UNIT - I MANAGEMENT ACCOUNTING - INTRODUCTION SECTION A (2 MARKS) 1. What is Management Accounting? It is the study of managerial aspects of Accounting.

. It is a tool to exercise decision making. It provides information to the management to use it as a base for decision making. 2. efine Management Accounting. Management Accounting is the presentation of accounting information in such a !ay as to assist management in the creation of policy and in the day today operations of an undertaking " I.#.M.A $. What are the duties of Management Accountant? #ollection of Information %valuation of Information Interpretation of Information &eporting of Information '. What are the (unctions of Management Accountant? )lanning for #ontrol &eporting %valuation of *arious )olicies and )rogrammes Administration of +ax )rotection of Assets

SECTION B (5 MARKS) 1. What are the #haracteristics of Management Accounting? )roviding (inancial information ,se of -pecial techni.ues and #oncepts #ause and %ffect Analysis ecision Making Achievement of /b0ectives Improving %fficiency (orecasting

2. What are the tools and +echni.ues of Management Accounting? (inancial policy and Accounting Analysis of (inancial -tatements 1istorical #ost Accounting 2udgetary #ontrol -tandard #osting Marginal #osting Management Information -ystem.

$. What are the Merits of Management Accounting? Increase in %fficiency %ffective )lanning )erformance %valuation )rofit Maximisation &eliability %limination of Wastages %ffective #ommunication %mployee Morale #ontrol and #o3ordination

'. What are the limitations of Management Accounting? ependence for basic records )ersonal 2ias /nly a +ool )rovided only ata &esistance to #hange #ostly to Install 4. What are the steps involved in Installation of Management Accounting -ystem? /rganisation Manual )reparation of *arious forms and &eports &e.uisite -taffing #lassification of Accounts -etting up #ost #entres Introducing Accounting techni.ues )roviding the usage of /& +echni.ues SECTION C (10 MARKS) 1. %xplain the -cope of Management Accounting (inancial Accounting #ost Accounting 2udgeting and (orecasting Inventory #ontrol -tatistical Analysis Analysis of ata Internal Audit +ax Accounting

2. %xplain the /b0ectives and (unctions of Management Accounting. $. )resentation of ata Aid of )lanning and (orecasting 1elp in organi5ing ecision Making %ffective #ontrol #ommunication of Management )olicies %ffective #ontrol Incorporation of 6on " (inancial information #o3ordination Motivating %mployees

istinction bet!een (inancial Accounting and Management Accounting. Mana"#$#n! Acco n!in" #oncerned !ith Internal &eporting #oncerned !ith future plans and /perations Management Accounting is -ub0ective %valuates )erformance of different epartments7 ivisions +he Management Accountant has flexibility in follo!ing different standards set by the management. &eports are prepared as and !hen re.uired Management Accounting does not have any set of rigid principles

Financial Acco n!in" #oncerned !ith %xternal &eporting &ecords the )ast and )resent 1istorical and /b0ective Analyses the data of the business as a !hole (inancial Accounts are prepared as per the guidelines laid do!n by #ompanies Act and I+ Act &eports are prepared periodically &ecords the +ransactions as per established #onventions and )rinciples

'.

istinction bet!een #ost Accounting and Management Accounting. Mana"#$#n! Acco n!in" )urpose is to provide information to Management for performing the functions of planning7 directing and controlling. eals !ith future pro0ections on the basis of historical and present cost data 6o such practices and )rocedures ,ses both 8ualitative and 8uantitative Information Includes (inancial Accounting7 #ost Accounting7 2udgeting7 +ax )lanning and &eporting to Management

Co%! Acco n!in" )urpose is to ascertain and control #ost of )roduct and -ervices Accounting is based on 1istorical and )resent data. %stablished procedures and practices are follo!ed ,ses 8uantitative Information It is mainly concerned !ith #ost Ascertainment and #ontrol

UNIT - II

ANA&'SIS AND INTER(RETATION OF FINANCIA& STATEMENTS SECTION A (2 MARKS) 1. What are (inancial -tatements? (inancial -tatements refer to formal and original statements prepared by a business concern to disclose its financial information. (inancial -tatements are prepared for the purpose of presenting a periodical revie! or report on the progress by the management and deal !ith9 i. ii. -tatus of Investments in the business &esults achieved during the period under revie!.

2. What are the types of Analysis of (inancial -tatements? T)*#% o+ Anal)%i% On !,# -a%i% o+ In+o.$a!ion %#/ %xternal Analysis Internal Analysis On !,# -a%i% o+ $o/ % o*#.an/i %#/ 1ori5ontal Analysis *ertical Analysis $. What are the +echni.ues and +ools of (inancial -tatement Analysis? &atio Analysis #ash (lo! Analysis (unds (lo! Analysis #omparative (inancial -tatements #ommon -i5e (inancial -tatements 6et Working #apital Analysis +rend Analysis.

'. 1o! do you sho! the follo!ing items in a #omparative Income -tatement? (a.!ic la.% -ales #ost of -ales Sol !ion COM(ARATI2E INCOME STATEMENT (a.!ic la.% -ales =ess9 #ost of -ales >ross )rofit 01 00 01 1:::::: ;::::: 2::::: 01 00 10 12::::: 1:4:::: 14:::: Inc.#a%# (3) 4 D#c.#a%# (-) R%5 6 < 2::::: <2: <24:::: <$1.24 34:::: 324 01 00 2001 1:::::: ;::::: 01 00 2010 12::::: 1:4::::

4. 1o! do you sho! the follo!ing items in a #ommon -i5e Income -tatement? (a.!ic la.% -ales =ess9 #ost of -ales G.o%% (.o+i! Sol !ion COMMON SI8E INCOME STATEMENT 01 00 2001 01 00 2010 R%5 6 R%5 6 -ales 1:::::: 1:: 1?::::: 1:: =ess 9 #ost of -ales ;::::: ;: 12::::: @4 G.o%% (.o+i! 200000 20 700000 25 ?. 1o! do you sho! the follo!ing items in a #ommon -i5e 2alance -heet? (a.!ic la.% +otal of 2alance -heet (ixed Assets Inventories Sol !ion COMMON SI8E BA&ANCE S9EET (a.!ic la.% +otal of 2alance -heet (ixed Assets Inventories 01 00 2001 R%5 6 2:::::: 1:: ;::::: ': '::::: 2: 01 00 2010 R%5 6 2'::::: 1:: 12::::: 4: ?::::: 24 01 00 2001 2:::::: ;::::: '::::: 01 00 2010 2'::::: 12::::: ?::::: (a.!ic la.% 01 00 2001 1:::::: ;::::: 200000 01 00 2010 1?::::: 12::::: 700000

@. 1o! do you deal !ith the follo!ing items in a #omparative 2alance -heet? (a.!ic la.% (ixed Assets #urrent Assets -hare #apital Sol !ion COM(ARATI2E BA&ANCE S9EET (a.!ic la.% (ixed Assets #urrent Assets -hare #apital 01 00 01 ':::::: 1:::::: 4::::: 01 00 10 4:::::: A::::: ?::::: Inc.#a%# (3) 4 D#c.#a%# (-) R%5 6 <1:::::: <24 31::::: 31: <1::::: <2: 01 00 2001 ':::::: 1:::::: 4::::: 01 00 2010 4:::::: A::::: ?:::::

;. #alculate +rend )ercentages for the follo!ing taking the year 2::' as 2ase Bear9 (a.!ic la.% -ales #ost of -ales 2007 4::::: '::::: 2005 ?::::: '':::: 200: ?4:::: 4::::: 200; @::::: 42:::: 200< ;::::: 4?::::

Sol !ion T.#n/ (#.c#n!a"#% (2007 a% Ba%# '#a.) (a.!ic la.% -ales #ost of -ales 2007 2005 R%5 200: 200; 200< 6 ( Ba%# '#a. 2007) 200 200 200 200 200< 7 1:: 1:: 5 12: 11: : 1$: 124 ; 2:: 1$: 1?: 1':

4::::: ?::::: ?4:::: @::::: ;::::: '::::: '':::: 4::::: 42:::: 4?::::

A. %xplain the 6ature of (inancial -tatements. 2ased on recorded facts Accounting #onventions and )rinciples )ostulates )ersonal Cudgements

1:. What are the functions D Importance of (inancial -tatements? (or the Mana"#$#n!9 (or the Financi#.%9 (or the C.#/i!o.% (or the In=#%!o.% +o take effective decisions +o fulfill the functions of operation and control #ustomerEs (inancial )osition7 -olvency #ustomerEs #redit -tanding and )rofitability %xtension of +rade #redit %arning #apacity >ro!th )otential %fficiency of Management

SECTION B (5 MARKS) 1. (ollo!ing is the )rofit F =oss ADc of -hekar (ibres =imited for the year ended $1.:$.2::A F $1.:$.2:1:. Bou are re.uired to prepare a #ommon -i5e Income -tatement9 (.o+i! > &o%% Acco n! (a.!ic la.% +o #ost of >oods -old To O*#.a!in" E?*#n%#% Administrative -elling +o )rofit Sol !ion@ 0150052001 $:: 1: 14 @4 700 015005201 0 $@4 1: 2: A4 500 (a.!ic la.% 2y 6et -ales 015005200 1 ':: 0150052010 4::

700

500

COMMON SI8E INCOME STATEMENT (a.!ic la.% -ales =ess 9 #ost of -ales >ross )rofit =ess 9 O*#.a!in" E?*#n%#% Administration -elling To!al O*#.a!in" (.o+i! A//@ Non O*#.a!in" Inco$# 01 00 2001 R%5 6 ':: 1:: $:: @4 100 25 1: 14 25 ;5 ;5 ;5 2.4 $.@4 :525 1<5; 5 1<5; 5 1<5; 5 01 00 2010 R%5 6 4:: 1:: $@4 @4 125 25 1: 2: 00 15 15 15 2 ' : 11 11 11

&#%% @ Non O*#.a!in" E?*#n%#% N#! (.o+i!

2. (rom the follo!ing information7 sho! the results of operations of a manufacturing concern using +rend )ercentages !ith 1A;@ as 2ase Bear9 (a.!ic la.% -ales #ost of >oods -old G.o%% (.o+i! -elling %xpenses N#! o*#.a!in" (.o+i! Sol !ion 1110 1$:: @2; 5;2 12: 752 Amount in +housands G&s.H 11<1 11<< 12:: A4: ?A? 4;A 507 0:1 11: A@ 017 2:7 11<; 1::: ?:: 700 1:: 000

TREND (ERCENTAGES FOR INCOME STATEMENT (11<; AS BASE 'EAR)

(a.!ic la.% -ales #ost of >oods -old G.o%% (.o+i! -elling %xpenses N#! o*#.a!in" (.o+i!

