, Rs.80,000,
Rs.100,000, Rs.100,000, Rs.120,000

6. Explain the Net Present Value Method and how to accept or reject projects using
this method.

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7. A company is thinking of purchasing a machine. Two machines A and B are
available, each costing Rs.10,00,000. In comparing the profitability of the
machines, a discount rate of 10% is to be used. Cash inflows are

Year Machine A Machine B

1 300,000 100,000
2 400,000 300,000
3 500,000 400,000
4 300,000 600,000
5 200,000 500,000
Indicate which of the machine would be more profitable, using the Net
Present Value Method and Accounting rate of Return method.

8. A company is contemplating to purchase a machine. Two machines A and B are

available, each costing Rs 10,00,000. In comparing the profitability of the
machines a discounted rate of 10% is to be used. Earnings after taxation are
expected to be as under:
Year Machine Machine
A B
1 3,00,000 1,50,000
2 3,00,000 2,50,000
3 5,00,000 2,50,000
4 3,50,000 2,00,000
5 2,00,000 3,00,000

Indicate which of the machine would be more profitable, using the following
methods of ranking investment proposals:
a) Net present value method b) Profitability Index method
9. A Company has an investment opportunity costing Rs.50,000 with the following
expected net cash flow
Year Cash
Inflow
(Rs.)
1 15,000
2 20,000
3 30,000
4 25,000
5 30,000
Calculate the Internal Rate of Return

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