A$o 1110 1$:: @2; 5;2 12: 752

n! in T,o %an/% (R%5) 11<1 11<< 11<; 12:: A4: 1::: ?A? 4;A ?:: 507 0:1 700 11: A@ 1:: 017 2:7 000

T.#n/ (#.c#n!a"# ( Ba%# '#a. 11<;) 11<; 11<< 11<1 1110 1:: A4 12: 1$: 1:: A; 11? 121 100 10 12: 170 1:: A@ 11: 12: 100 << 101 151

$. (rom the follo!ing details belo!7 prepare a #ommon -i5e Income -tatement of =ively =imited9 (a.!ic la.% -ales #ost of -ales /perating %xpenses 6on " /perating %xpenses Sol !ion Co$$on SiA# Inco$# S!a!#$#n! o+ &i=#l) &i$i!#/@ (a.!ic la.% -ales =ess 9 #ost of -ales >ross )rofit =ess 9 O*#.a!in" E?*#n%#% O*#.a!in" (.o+i! A//@ Non O*#.a!in" Inco$# &#%% @ Non O*#.a!in" E?*#n%#% N#! (.o+i! 01 00 2001 R%5 6 2::::: 1:: 1::::: 4: 100000 50 2:::: 1: <0000 70 <0000 70 00000 15 50000 25 01 00 2010 R%5 6 4::::: 1:: 22:::: '' 2<0000 5: $:::: ? 250000 50 250000 50 05000 ; 215000 70 '#a. En/in" 0150052001 2::::: 1::::: 2:::: $:::: '#a. En/in" 0150052010 4::::: 22:::: $:::: $4:::

'. (rom the follo!ing data7 you are re.uired to calculate +rend )ercentages taking 2::@ as 2ase Bear9 (a.!ic la.% 200; #ash 1:: ebtors 2:: -tock $:: /ther #urrent Assets 4: =and ':: 2uildings ;:: )lant 1::: To!al 2<50 Sol !ion@ TREND (ERCENTAGES (BASE 'EAR 200;) (a.!ic la.% #ash ebtors -tock /ther #urrent Assets To!al (A) =and 2uildings )lant To!al (B) To!al 200; 1:: 2:: $:: 4: :50 ':: ;:: 1::: 2200 2<50 R%5 in T,o %an/% 200< 2001 12: ;: 24: $24 ':: $4: @4 124 <75 <<0 4:: 4:: 1::: 12:: 1::: 12:: 2500 2100 0075 0;<0 2010 1': ':: 4:: 14: 1110 4:: 14:: 14:: 0500 7:10 T.#n/ (#.c#n!a"# ( Ba%# '#a. 200;) 200; 200< 2001 2010 1:: 12: ;: 1': 1:: 124 1?2.4 2:: 1:: 1$$ 11@ 1?@ 1:: 14: 24: $:: 100 100 10: 1<0 1:: 124 124 124 1:: 124 14: 1;@.4 1:: 1:: 12: 14: 100 117 102 151 1:: 11; 100 1:5 &s. in +housands 200< 2001 12: ;: 24: $24 ':: $4: @4 124 4:: 4:: 1::: 12:: 1::: 12:: 0075 0;<0 2010 1': ':: 4:: 14: 4:: 14:: 14:: 7:10

4. What are the =imitations of (inancial -tatements? Information sho!n in (inancial -tatements is not precise since it is based on conventions and rules developed there from (inancial -tatements are influenced by personal opinions7 Cudgements and sub0ective vie!s and !hims of accountants. (inancial -tatements are dumb because they cannot speak themselves. 2alance -heet of a #oncern is a static document as it discloses the financial position of a concern on a particular date. (inancial -tatements of one period may not be comparable !ith that of statements of other periods due to differences in conditions and changes in economic situation. ?. What are the /b0ectives of Analysis and Interpretation of (inancial -tatements? i. +o interpret the profitability and efficiency of various business activities. ii. +o measure the managerial efficiency of the firm. iii. +o measure short term and long term solvency of the business. iv. +o ascertain earning capacity in future period. v. +o determine future potential of the concern. vi. +o measure utilisation of various Assets vii. +o compare operational efficiency of similar concerns engaged in the same industry.

@. What are the =imitations of (inancial -tatement Analysis? i. 6ature of (inancial -tatements is historical. ii. &esults of Analysis cannot be considered as Cudgements or #onclusion. iii. If (inancial -tatements are manipulated by Windo! ressing7 analysis based on those figures !ill be mis leading or meaning less. iv. &esults of Analysis may be interpreted differently by different users. v. (re.uent changes in Accounting )olicies and Methods makes the statements incomparable. vi. &ising Inflation erodes the value of money in the present day economic situation7 !hich reduces the validity of Analysis.

SECTION C (10 MARKS) 1. %xplain are the +echni.ues and +ools of (inancial -tatement Analysis? Ra!io Anal)%i% An Analysis of (inancial statements based on ratios is kno!n as &atio Analysis A &atio is a mathematical relationship bet!een t!o or more items taken from financial statements. &atio Analysis is the process of computing7 determining and presenting the relationship of items. It is helpful to management and outsiders to diagnose the financial health of a business concern. It helps in measuring the )rofitability7 -olvency and Activity of a firm. Ca%, FloB Anal)%i% #ash (lo! Analysis depicts the Inflo! and /utflo! of #ash. #ash (lo! -tatement is the devise for such Analysis. It highlights causes !hich bring changes in #ash position bet!een t!o 2alance -heet dates. F n/% FloB Anal)%i% (unds (lo! -tatement signifies -ources and Applications of (unds. +he term (unds refers to Working #apital. (unds (lo! Analysis sho!s Internal and %xternal sources of Working #apital and the !ay funds have been used. (unds (lo! Analysis is helpful in 0udging credit !orthiness7 financial planning and budget preparation. Co$*a.a!i=# Financial S!a!#$#n!% +hese -tatements summarise and present related data for a number of years. +hese -tatements normally comprise #omparative )rofit F =oss Account and #omparative 2alance -heet7 #omparative statements of change in +otal capital as !ell as Working capital. +hese statements helps in making inter " period and inter " firm comparison and also highlight the trends in performance efficiency and financial position.

Co$$on SiA# S!a!#$#n!%@ #ommon -i5e -tatements indicate the relationship of various items !ith some common items Gexpressed as a percentage of #ommon itemH. In the income statements7 sales figure is taken as basis and all other figures are expressed as a percentage of sales. -imilarly in the 2alance -heet7 total assets and liabilities is taken as base and all other figures are expressed as percentage of this total. N#! Co.Din" Ca*i!al Anal)%i% -chedule of #hanges in Working #apital is prepared to disclose net changes in !orking capitals on t!o specific dates G>enerally +!o 2alance -heet atesH. It is prepared from #urrent Assets and #urrent =iabilities on the specified dates to sho! net increase or decrease in !orking capital. T.#n/ Anal)%i%@ +rend signifies a tendency and as such the revie! and appraisal of tendency in accounting variables are nothing but trend analysis. +rend Analysis is carried out by calculating +rend &atios and D or by plotting the accounting data on graph paper or chart. +rend Analysis is significant for forecasting and budgeting.

2. (rom the follo!ing 2alance -heets of I =imited 7 Bou are re.uired to prepare a #ommon -i5e 2alance -heet BA&ANCE S9EET AS ON 01ST DECEMBER &ia-ili!i#% %.uity #apital =iability for %xpenses &etained %arnings -undry #reditors ebentures To!al 2001 $::::: A::: 4:::: A1::: 14:::: :00000 2010 12::::: 1@::: $$::: 1::::: 24:::: 1:00000 A%%#!% =and F 2uildings )lant F Machinery -tock ebtors #ash 2ills &eceivable )repaid %xpenses To!al 2001 1::::: $::::: ?:::: 114::: 1:::: 1:::: 4::: :00000 2010 '4:::: @4:::: 21@::: 1?:::: 4::: 14::: $::: 1:00000

Sol !ion
COMMON SI8E BA&ANCE S9EET OF E &IMITED FOR T9E 'EARS 2001 AND 2010

A%%#!%

2001

2010

R%5 FIEED ASSETS =and F 2uildings )lant F Machinery TOTA& (A) CURRENT ASSETS -tock ebtors #ash 2ills &eceivable )repaid %xpenses TOTA&(B) TOTA& (A 3 B) &IABI&ITIES AND CA(ITA& C ..#n! &ia-ili!i#% =iability for %xpenses -undry #reditors TOTA& (A) &on" T#.$ &ia-ili!i#% ebentures TOTA& (B) TOTA& &IABI&ITIES (A 3 B F C) CA(ITA& AND RESER2ES %.uity #apital &etained %arnings TOTA& (D) TOTA& &IABI&ITIES AND CA(ITA& 1::::: $::::: 700000 ?:::: 114::: 1:::: 1:::: 4::: 200000 :00000 A::: A1::: 100000 14:::: 150000 250000 $::::: 4:::: 050000 :00000

6 1?.?@ 4:.:: ::5:; 1:.:: 1A.1@ 1.?@ 1.?@ :.;$ 00500 100500 1.4: 14.1@ 1:5:; 24 25 715:; 4: ;.$$ 5<500 100500

R%5 '4:::: @4:::: 1200000 21@::: 1?:::: 4::: 14::: $::: 700000 1:00000 1@::: 1::::: 11;000 24:::: 250000 0:;000 12::::: $$::: 1200000 1:00000

6 2;.1$ '?.;@ ;5500 1$.4? 1:.:: :.$1 :.A' :.1A 25500 100500 1.:? ?.24 ;501 14.?$ 155:0 22517 @4 2.:? ;;50: 100500

$. )repare a #omparative Income -tatement of *inayaka +ravels =imited for the Bears ending $1st March 2::? and $1st March 2::@ from the follo!ing9 (a.!ic la.% )urchases less &eturns /ther irect %xpenses -ales /ffice %xpenses -elling %xpenses (inance %xpenses )rofit Sol !ion COM(ARATI2E INCOME STATEMENT (a.!ic la.% 01 00 0: 01 00 0; Inc.#a%# (3) 4 D#c.#a%# (-) 01 00 200: ;:::: 2:::: 1;:::: 2:::: 1:::: 1:::: ':::: 01 00 200; 14:::: 4:::: 2?:::: 24::: 14::: ;::: 12:::

-ales GAH 1<0000 2:0000 &#%%@ Co%! o+ Sal#% )urchases less returns ;:::: 14:::: <@:::: <;@.4 /ther irect %xpenses 2:::: 4:::: <$:::: <14: To!al (B) 100000 200000 3100000 <1:: G.o%% (.o+i! (C) F (A) (B) <0000 :0000 -20000 324 A/$ini%!.a!ion E?*#n%#% /ffice %xpenses 2:::: 24::: <4::: <24 -elling %xpenses 1:::: 14::: <4::: <4: To!al (D) 00000 70000 310000 <$$.$$ O*#.a!in" (.o+i! (E) F (C) (D) 50000 20000 -00000 3?: &#%% @ Non O*#.a!in" E?*#n%#% (inance %xpenses 1:::: ;::: 32::: 32: To!al (F) 10000 <000 -2000 32: N#! (.o+i! (E) (F) 70000 12000 2<000 3@: '. (rom the follo!ing 2alance -heets of I =imited 7 Bou are re.uired to prepare a #omparative 2alance -heet BA&ANCE S9EET AS ON 01ST DECEMBER &ia-ili!i#% %.uity #apital ?J )reference #apital &eserves ;J debentures 2ills )ayable -undry #reditors To!al Sol !ion COM(ARATI2E BA&ANCE S9EET OF E &IMITED (a.!ic la.% ASSETS FIEED ASSETS =and F 2uildings )lant F Machinery TOTA& (A) CURRENT ASSETS -tock ebtors #ash TOTA&(B) TOTA& (A 3 B) 2001 ':: ':: <00 2:: 2:: 1:: 500 1000 2010 $@: '1: ;<0 $:: $:: 1': ;70 1520 Inc.#a%# (3) 4 D#c.#a%# (-) R%5 6 3$: <1: -20 <1:: <1:: <': 3270 3220 3@.4 <2.4 -255 <4: <4: <': 37< 31:512 2001 ':: $:: 2:: 1:: 4: 24: 1000 2010 ':: $:: 2'4 14: @4 $4: 1520 A%%#!% =and F 2uildings )lant F Machinery -tock ebtors #ash To!al 2001 ':: ':: 2:: 2:: 1:: 1000 2010 $@: '1: $:: $:: 1': 1520

R%5 <;::::

6 <''.''

&IABI&ITIES AND CA(ITA& C ..#n! &ia-ili!i#% 2ills )ayable -undry #reditors TOTA& (A) &on" T#.$ &ia-ili!i#% ;J ebentures TOTA& (B) TOTA& &IABI&ITIES (A 3 B F C) CA(ITA& AND RESER2ES %.uity #apital ?J )reference -hare #apital &eserves TOTA& (D) TOTA& &IABI&ITIES AND CA(ITA&

4: 24: 000 1:: 100 700 ':: $:: 2:: 100 1000

@4 $4: 725 14: 150 5;5 ':: $:: 2'4 175 1520

<24 <1:: 125 <4: 350 31;5 3 3 <'4 375 3220

<4: <': 3715:; <4: 350 3705;5 3 3 <22.4 35 1:512

UNIT - III

RATIO ANA&'SIS SECTION A (2 MARKS) 1. What is &atio Analysis? A ratio is mathematical relationship bet!een t!o items expressed in 8uantitative form. It is the process of determining and presenting the relationship of items and groups of items in the (inancial -tatements. &atios may be expressed in )roportion7 +imes or )ercentages. 2. What are the advantages of &atio Analysis? (orecasting Managerial #ontrol (acilitates #ommunication Measuring %fficiency (acilitating Investment ecisions ,seful in Measuring (inancial -olvency Inter firm #omparisons $. What are the =imitations of &atio Analysis? &atios are means and not an end. )ractical Kno!ledge re.uired for Analyst. 6on " Availability of -tandards or 6orms %xtent of Accuracy of (inancial Information #onsistency in preparation of (inancial -tatements +ime =ag and #hange in )rice =evel.

'. 1o! do you #lassify &atios by (unction?

(.o+i!a-ili!) Ra!io% >ross )rofit &atio 6et )rofit &atio /perating &atio /perating )rofit &atio

T .no=#. Ra!io% -tock +urnover ebtors +urnover #reditors +urnover Working #apital +urnover

Sol=#nc) Ra!io% )roprietary &atio ebt " %.uity &atio (ixed Assets &atio #apital >earing &atio #urrent &atio =i.uid &atio #ash )osition &atio

SECTION B (5 MARKS)

1. #ompute GaH )ay out ratio and GbH &etained %arnings ratio from the follo!ing data. &s. 6et )rofit )rovision for +ax )reference ividend 6o. of %.uity -hares ividend per %.uity -hare Sol !ion@ 6et )rofit =ess9 )rovision for +ax 6et profit after +ax )reference ividend N#! *.o+i! a+!#. Ta? an/ Di=i/#n/ %arnings per -hare L 1:::: 4::: 3333333 4::: 2::: 3333333 0000 3333333 6et )rofit after +ax F ividend 333333333333333333333333333333333333333 6o. of %.uity -hares L )ay /ut ratio L L L $::: D $::: L &e.1.:: ividend per %.uity -hare D %arnings per -hare x 1:: :.': D 1 x 1:: ':J L L L 1 " )ay /ut &atio 1 " ':J ?:J 1:::: 4::: 2::: $::: &e. :.':

&etained %arnings &atio

2. #alculate -tock +urnover &atio from the follo!ing +rading Account9

(a.!ic la.% +o /pening -tock +o )urchases +o (reight +o >ross )rofit

R%5 ':::: 1::::: 1:::: @:::: 220000

T.a/in" Acco n! (a.!ic la.% 2y -ales 2y #losing -tock

R%5 2::::: 2:::: 220000

Sol !ion@ #ost of >oods -old L L L Average -tock L -ales " >ross )rofit 2::::: " @:::: 1$:::: G/pening stock < #losing -tockH 333333333333333333333333333333333333333 2 L L -tock +urnover &atio L G':::: < 2::::H D 2 $:::: #ost of >oods sold 33333333333333333333333 Average -tock L L 1$:::: D $:::: '.$$ +imes

$. Kuberan F #o. makes both cash and credit sales. (rom the follo!ing information7 #alculate Average #ollection )eriod9 (a.!ic la.% +otal -ales R%5 2:::::

#ash -ales -ales &eturns ebtors G$131232:1:H #reditors G $131232:1:H )rovision for bad debts G$131232:1:H 2ills &eceivable G $131232:1:H 6et #redit -ales L L L Accounts &eceivable L L L ebtors +urnover L L L Average #ollection )eriod L L L

':::: 1'::: 1;::: 2:::: 2::: '::: +otal -ales " #ash -ales " -ales &eturns 2::::: " ':::: " 1'::: 1'?::: 2ills receivable < ebtors 1;::: < '::: 22::: 6et #redit -ales D Accounts &eceivable 1'?::: D 22::: ?.?$? +imes 6o of ays in a Bear D ebtors +urnover $?4 D ?.?$? 44 days

'. (rom the follo!ing figures calculate the #reditors turnover ratio and the average age of Accounts )ayable9 (a.!ic la.% #redit )urchases during 2:1: #reditors on 13132:1: #reditors on $131232:1: 2ills payable on 13132:1: R%5 1::::: 2:::: 1:::: ':::

2ills payable on $131232:1: Sol !ion@ Average #reditors L L L Average 2ills )ayable Average Accounts )ayable #reditors +urnover &atio L L L L L L L Average Age of Accounts )ayable

?:::

G/pening #reditors < #losing #reditorsH D 2 G2:::: < 1::::H D 2 14::: G'::: < ?:::H D 2 4::: Average #reditors < Average 2ills )ayable 14::: < 4::: #redit )urchases D Average Accounts )ayable 1::::: D 2:::: 4 +imes L L L 6o of days in a Bear D #reditors +urnover $?4 D 4 @$ ays

SECTION C (10 MARKS) 1. (rom the (ollo!ing 2alance -heet7 #alculate GaH #urrent &atio. GbH =i.uid &atio. GcH ebt %.uity &atio. GdH )roprietary &atio. 2alance -heet &s. &s.

-hare #apital &eserves ?J ebentures 2ank /verdraft #reditors

4::::: $::::: 11::::: 1::::: 2::::: 2200000

(ixed Assets -tock ebtors #ash

1'::::: 4::::: 2::::: 1::::: 2200000

Sol !ion@ GaH #urrent &atio L #urrent Assets 3333333333333333333 #urrent =iabilities #urrent Assets L-tock < ebtors < #ash L 4:::::<2:::::<1::::: L ;::::: #urrent =iabilities L2ank /verdraft < #reditors L 1::::: < 2::::: L $::::: #urrent &atio L ;:::::D$::::: L 2.?@9 1

GbH =i.uid &atio

=i.uid Assets 333333333333333 #urrent =iabilities

=i.uid Assets L #urrent Assets " -tock L ;::::: " 4::::: L $::::: =i.uid &atio L L $:::::D$::::: 191

GcH ebt %.uity &atio L +otal long3term debt 3333333333333333333333333333

-hareholders funds -hareholders funds L -hare #apital < &eserves < )rofit L 4:::::< $::::: L ;::::: +otal long3term debt L ebentures L 11::::: -hareholders funds L 11::::: 333333333333333 ;::::: L 1.$@49 1 GdH )roprietary &atio L -hare holderEs funds 333333333333333333 +angible assets L ;::::: 3333333333333 22::::: L :.$?9 1

2. #alculate )rofitability &atios9 -ales >ross )rofit Administration expenses -elling expenses =oss on sale of plant ividend received epreciation 6et )rofit Sol !ion@ >ross )rofit &atio L >ross )rofit D -ales x 1:: &s. 1:::::: $::::: 1:::: 2:::: 2::: '::: ?::: 2??:::

L L 6et )rofit &atio L L L /perating &atio L L L L /perating )rofit &atioL L L Co.Din" No!#%

$::::: D 1:::::: x 1:: $:J 6et )rofit D -ales x 1:: 2??::: D 1:::::: x 1:: 2?.?:J G#ost of >oods -old < /perating %xpensesH D -ales x 1:: G@::::: < $?:::H D 1:::::: x 1:: @$?::: D 1:::::: x 1:: @$.?: J /perating )rofit D -ales x 1:: 2?'::: D 1:::::: x 1:: 2?.': J

#ost of >oods -old L-ales " >ross )rofit /perating %xpenses L Administration %xp.< -elling %xp. < epreciation /perating )rofit L >ross )rofit " /perating %xpenses

$. (ollo!ing are the details relating to the trading activities of A =td. -tock *elocity ebtorEs *elocity #reditorEs *elocity >ross )rofit &atio 3 3 3 3 ; months $ months 2 months 24J

>ross profit for the year &s.':::::M 2ills receivable &s.24::: and 2ills payable &s.1::::. #losing -tock of the year is &s.1:::: more than the opening stock. (ind out. GaH -ales GbH ebtors GcH #losing -tock and GdH #reditors Sol !ion@ >ross )rofit &atio . 24 L L >ross )rofit 333333333333333 x 1:: -ales ':::::

3333333333 x 1:: -ales -ales L '::::: x 1:: 33333333333333333 24 Sal#% #ost of >oods -old F L L L -tock +urnover &atio L 1:00000 -ales " >ross )rofit 1?::::: " '::::: 12::::: #ost of >oods -old 333333333333333333333333 Average -tock

12::::: 33333333333333333 Average -tock Average -tock L 12::::: 333333333333 1.4 L =et /pening -tock #losing -tock Average -tock ;::::: L &s. I L &s. I < 1:::: L /pening -tock < #losing -tock 3333333333333333333333333333333333333333 L 1.4 times

2 L I < I < 1:::: 3333333333333333333333 2 ;::::: L 2I < 1:::: 333333333333333333 2 1?::::: 2I I L 2I < 1:::: L 14A:::: L 14A:::: 33333333333 2 I /pening -tock GxH #losing -tock Clo%in" S!ocD ebtors +urnover &atio L L L L F @A4::: @A4::: I < 1:::: @A4::: < 1:::: R%5<05000

L 6et #redit -ales 3333333333333333333 Accounts &eceivable

' times G12D$H

1?::::: 33333333333333333333333333333 Accounts &eceivable

Accounts &eceivable

1?::::: 33333333333 '

L Accounts &eceivable L

'::::: 2ills &eceivable < ebtors

'::::: ebtors D#-!o.% #reditors +urnover

L L F L

24::: < ebtors '::::: " 24::: 0;5000 6et #redit )urchase 3333333333333333333333333 Accounts )ayable

6et #redit )urchases

L L L

#ost of >oods sold < #losing -tock"/pening -tock 12::::: < ;:4::: " @A4::: 121:::: 121:::: 3333333333333333333 Accounts )ayable

? +imes G12D2H

Accounts )ayable

L L

121:::: D ? 2:1??@.

Accounts )ayable 2:1??@ #reditors C.#/i!o.%

L L L F

2ills )ayable < #reditors 1:::: < #reditors 2:1??@ " 1:::: 111::;5

'. (rom the follo!ing details prepare statement of proprietary funds !ith as many details as possible. GiH GiiH GiiiH GivH GvH GviH -tock *elocity #apital +urnover &atio (ixed Assets +urnover &atio >ross )rofit +urnover &atio ebtors *elocity #reditors *elocity L L L L L L ? 2 ' 2: per cent 2 months @$ days

+he >ross )rofit !as &s.?:7:::. &eserves and surplus amount to &s.2:7:::. #losing -tock !as &s.47::: in excess of opening stock. Sol !ion@ >ross )rofit &atio L 2:J >ross )rofit 333333333333333 x 1:: -ales ?:::: 3333333333 -ales -ales L ?:::: x 1:: 333333333333333 2: Sal#% F 000000 #ost of >oods -old L L L -tock +urnover &atio L -ales " >ross )rofit $::::: " ?:::: 2':::: #ost of >oods -old 333333333333333333333333 Average -tock ? L 2':::: 33333333333 Average -tock Average -tock A=#.a"# S!ocD =et opening -tock #losing -tock Average -tock L F 2':::: D ? 70000 L L L 2 I I < 4::: I<I<4::: x 1:: L2: L 2:

33333333333333

'::::

L 2

2I<4:::

333333333333 2I < 4::: 2I I I /pening -tock #losing -tock L L L L L L L L '274:: 6et -ales 33333333333333 (ixed Assets ' L $::::: 33333333333 (ixed Assets (ixed Assets L $::::: 33333333333 ' (ixed Assets ebtors +urnover &atio ebtors +urnover ? L L L L L @4::: 2 Months 12 D 2 ? times 6et #redit -ales 3333333333333333333333 Accounts &eceivable ? L $::::: 33333333333 ;:::: @4::: @4::: D 2 $@4:: $@4:: I < 4:::

$@4:: < 4:::

(ixed Assets +urnover &atio L

Accounts &eceivable Accounts &eceivable ebtors #reditors +urnover L L L L L L 4 L GAssume 2ills &eceivable L 6I=H @$ days $?4 D @$ 4 times 6et #redit )urchase 3333333333333333333333333 Accounts )ayable 6et #redit )urchases L L L #ost of >oods -old <#losing -tock"/pening -tock 2':::: < '24:: " $@4:: 2'4::: $::::: D ? 4:::: 4::::

2'4::: 33333333333333 Accounts )ayable

Accounts )ayable #reditors #apital +urnover &atio 6et -ales 333333333333333333 #apital %mployed 2':::: 3333

L L L L

2'4::: D 4 'A::: 'A::: 2 +imes L 2

GAssume 2ills )ayable L 6I=H

3333333333333333 #apital %mployed #apital %mployed #apital %mployed 12:::: -hare #apital -hare #apital

L L L L L L L

2 2':::: D 2 12:::: -hare #apital < &eserves -hare #apital < 2:::: 12:::: 3 2:::: 1:::::

STATEMENT OF (RO(RIETORGS FUNDS (a.!ic la.% (.o*.i#!o.G% + n/% -hare #apital &eserves and -urplus )roprietorEs funds represented by Fi?#/ A%%#!@ (A) C ..#n! A%%#!%@ -tock ebtors /ther #urrent Assets G2alancing (igureH &#%%@ #urrent =iabilities #reditors 'A::: 'A::: '4::: R%5 R%5 1::::: 2:::: R%5 120000

@4::: '24:: 4:::: 14::

A':::

Co.Din" Ca*i!al (B) #apital %mployed GAH< G2H

120000

4. (rom the follo!ing details7 find out GaH #urrent assets GbH #urrent =iabilities GcH =i.uid assets GdH -tock #urrent &atio 2.4M =i.uid &atio9 1.4M Working #apital &s.A::::. Sol !ion@ #urrent &atio #urrent Assets 333333333333333333 #urrent =iabilities =et #urrent =iabilitiesL #urrent Assets Working #apital L L I 2.4 I #urrent Assets " #urrent =iabilities L 2.4 2.4 L 1 33333

A:::: I

L L

2.4 I " I A:::: 333333333 1.4

1.4 I

I #urrent Assets #urrent Assets =i.uid &atio

L L L L

?:::: :0000 ?:::: x 2.4 14:::: 1.4

C ..#n! &ia-ili!i#% F

=i.uid Assets 333333333333333333 #urrent =iabilities =i.uid Assets 333333333333333333 ?:::: =i.uid Assets -tock L L L L L ?:::: I 1.4 A:::: #urrent Assets " =i.uid Assets 14:::: " A:::: ?::::. L 1.4 L 1.4

UNIT I2 FUNDS F&OC STATEMENTH CAS9 F&OC STATEMENT AND BUDGETAR' CONTRO& SECTION A (2 MARKS) 1. What is N(und (lo! -tatementO? P(lo!E means change. P(undsE is interpreted as P!orking capitalE in the context of funds flo! statement. +hus7 P(unds flo!E is Pchange in !orking capitalE. (lo! of funds implies any changes in !orking capital. +hese changes are a continuous process7 day after day7 as and !hen transactions take place. -o7 the changes in !orking capital may be called P(lo!E. It can be PInflo!E or P/utflo!E of !orking capital. 2. What is Working #apital? >ross Working #apital L +otal of #urrent Assets. 6et Working #apital L %xcess of #urrent Assets over #urrent =iabilities. $. >ive some examples of #urrent Assets? #ash in hand and #ash at 2ank. Accounts &eceivable. Inventories.

Advances recoverable in #ash. )repaid expenses. 3 3 Increases Working #apital ecreases Working #apital ecrease Working #apital Increases Working #apital

'. What are the P)rinciplesE for preparation of Working #apital -tatement? Increase in #urrent Asset ecrease in #urrent Asset

Increase in #urrent =iability 3 ecrease in #urrent =iability 3 4. >ive some examples of #urrent =iabilities? Accounts )ayable. 2orro!ings on -hort term basis. /utstanding expenses. Incomes received in advance. +ax )ayable and ividend )ayable.

?. What is mean by #ash (lo! -tatement? P#ash (lo!E includes cash inflo!s and out flo!s " cash receipts and cash payments " during a period. Movements of cash are vital importance to the management. +he short term li.uidity and short term solvency positions of a firm are dependent on its cash flo!. @. What are the advantages of #ash (lo! -tatement? 1istorical analysis as guide to forecasting. %ffective cash management. (ormulation of financial policies. )reparations of cash budget. -hort term financial decisions. =i.uidity position. &evelations.

;. What are the =imitations of #ash (lo! -tatement? It discloses inflo!s and outflo!s of cash alone.

#ash balance of the #ash flo! statement !ill be altered by postponing payment for purchases to delaying collection of receivables7 etc. 6on cash items of expenses and incomes are excluded in #ash (lo! -tatement. -o it cannot provide a comprehensive picture of a firmEs financial position.

A. #alculate the 6et cash flo! from financing activities from the follo!ing details9 &s. Issue of ebentures for #ash =ong term loan from 2ank &edemption of )ref. shares )urchase of =and 2:::::: 4::::: ?::::: A:::::

Sol !ion@ Co$* !a!ion o+ N#! ca%, +loB +.o$ Financin" Ac!i=i!i#% Issue of ebentures for #ash =ong term loan from 2ank &edemption of )ref. shares 6et cash flo! from (inancing Activities 2:::::: 4::::: G?:::::H 3333333333333 1A7::7::: 333333333333333 1:. #alculate the Amount of depreciation for 2:1:9 )rovision for epreciation on 13132:1: )rovision for epreciation on $131232:1: epreciation on (ixed assets sold during the year &s.2::::: &s.24:::: &s. 2::::

Sol !ion@ &s. )rovision for epreciation on 13132:1: epreciation on (ixed assets sold during the year 2::::: G2::::H 33333333333 1;:::: D#*.#cia!ion +o. !,# '#a. )rovision for epreciation on $131232:1: ;0000 33333333333 24:::: 3333333333

11. Ascertain the Amount of )rofit or =oss on sale of Machinery &s. #ost of Machinery Accumulated depreciation on Machinery -ale value of Machinery Sol !ion@ #ost of Machinery Accumulated depreciation on Machinery 2ook value of Machinery -ale value of Machinery (.o+i! on Sal# o+ Mac,in#.) 1::::: G$::::H 3333333333 @:::: ;4::: 3333333333 15000 3333333333 1::::: $:::: ;4:::

12. #ompute the amount of dividend paid during 2:1:9 &s. )roposed dividend on 13132:1: )roposed dividend on $131232:1: ividend debited to )F= Appropriation aDc Sol !ion )roposed dividend on 13132:1: )roposed dividend on $131232:1: ividend debited to )F= Appropriation aDc 4:::: ':::: ?:7::: 4:::: ':::: ?:7:::

D.5 To Ca%, (Balancin" Fi" .#) +o 2alance cDd ;0000 ':::: 110000 (RO(OSED DI2IDEND A4C 2y 2alance bDd 2y )D= Appropriation ADc 4:::: ?:::: 110000

C.

1$. #ompute the #ash (lo! from /perating Activities9 &s. )F= aDc balance on $13$32:1: )F= aDc balance on $13$32::A +ransfer to >eneral &eserve epreciation on (ixed Assets Sol !ion R%5 )F= aDc as on $13$32:1: )F= aDc as on $13$32::A +ransfer to >eneral &eserve '::::: G24::::H 4:::: '::::: 24:::: 4:::: 1::::

epreciation on (ixed Assets Ca%, FloB +.o$ O*#.a!in" Ac!i=i!i#% 1'. efine 2udget.

1:::: 333333333333 210000 333333333333

I.#.M.A. defines a budget as NA financial and .uantitative statement7 prepared prior to a defined period of time7 of the policy to be pursued during that period for the purpose of attaining a given ob0ective.O 14. What is 2udget? A budget is the monetary and .uantitative expression of business plans and policies to be pursued in the future period of time. A 2udget is an account of probable future Income and %xpenditure. A 2udget is an estimate relating to future period. 1?. efine 2udgeting. N+he entire process of preparing the budgets is kno!n as budgetingO " C.2A++B In the !ords of &o!land and 1arr9 N2udgeting may be said to be the act of building budgetsO. +hus budgeting is a process of making the budget plans. 1@. What are the %ssential (eatures of a 2udget? A budget is a financial statement but it can be a statement of .uantities also !ith or !ithout monetary data. 2udget is prepared for a particular period and it is prepared in advance. 2udget is a detailed plan of the policy to be pursued during the period for !hich the budget is prepared. +he function of the budget is to attain a specific ob0ective. 1;. efine P2udgetary #ontrolE. I.#.M.A defines N2udgetary #ontrolO as Nthe establishment of budgets7 relating the responsibilities of executives to the re.uirements of a policy7 and the continuous comparison of actual !ith budgeted results either to secure by individual action the ob0ectives of that policy or to provide a basis for its revisionO.

SECTION B (5 MARKS) 1. What are the 2enefits of (und (lo! -tatement? It sho!s ho! the funds !ere obtained and used during a period. +he sources are useful in computation of cost of capital of the business. A detailed analysis of sources of funds in the past acts as a guide for obtaining funds for future re.uirements. It gives indication of any !eakness or strength in the general financial position of a firm. It thro!s light on the financial conse.uences of business operations. It can be compared !ith relevant budgets to assess the usage of funds as per plans. 2. What are the =imitations of (und (lo! -tatement? 1. It is historical in nature. 2. It is nothing but Psecondary dataE. $. It is a summarised presentation of figures and cannot provide information about changes on a continuous basis.

'. +he effect of transactions bet!een current assets and liabilities is not sho!n in the -tatement. 4. It also ignores transactions bet!een long term assets and liabilities. ?. It is not generally considered as a sophisticated techni.ue of financial analysis.

$.

istinction bet!een (unds (lo! -tatement and 2alance sheet Balanc# S,##! It sho!s the position of assets and liabilities . It sho!s the real and personal accounts of a business7 reflected in the assets and liabilities. It aims at depicting the financial position of a business. It is the culmination of the accounting process of a period !hich is useful to stakeholders. It is based on the +rial 2alance and additional information relating to a firm. It is prepared after the income statement is completed.

F n/% FloB S!a!#$#n! It sho!s changes in !orking capital bet!een t!o 2alance -heet dates. It sho!s only those items !hich cause changes in !orking capital. It aims at presenting flo! of funds over a period. It is a tool for financial analysis !hich is useful to the management. It is based on the data forming part of the income statement and the 2alance -heet. It is prepared after the financial accounts are completed.

'. What are the -ources and Applications of funds? SOURCES OF FUNDS I. Internal sources G1H (unds from operations II. %xternal -ources A((&ICATIONS OR USES OF FUNDS G1H )urchase of fixed assets G2H )urchase of =ong term Investments G$H &edemption of preference shares

G1H Issue of %.uity shares G2H Issue of )reference shares G$H Issue of ebentures G'H )ublic deposits accepted G4H =ong3tern loans from banks and other institutions G?H -ale of fixed assets G@H -ale of long term investments

G'H &edemption of debentures. G4H &epayment of long3term loans7 bank loans and public deposits G?H )ayment of dividend. G@H )ayment of tax liability G;H /utflo! of funds on account of operations.

4. #alculation (unds from /perations from the follo!ing )rofit F =oss ADc (a.!ic la.% +o %xpenses )aid +o epreciation +o =oss on -ale of 2uilding +o iscount +o >ood!ill +o 6et profit R%5 1::::: ':::: 144:: 4:: 12::: 42::: 220000 (a.!ic la.% 2y >ross )rofit 2y >ain on -ale of Machinery R%5 2::::: 2::::

220000

Sol !ion Co$* !a!ion o+ F n/% +.o$ O*#.a!ion% 6et )rofit for the Bear A//@ >ood!ill Written off epreciation on Machinery =oss on -ale of 2uilding 9 9 9 12::: ':::: 144:: ?@4:: 33333333 11A4:: &#%%@ >ain on -ale of Machinery 9 2:::: 33333333 9 42:::

F n/% +.o$ O*#.a!ion%

11500 3333333

?. (ollo!ing are the 2alance -heets of a #ompany as on $1st ecember 2::A and $1st ecember 2:1:. Bou are re.uired to #alculate (unds form /perations9 (a.!ic la.% )rofit F =oss Appropriation ADc >eneral &eserve >ood!ill )reliminary %xpenses )rovision for epreciation on Machinery Sol !ion Co$* !a!ion o+ F n/% +.o$ O*#.a!ion% #losing 2alance of profit F =oss Appropriation ADc 9 ':::: $:::: 333333333 6et )rofit for the Bear A//@ +ransfer to >eneral &eserve >ood!ill Written off )reliminary %xpenses !ritten off epreciation on Machinery F n/% +.o$ O*#.a!ion% 9 9 9 9 4::: 4::: 2::: 2::: 1'::: 33333333 27000 33333333 9 1:::: =ess9 /pening 2alance of profit F =oss Appropriation ADc 9 01 12 2001 $:::: 2:::: 1:::: ?::: 1:::: 01 12 2010 ':::: 24::: 4::: '::: 12:::

@. (rom the follo!ing information relating to 2right =imited7 #alculate (unds lost in /perations9 6et =oss for the Bear ividend &eceived epreciation #harged )rofit on -ale of Assets &efund of +ax Sol !ion Co$* !a!ion o+ F n/% &o%! in O*#.a!ion% 6et =oss for the Bear A//@ epreciation #harged 9 1:::: 33333333 G;::::H &#%%@ ividend &eceived )rofit on -ale of Assets &efund of +ax (unds =ost in /perations 9 9 9 @::: 4::: 2::: 1'::: 33333333 GA':::H 33333333 ;. #alculation (unds from /perations from the follo!ing )rofit F =oss ADc (a.!ic la.% +o -alaries +o &ent +o #ommission +o iscount Allo!ed +o )rovision for epreciation +o +ransfer to >eneral &eserve +o =oss on -ale of Investments +o )rovision for +axation +o iscount on Issue of ebentures +o )reliminary %xpenses R%5 1:::: $::: 2::: 1::: 1'::: 2:::: 4::: 1:::: 2::: $::: (a.!ic la.% 2y >ross )rofit 2y )rofit on -ale of Machines 2y ividend &eceived 2y &efund of +ax R%5 2::::: 4::: 2::: $::: 9 GA::::H 9 9 9 9 9 A:::: @::: 1:::: 4::: 2:::

+o -elling %xpenses +o 6et )rofit

2:::: 12:::: 210000 210000

Sol !ion Co$* !a!ion o+ F n/% +.o$ O*#.a!ion% 6et )rofit for the Bear A//@ )rovision for epreciation +ransfer to >eneral &eserve =oss on -ale of Investments )rovision for +axation iscount on Issue of ebentures )reliminary %xpenses 9 9 9 9 9 9 1'::: 2:::: 4::: 1:::: 2::: $::: 4'::: 3333333 1@'::: &#%%@ )rofit on -ale of Machinery ividend &eceived &efund of +ax (unds from /perations A. 9 9 9 9 4::: 2::: $::: 1:::: 33333333 1?'::: 333333333 istinguish bet!een (und (lo! Analysis and #ash (lo! Analysis. CAS9 F&OC ANA&'SIS )repared by based on the cash concept of PfundsE Accounting is based on Pcash conceptE or cash basis of accounting It sho!s the cash position over the same accounting period FUND F&OC ANA&'SIS )repared by based on the !orking capital concept of PfundsE Accounting is based on PAccrual conceptE or accrual basis of accounting It differentiate bet!een t!o period of balance sheet dates 9 12::::

(und flo! is more useful for =ong term decision making.

#ash flo! is more useful in short term financial decisions.

1:. (rom the follo!ing balances you are re.uired to calculate #ash from /perating Activities. (a.!ic la.% ebtors 2ills &eceivable #reditors 2ills )ayable /utstanding %xpenses )repaid %xpenses Accrued Income Income received in advance )rofit made during the year Sol !ion@ Co$* !a!ion o+ Ca%, +.o$ O*#.a!in" Ac!i=i!i#% 6et )rofit for the Bear9 ecrease in ebtors ecrease in )repaid expenses Increase in #reditors Increase in /utstanding expenses Increase in 2ills &eceivable Increase in Accrued Income ecrease in 2ills )ayable ecrease in Income received in Advance Ca%, +.o$ O*#.a!in" Ac!i=i!i#% 1$:::: $::: 1:: 4::: 2:: G24::H G14:H G2:::H G4:H 333333333 100:00 --------01-12-2001 R%5 4:::: 1:::: 2:::: ;::: 1::: ;:: ?:: $:: 3 01-12-2010 R%5 '@::: 124:: 24::: ?::: 12:: @:: @4: 24: 1$::::

11. What are the /b0ectives of 2udgetary #ontrol? )lanning #oordination %fficiency and %conomy Increase in )rofitability Anticipation of future capital expenditure #ontrol eviations o Maximisation of )rofits o %ffective #oordination o %valuation of %xecutive )erformance o #lear3#ut >oals and +argets o %conomy in /perations o &evelation of Ineffectiveness o #orrection of )erformance #ontinuously o Introduction of Incentive -chemes of &emuneration o -hutting o!n of unprofitable products and activities. 1$. What are the =imitations of 2udgetary #ontrol? o )rediction of uncertain future o #hanges of #onditions o #omplacence o ifficulty in #oordination

12. What are the Advantages of 2udgetary #ontrol?

o #onflict among ifferent epartments

1'. What are the %ssentials of 2udgetary #ontrol? o +op Management -upport o #learly defined /rganisational structure o %fficient Accounting -ystem o &eporting of eviation o Motivation o &ealistic +argets o )articipation of all epartment #oncerned o (lexibility 14. What are the )reliminary steps for Installation of 2udgetary #ontrol -ystem in /rganisation? o /rganisation for 2udgeting o 2udget #ontroller o 2udget #ommittee o 2udget #entres o 2udget Manual o 2udget )eriod o o etermination of Key factor etermination of Key factor

1?. What are the -teps for Installation of 2udgetary #ontrol -ystem in /rganisation? o Making (orecasts o %valuation of Alternative #ombination of (actors o )reparation of *arious (unctional 2udgets o )reparation of Master 2udget

1@. 1o! are 2udgets #lassified? A5 Acco./in" !o Ti$# 1. =ong3+erm 2udgets 2. -hort3+erm 2udgets $. #urrent 2udgets 2. Ba%#/ on F nc!ion% 1. (unctional or -ubsidiary budgets )urchase 2udget #ash 2udget )roduction 2udget -ales 2udget Materials 2udget 2. Master 2udget #. 2a%i% o+ Fl#?i-ili!) 1. (ixed 2udget 2. (lexible 2udget 1;. What are the types of 2udgets? -ales 2udget )roduction 2udget Materials 2udget =abour 2udget /verhead budget &esearch and development budget #apital %xpenditure 2udget #ash 2udget

1A. +he follo!ing figures relating to product P uperE for the .uarter ending $13$3 2:1: are available9 2udgeted sales9 Canuary $7::7::: ,nits (ebruary 27':7::: ,nits March $7?:7::: ,nits -tock position9 13132:1: " 4:J of CanuaryEs 2udgeted sales. $13$32:1: " ;:7::: units $13132:1: " ':J of (ebruaryEs 2udgeted sales. 2;3232:1: " ?:J of MarchEs 2udgeted sales. Bou are re.uired to prepare a production budget for the .uarter ending $13$32:1:. Sol !ion

(.o/ c!ion B /"#! +o. !,# I a.!#. En/in" 01 00 - 2010

Particulars Budgeted Sales Add: Desired Closing Stock January 300000 96000 396000 Less: sti!ated "#ening Stock Budgeted $roduction %&nits' 150000 246000 February 240000 216000 456000 96000 360000 March 360000 80000 440000 216000 224000

2:. (rom the follo!ing figures7 )repare &a! Materials )urchase 2udget. (a.!ic la.% A %stimated /pening stock %stimated #losing stock %stimated #onsumption -tandard )rice per ,nitG&s.H 1?7::: 2:7::: 172:7::: :.24 Ma!#.ial% in Uni!% B C ?7::: 2'7::: ;7::: 2;7::: ''7::: 17$27::: :.:4 :.14

D 27::: '7::: $?7::: :.1:

Sol !ion
Particulars sti!ated Consu!#tion Add: Desired Closing Stock A 120000 20000 140000 Less: sti!ated "#ening Stock Budgeted Production !nits" $urc(ase $rice #er &nit Purchase Cost 16000 124000 0)25 #1000 B 44000 8000 52000 6000 46000 0)05 2#00 C 132000 28000 160000 24000 1#6000 0)15 20400 D 36000 4000 40000 2000 #$000 0)10 #$00

21. A manufacturing unit plans to sell 171:7::: units in the first !eek7 172:7::: units in the second !eek7 17$:7::: units in the third !eek and 17':7::: units in the 'th !eek. At the beginning of the 1st !eek there are 1'7::: units in stock. At the end of each !eek the company plans to have an inventory e.ual to one fifth of the sales of the next !eek. 1o! many units must be manufactured in each !eek? Sol !ion
Particulars sti!ated Sales Add: Closing Stock %ee& ' 110000 24000 134000 Less: "#ening Stock Budgeted $roduction %&nits' 14000 120000 %ee& '' 120000 26000 146000 24000 122000 %ee& ''' 130000 28000 158000 26000 132000

)roduction for 'th Week cannot be computed because Week * closing stock cannot be found.

22. )repare a )roduction 2udget from the follo!ing information )roduct %stimated -tock /n 13131: & , ) Sol !ion@ (.o/ c!ion B /"#! +o. (.o/ c!% RH SH U an/ ( +o. I a.!#. En/in" Ma.c, 2010
Particulars sti!ated Sales Add: Desired Closing Stock ( 10000 3000 1#000 Less: sti!ated "#ening Stock Budgeted Production !nits" 2000 11000 ) 15000 5000 20000 3000 1*000 ! 13000 3000 16000 4000 12000 P 12000 2000 14000 3000 11000

%stimated sales during Can to Mar 2:1: GunitsH 1:7::: 147::: 1$7::: 127:::

esired -tock /n $13$31: GunitsH $7::: 47::: $7::: 27:::

GunitsH 27::: $7::: '7::: $7:::

2$. +he sales director of (uture )roblem F #o. reports that next year he expects to sell 17::7::: units of a particular product. +he )roduction Manager consults the store keeper and casts his figures as follo!s9 +!o kinds of ra! materials P)E and P8E are re.uired for manufacturing the product. %ach unit of the product re.uires 2 units of ) and $ units of 8. +he estimated opening balances at the commencement of next year are (inished product &a! material P)E &a! material P8E 3 3 3 2:7::: units 2'7::: units $:7::: units

+he desirable closing balances at the end of next year are9

(inished product &a! material P)E &a! material P8E year. Sol !ion@

3 3 3

2;7::: units 2?7::: units $27::: units

)repare production budget and materials purchase budget for the next

%stimated )roduction 9 %stimated -ales < esired #losing -tock " %stimated /pening -tock 9 1::::: < 2;::: " 2:::: 9 1:;::: ,nits MATERIA&S (URC9ASE BUDGET (a.!ic la.% %stimated #onsumption Add9 esired #losing -tock =ess9 %stimated /pening -tock 2udgeted )urchases G,nitsH RaB Ma!#.ial ( (In Uni!%) 21?::: G1:;::: x 2H 2?::: 272000 2'::: 21<000 RaB Ma!#.ial I (In Uni!%) $2'::: G1:;::: x $H $2::: 05:000 $:::: 02:000

2'. What are the important elements of )erformance 2udgeting? =aying do!n of /b0ectives #lassification of Activities (ixation of -tandards Accounting -ystem ecentralised &esponsibility -tructure and elegation )erformance &eporting

SECTION C (10 MARKS) 1. +he financial position of Cayanth on $1st ec. of 2::A and 2:1: !as as follo!s9 A%%#!% =and 2uildings Machinery ebtors -tock #ash &ia-ili!i#% #reditors =ong3term =oan #apital 01-12-2001 R%5 247::: '47::: A:7::: $27::: 1;7::: '7::: 2H17H000 '27::: 247::: 17'@7::: 2H17H000 01-12-2010 R%5 247::: 4?7::: A47::: 2?7::: 1$7::: 27::: 2H1;H000 2474:: 2:7::: 17@174:: 2H1;H000

uring the year 2:1:7 Cayanth has !ithdra!n &s.;74:: for personal use. epreciation provision on machinery !as &s.2;7::: on $131232::A and &s.$47::: on $131232:1:. Bou are re.uired to prepare a (unds (lo! -tatement.

Sol !ion SC9EDU&E OF C9ANGES IN CORKING CA(ITA& 0150152010 C ..#n! A%%#!% ebtors $27::: 0151252010 2?7::: CORKING CA(ITA& (R%5) INCREASE DECREASE ?:::

-tock #ash C ..#n! &ia-ili!i#% #reditors TOTA&

1;7::: '7::: '2:::

1$7::: 27::: 244:: 1?4:: 1:500

4::: 2:::

NET INCREASE IN CORKING CA(ITA& 20000 Co$* !a!ion o+ F n/% +.o$ O*#.a!ion% 6et )rofit for the Bear A//@ epreciation on Machinery F n/% +.o$ O*#.a!ion% FUNDS F&OC STATEMENT SOURCES@ (unds from /perations TOTA& A((&ICATIONS )urchase of 2uildings )urchase of Machinery &epayment of =ong +erm =oan ra!ings made during the year Increase in Working #apital TOTA& 9 9 9 9 9 11::: 12::: 4::: ;4:: $4:: 333333333 70000 333333333 2. (rom the follo!ing 2alance -heets7 )repare (unds (lo! -tatement &ia-ili!i#% #reditors Mrs. -omuEs =oan =oan from #anara 2ank 1-1-10 R%5 ':::: 24::: ':::: 01-12-10 R%5 ''::: 3 4:::: A%%#!% #ash ebtors -tock 1-1-10 R%5 1:::: $:::: $4::: 9 ':::: 333333333 70000 333333333 9 9 $$::: @::: 333333333 70000 333333333

10000 3500 20000

01-12-10 R%5 @::: 4:::: 24:::

#apital

124:: :

14$:::

Machinery =and 2uildings

;:::: ':::: $4::: 200000

44::: 4:::: ?:::: 27;000

20000 0

27;000

uring the year a machine costing &s.1:7:::Gaccumulated depreciation &s.$7:::H !as sold for &s.47:::.+he )rovision for depreciation against machinery as on 13132:1: !as &s.247::: and on $131232:1: !as &s.':7:::. 6et profit for the year 2:1: amounted to &s.'47:::. )repare the (unds (lo! -tatement. Sol !ion SC9EDU&E OF C9ANGES IN CORKING CA(ITA& 0150152010 C ..#n! A%%#!% #ash ebtors -tock C ..#n! &ia-ili!i#% #reditors TOTA& NET INCREASE IN CORKING CA(ITA& 20000 20000 1:::: $:::: $4::: 0151252010 @::: 4:::: 24::: CORKING CA(ITA& (R%5) INCREASE DECREASE $::: 2:::: 1:::: '::: 1;000 3000 20000

Co$* !a!ion o+ F n/% +.o$ O*#.a!ion% 6et )rofit for the Bear A//@ epreciation on Machinery =oss on sale of Machinery F n/% +.o$ O*#.a!ion% 9 9 9 1;::: 2::: '4::: 2:::: 333333333 :5000 333333333

FUNDS F&OC STATEMENT SOURCES@ (unds from /perations -ale of Machinery =oan from #anara 2ank TOTA& A((&ICATIONS )urchase of 2uildings )urchase of =and &epayment of Mrs.-omuEs =oan ra!ings made during the year Increase in Working #apital TOTA& 9 9 9 9 9 24::: 1:::: 24::: 1@::: $::: 333333333 <0000 333333333 9 9 9 ?4::: 4::: 1:::: 333333333 <0000 333333333

$. (rom the follo!ing 2alance -heets7 )repare (unds flo! -tatement9 &ia-ili!i#% %.uity -hare #apital )reference -hare #apital >eneral &eserve )rofit F =oss ADc )roposed ividend #reditors 2ills )ayable 2001 $::::: 14:::: ':::: $:::: '2::: 44::: 2:::: 2010 '::::: 1::::: @:::: ';::: 4:::: ;$::: 1?::: A%%#!% >ood!ill 2uildings )lant ebtors -tock 2ills &eceivable #ash in 1and 2001 114::: 2::::: ;:::: 1?:::: @@::: 2:::: 14::: 2010 A:::: 1@:::: 2::::: 2::::: 1:A::: $:::: 1::::

)rovision for +axation

':::: :;;000 A//i!ional In+o.$a!ion@ 1.

4:::: <1;000

#ash at 2ank

1:::: :;;000

;::: <1;000

epreciation on )lant &s.1:::: and on 2uildings &s.2:::: charged in 2:1:

2. An Interim ividend of &s.2:::: !as paid in 2:1:. $. Income +ax of &s.$4::: !as paid during 2:1:. Sol !ion SC9EDU&E OF C9ANGES IN CORKING CA(ITA& C ..#n! A%%#!% 2001 2010 CORKING CA(ITA& (R%5) INCREASE DECREASE ':::: $2::: 1:::: 4::: 2::: 2;::: $4::: 51000 ;?:::

ebtors 1?:::: 2::::: -tock @@::: 1:A::: 2ills &eceivable 2:::: $:::: #ash in 1and 14::: 1:::: #ash at 2ank 1:::: ;::: C ..#n! &ia-ili!i#% #reditors 44::: ;$::: 2ills )ayable 2:::: 1?::: '::: TOTA& ;?::: NET INCREASE IN CORKING CA(ITA& ;?:::

Co$* !a!ion o+ F n/% +.o$ O*#.a!ion% #losing 2alance of )rofit F =oss Appropriation ADc 9 ';::: $:::: 333333333 N#! (.o+i! +o. !,# '#a. A//@ +ransfer to >eneral &eserve )rovision for +axation >ood!ill !ritten off Interim ividend paid )roposed ividend epreciation on )lant epreciation on 2uildings 9 9 9 9 9 9 9 $:::: '4::: 24::: 2:::: 4:::: 1:::: 2:::: 2::::: 9 1;::: =ess9 /pening 2alance of )rofit F =oss Appropriation ADc 9

333333333 F n/% +.o$ O*#.a!ion% 3

FUNDS F&OC STATEMENT SOURCES@

21<000 33333333

Issue of %.uity -hare #apital (unds from /perations -ale of 2uildings

9 9 9

1::::: 21;::: 1:::: 333333333 02<000 333333333

A((&ICATIONS

&edemption of )reference -hares )urchase of )lant Income +ax paid Interim ividend paid )roposed ividend Increase in Working #apital

9 9 9 9 9 9

4:::: 1$:::: $4::: 2:::: '2::: 41::: 333333333 02<000 333333333

'. -enthil *elavan #orporation made a profit of &s.$7@:724: after considering the follo!ing9

(a.!ic la.% epreciation on (ixed Assets )rovision for +ax =oss on -ale of Machine +ransfer to >eneral &eserve )rovision for oubtful ebts )rofit on sale of (ixed Assets Amortisation of evelopment #ost +he follo!ing additional information is given to you9 )articulars $131232::A &s. #reditors 2:::: 2ills payable 14::: /utstanding expenses @::: ebtors $?::: 2ills receivable 12::: )repaid expenses 1?:: Bou are re.uired to determine #ash from /perating Activities. Sol !ion

R%5 @4:: 4:::: ?:: 2:::: 12:: 24:: 4::: $131232:1: &s. 24::: 1$::: ?::: $A::: 1:4:: 1@::

CAS9 FROM O(ERATING ACTI2ITIES 6et )rofit for the Bear +ransfer to reserve )rovision for +axation $@:24: 2:::: 4:::: 33333333 N#! *.o+i! -#+o.# Ta? an/ E?!.a O./ina.) I!#$% 770250 epreciation on (ixed Assets =oss on sale of Machinery )rovision for doubtful debts Amortisation of evelopment #ost )rofit on -ale of (ixed Assets /perating profit before Working #apital changes Increase in #reditors ecrease in 2ills )ayable ecrease in /utstanding %xpenses @4:: ?:: 12:: 4::: G24::H 33333333333 '42:4: 4::: G2:::H G1:::H

Increase in ebtors ecrease in 2ills &eceivable Increase in )repaid %xpenses

G$:::H 14:: G1::H 3333333333 '42'4:

Income +ax paid Ca%, +.o$ O*#.a!in" Ac!i=i!i#%

4:::: 333333333 702750 333333333

6ote9 %ntire )rovision for +ax is assumed to be paid off as +ax. )rovision for oubtful debts is not reduced from ebtors

4. +he #omparative 2alance -heets of Mr. Wheldon for the t!o years !ere as follo!s9 &ia-ili!i#% #apital =oan from 2ank #reditors 2ills payable =oan from I(# 2001 R%5 14::: : 1?::: : A:::: 4:::: 2010 R%5 1@4::: 1::::: 1::::: ':::: 24::: 770000 A%%#!% =and F 2uildings Machinery -tock ebtors #ash 2001 R%5 11:::: 2::::: 4:::: @:::: 2:::: 750000 2010 R%5 14:::: 1':::: '4::: ;:::: 24::: 770000

75000 0

uring the year a machine costing &s.247:::Gaccumulated depreciation &s.1:7:::H !as sold for &s.1$7:::.+he )rovision for depreciation against machinery as on $131232::A !as &s.4:7::: and on $131232:1: !as &s.;47:::. 6et profit for the year 2:1: amounted to &s.?:7:::. )repare a #ash (lo! -tatement.

CAS9 F&OC STATEMENT (AS 0) O*#.a!in" Ac!i=i!i#% 6et )rofit for the Bear epreciation =oss on -ale of Machinery O*#.a!in" (.o+i! -#+o.# Co.Din" Ca*i!al C,an"#% ecrease in -tock Increase in ebtors Increase in #reditors ecrease in 2ills )ayable Ca%, +.o$ O*#.a!in" Ac!i=i!i#% In=#%!in" Ac!i=i!i#% )urchase of =and F 2uildings -ale of Machinery G'::::H 1$::: G2@:::H ?:::: '4::: 2::: 333333333 1:@::: 4::: G1::::H 1:::: G1::::H 3333333333 1:2:::

33333333 @4::: Financin" Ac!i=i!i#% =oan from I(# &epayment of 2ank =oan ra!ings 24::: G?::::H G$4:::H G@::::H 333333333 4::: #ash and #ash %.uivalents at the beginning of the Bear #ash and #ash %.uivalents at the end of the Bear 2:::: 333333333 24::: 333333333

?. (rom the follo!ing 2alance -heets7 )repare #ash flo! -tatement9 &ia-ili!i#% %.uity -hare #apital )reference -hare #apital >eneral &eserve )rofit F =oss ADc )roposed ividend #reditors 2ills )ayable )rovision for +axation 2001 $::::: 14:::: ':::: $:::: '2::: 44::: 2:::: ':::: :;;000 Additional Information9 2010 '::::: 1::::: @:::: ';::: 4:::: ;$::: 1?::: 4:::: <1;000 A%%#!% >ood!ill 2uildings )lant ebtors -tock 2ills &eceivable #ash in 1and #ash at 2ank 2001 114::: 2::::: ;:::: 1?:::: @@::: 2:::: 14::: 1:::: :;;000 2010 A:::: 1@:::: 2::::: 2::::: 1:A::: $:::: 1:::: ;::: <1;000

epreciation on )lant &s.1:::: and on 2uildings &s.2:::: charged in 2:1: An Interim ividend of &s.2:::: !as paid in 2:1:. Income +ax of &s.$4::: !as paid during 2:1:.

Sol !ion 6et )rofit for the Bear +ransfer to reserve )rovision for +axation Interim ividend )roposed ividend 6et profit before +ax and %xtra /rdinary Items epreciation on (ixed Assets >ood!ill Written off /perating profit before Working #apital changes Increase in ebtors Increase in 2ills &eceivable Increase in -tock Increase in #reditors ecrease in 2ills )ayable 1;::: $:::: '4::: 2:::: 4:::: 33333333 1?$::: $:::: 24::: 33333333333 21;::: G'::::H G1:::: H G$2::: H 2;::: G':::H 3333333333 1?:::: Income +ax paid $4:::

333333333 #ash from /perating Activities In=#%!in" Ac!i=i!i#% -ale of 2uildings )urchase of )lant 1:::: G1$::::H G12::::H 33333333333 4::: Financin" Ac!i=i!i#% Issue of %.uity -hare #apital &edemption of )reference -hare #apital Interim ividend )roposed ividend 1::::: G4::::H G2::::H G'2:::H G12:::H 33333333 G@:::H #ash and #ash %.uivalents at the beginning of the Bear G#ash < 2ank L 14::: < 1::::H 33333333 Ca%, an/ Ca%, EJ i=al#n!% a! !,# #n/ o+ !,# '#a. G#ash < 2ank L 1:::: < ;:::H 1<000 33333333 24::: 124:::

@. /n the basis of the follo!ing particulars7 dra! up a flexible budget for overhead expenses and determine the overhead rates at @:J ;:J and A:J plant capacity. (a.!ic la.% 2a.ia-l# O=#.,#a/%@ Indirect =abour Indirect Materials S#$i-2a.ia-l# O=#.,#a/%@ )o!erG$:J (ixedH &epairsG':J (ixedH 3 3 2:7::: 27::: 3 3 3 3 127::: '7::: 3 3 ;06 R%5 <06 R%5 106 R%5

Fi?#/ O=#.,#a/%@ epreciation Insurance -alaries To!al O=#.,#a/ E?*#n%#% %stimated irect =abour 1ours 3 3 3 3 3 117::: $7::: 1:7::: :2H000 172'7::: 3 3 3 3 3

Sol !ion
F&EEIB&E BUDGET FOR O2ER9EAD EE(ENSES AT ;06H <06 AND 106 CA(ACIT' &E2E&S

(a.!ic la.% 2a.ia-l# O=#.,#a/% Indirect =abour Indirect Materials TOTA& (A) S#$i-2a.ia-l# O=#.,#a/%@ (oB#. *ariable (ixed R#*ai. *ariable (ixed TOTA& (B) Fi?#/ O=#.,#a/% epreciation Insurance -alaries TOTA& (C) To!al O=#.,#a/% (A 3 B 3 C) E%!i$a!#/ Di.#c! &a-o . ,o .% O=#.,#a/ Ra!# *#. 9o .

;06 R%5 1:4:: $4:: 17000 1224: ?::: 1:4: ;:: 20100 11::: $::: 1:::: 27000 5<100 1:;4:: 05505

<06 R%5 12::: '::: 1:000 1'::: ?::: 12:: ;:: 22000 11::: $::: 1:::: 27000 :2000 12'::: 05500

106 R%5 1$4:: '4:: 1<000 14@4: ?::: 1$4: ;:: 20100 11::: $::: 1:::: 27000 :5100 1$A4:: 057;2

;. +he expenses budgeted for production of 1:7::: units in a factory are furnished belo!9 (a.!ic la.% Materials =abour *ariable /verheads (ixed /verheads G&s.17::7:::H *ariable %xpenses G irectH -elling %xpenses G1:J (ixedH istribution %xpenses G2:J (ixedH Administration %xpenses G4:7:::H G(ixed for all levelsH To!al Co%! *#. Uni! (!o $aD# an/ %#ll) )repare a (lexible 2udget for ?::: ,nits and ;::: ,nits (#. Uni! R%5 @: 24 2: 1: 4 1$ @ 4 155

Sol !ion

F&EEIB&E BUDGET FOR T9E (RODUCTION OF 10000H <000 AND :000 UNITS

(a.!ic la.%

10000 ni!% (#. Uni! To!al R%5 @: 24 2: 1: 4 11.@ 1.$ 4.? 1.' 4.: 155500 R%5 @::::: 24:::: 2::::: 1::::: 4:::: 11@::: 1$::: 4?::: 1'::: 4:::: 1550000

<000 ni!% (#. Uni! To!al R%5 @: 24 2: 12.4 4 11.@: 1.?24 4.?: 1.@4 ?.24 1515725 R%5 4?:::: 2::::: 1?:::: 1::::: ':::: A$?:: 1$::: '';:: 1'::: 4:::: 12;5700

:000 ni!% (#. Uni! To!al R%5 @: 24 2: 1?.?@ 4 11.@ 2.1@ 4.? 2.$$ ;.$$ 1::5<0 R%5 '2:::: 14:::: 12:::: 1::::: $:::: @:2:: 1$::: $$?:: 1'::: 4:::: 1000<00

Materials =abour *ariable /verheads (ixed /verheads *ariable %xpenses S#llin" E?*#n%#% *ariable (ixed Di%!.i- !ion E?*#n%#% *ariable (ixed A/$ini%!.a!ion E?*#n%#% G(ixedH To!al

A. With the follo!ing data for ?:J activity7 prepare a budget at ;:J activity. )roduction at ?:J #apacity 3 Materials =abour irect %xpenses (actory %xpenses 3 3 3 3 ?:: units &s.1:: per unit &s.': per unit &s.1: per nit &s.':7::: G':J fixedH

Administration %xpenses Sol !ion

&s.$:7::: G?:J fixedH

F&EEIB&E BUDGET FOR T9E (RODUCTION OF :00 AND <00 UNITS

(a.!ic la.%

:06 ca*aci!) - :00 ni!% (#. Uni! To!al R%5 1:: ': 1: ': 2?.?@ 2: $: 2::5:; ?:::: 2'::: ?::: 2'::: 1?::: 12::: 1;::: 1:0000

<06 ca*aci!) - <00 ni!% (#. Uni! To!al R%5 1:: ': 1: ': 2: 2: 22.4 25255 ;:::: $2::: ;::: $2::: 1?::: 1?::: 1;::: 202000

Materials =abour irect %xpenses Fac!o.) E?*#n%#% *ariable (ixed A/$ini%!.a!ion E?*#n%#% *ariable (ixed TOTA&

1:. A firms expects to have &s.247::: in 2ank on 1st May 2::A and re.uires you to prepare an estimate of cash position during the $ months. May3Culy 2::A. +he follo!ing information is made available9 Mon!,% Sal#% ( .c,a%# R%5 $:7::: $27::: $47::: ':7::: ':7::: Ca"#% R%5 ?7::: ?74:: @7::: A7::: A74:: Fac!o.) E?*#n%#% R%5 March 4:7::: April 4?7::: May ?:7::: Cune ;:7::: Culy A:7::: O!,#. In+o.$a!ion@ R%5 47::: 474:: ?7::: @74:: ;7::: O++ic# E?*#n%#% R%5 '7::: '7::: '7::: '7::: '7::: S#llin" E?*#n%#% R%5 $7::: $7::: $74:: '74:: '74::

i. 2:J of -ales is for #ash7 remaining amount is collected in the month follo!ing that of sale. ii. -uppliers supply goods at 2 months credit. iii. All expenses are paid in the month follo!ing the one in !hich they are incurred. iv. +he company pays ividends to -hareholders and 2onus to Workers of &s.1:7::: and &s.147::: respectively in the month of May. v. )lant has been ordered and is expected to be received in Cune. It !ill cost &s.;:7::: vi. Income +ax &s.247::: is payable in Culy.

Sol !ion CAS9 BUDGET FOR T9REE MONT9S ENDING 01ST KU&' 2001 (a.!ic la.% /pening #ash 2alance A//@ E%!i$a!#/ Ca%, R#c#i*!% #ash -ales #ash &eceivable from ebtors TOTA& RECEI(TS To!al Ca%, A=aila-l# (I) &#%%@ E%!i$a!#/ Ca%, (a)$#n!% #ash payable to -uppliers Wages (actory %xpenses /ffice %xpenses -elling %xpenses ividends to -hareholders Ma) 24::: 12::: '';:: 5:<00 <1<00 $:::: @::: 44:: '::: $::: 1:::: K n# @$:: 1?::: ';::: :7000 ;1000 $2::: A::: ?::: '::: $4:: 3 K l) G?$2::H 1;::: ?'::: <2000 1<<00 $4::: A4:: @4:: '::: '4:: 3

2onus to Workers )ayment for )lant Income +ax TOTA& (A'MENTS (II) Clo%in" Ca%, Balanc#

14::: 3 3 ;7500 ;000

3 ;:::: 3 107500 (:0200)

3 3 24::: <5500 (::;00)

O=#./.a+! O=#./.a+! 6ote9 -ince nothing is mentioned about lag in payment of Wages7 they are assumed to be paid in respective months

11. )repare #ash 2udget for Months of April7 May and Cune from the follo!ing data. MONT9S SA&ES (URC9ASES CAGES (ebruary 17;:7::: 172'7;:: 127::: March 17A27::: 17''7::: 1'7::: April 17:;7::: 27'$7::: 117::: May 17@'7::: 27'?7::: 1:7::: Cune 172?7::: 27?;7::: 147::: 1. 4:J of credit sales is realised in the month follo!ing the sale and the other 4:J in the second month follo!ing. 2. #reditors are paid in the month follo!ing the month of purchase. $. Wages are paid at the end of the respective month. '. #ash at bank " 1st April " &s.247:::. Sol !ion CAS9 BUDGET FOR T9REE MONT9S ENDING 00!, KUNE (a.!ic la.% /pening #ash 2alance A//@ E%!i$a!#/ Ca%, R#c#i*!% Ca%, R#c#i=a-l# +.o$ D#-!o.% (ebruary March April May A*.il 25000 A:::: A?::: 3 3 Ma) 5:000 3 A?::: 4'::: 3 K n# (7;000) 3 3 4'::: ;@:::

TOTA& RECEI(TS To!al Ca%, A=aila-l# (I) &#%%@ E%!i$a!#/ Ca%, (a)$#n!% #ash payable to -uppliers Wages TOTA& (A'MENTS (II) Clo%in" Ca%, Balanc#

1<:00 0 21100 0 1'':: : 11::: 15500 0 5:000

150000 20:000

171000 17000

2'$::: 1:::: 250000 (7;000)

2'?::: 14::: 2:1000 (1:;000)

O=#./.a+! O=#./.a+! 12. )repare a -elling /verheads 2udget from the %stimates given belo!9 &s. Advertisement -alaries to the department %xpenses of the sales department GfixedH -alaries and earness allo!ance #arriage /ut!ards estimated at 4J on sales. AgentEs #ommission " ? 1D2 J on sales. +he -ales during the period !ere estimated as follo!s9. &s.;:7::: including AgentEs sales &s.A:7::: including AgentEs sales &s.17::7::: including AgentEs sales Sol !ion SE&&ING O2ER9EADS BUDGET (a.!ic la.% Fi?#/ S#llin" O=#.,#a/% Advertisement -alaries %xpenses -alaries and earness Allo!ance E%!i$a!#/ Sal#% R%5<0000 R%510000 R%5100000 1::: 1::: @4: $::: 1::: 1::: @4: $::: 1::: 1::: @4: $::: &s.;7::: &s.1:7::: &s.1:74:: 17::: 17::: @4: $7:::

#ommission at 1J on sales effected Gother than those of agentsH

To!al Fi?#/ O=#.,#a/% (A) 2a.ia-l# S#llin" O=#.,#a/% #ommission G/ther than those of AgentsH #arriage /ut!ards #ommission to Agents To!al 2a.ia-l# O=#.,#a/% (B) To!al S#llin" O=#.,#a/%

5;50 @2: '::: 42: 5270 10110

5;50 ;:: '4:: ?4: 5150 11;00

5;50 ;A4 4::: ?;2.4 :5;;550 1202;550

UNIT 2 CA(ITA& BUDGETING SECTION A (2 MARKS) 1. What is #apital 2udgeting? #apital 2udgeting refers to =ong +erm )lanning for9 a. Investment in )ro0ects and (ixed Assets b. Methods of (inancing the approved )ro0ects 2. efine #apital 2udgeting. N#apital 2udgeting is the firmEs formal process for the ac.uisition and investment of #apitalO " 1ampton Cohn.C N#apital 2udgeting is =ong +erm planning for making and (inancing proposed capital outlaysO " #harles +.1orn>ren $. What are the important aspects of #apital 2udgeting ecisions? i. #ash outflo! needed for a proposal ii. &e.uired return on Investments iii. Measurement of &eturns from Investment )roposals iv. &anking of Investment )roposals v. Assessment of &isk or ,ncertainty involved in pro0ects. '. What are the methods of #apital 2udgeting T.a/i!ional M#!,o/%@ i. )ay 2ack Method ii. Accounting &ate of &eturn Method Di%co n!#/ Ca%, FloB M#!,o/%@ 6et present *alue Method

)rofitability Index Method iii. Internal &ate of &eturn Method

4. #ompute )ay 2ack period for the follo!ing /riginal Investment 9 Annual #ash (lo! Sol !ion )ay 2ack )eriod L L L /riginal Investment D Annual #ash (lo! $:::: D 14::: 2 Bears 9 &s.$:::: &s.14:::

?. A pro0ect costs &s.4::::: and yields annually a profit of &s.;:::: after epreciation at 12J per annum but before tax at 4:J. #alculate )ay 2ack )eriod. Sol !ion )rofit after epreciation before +ax =ess9 +ax at 4:J of )rofits 9 9 &s.;:::: &s.':::: 333333333333P &s.':::: AddM epreciation Q12J on &s.4::::: Annual #ash Inflo!s )ay 2ack )eriod L L L Sol !ion 9 9 &s.?:::: 333333333333 &s.1::::: 3333333333333 #ost of the )ro0ect DAnnual #ash (lo! 4::::: D 1::::: 5 Bears

@. #alculate present values at 1:J per annum for a period of 4 Bears.

'#a. 1 2 $ '

(.#%#n! 2al # o+ R#51

A! 106 Di%co n!in" Fac!o. 1.::: x 1:: D 11: L :.A:A :.A:A x 1:: D 11: L :.;2? :.;2? x 1:: D 11: L :.@41 :.@41 x 1:: D 11: L :.?;$ :.?;$ x 1:: D 11: L :.?21 ;. An Investment proposal is expected to result in an average annual Income of &s.?7::7::: after depreciation and tax. If the Investment needed is &s.$:7::7::: initially7 compute A&& on original Investment. Sol !ion Accounting &ate of &eturn on /riginal Investment L Annual Income after epreciation and +ax 3333333333333333333333333333333333333333333333333333 I 1:: /riginal Investment L ?::::: 333333333 $:::::: A. A )ro0ect re.uires an Investment of &s.'::::: and it is estimated to result in cash inflo!s of &s.';:::: after discounting at #ost of #apital rate of 1:J. #ompute the 6et )resent *alue and )rofitability Index. -hould the )ro0ect be accepted? 6et )resent *alue L L L )resent *alue of #ash Inflo!s " #ost of the )ro0ect ';:::: " '::::: &s.;:::: I 1:: L 2:J

#onclusion9 )ro0ect is to be accepted because of positive 6.).* )rofitability Index L L L )resent *alue of #ash Inflo!s D #ost of the )ro0ect ';:::: D '::::: 1.2:

#onclusion9 )ro0ect is to be accepted because )rofitability Index is more than 1.

1:. A #ompany has an Investment /pportunity costing &s.':::: !ith the follo!ing expected net cash flo! Gafter tax and before depreciationH '#a. N#! Ca%, In+loB% 1 @::: 2 @::: $ ;::: ' A::: 4 ;::: ? A::: @ 1:::: etermine the )ay 2ack )eriod Sol !ion@ '#a. 1 2 $ ' 4 ? @ Initial Investment )ay 2ack )eriod 9 9 9 Ca%, In+loB @::: @::: ;::: A::: ;::: A::: 1:::: C $ la!i=# Ca%, In+loB @::: 1'::: 22::: $1::: $A::: 70000 ';::: 4;::: &s.':::: 4 Bears < 1::: D A::: 4.11 Bears

SECTION B (5 MARKS) 11. What are the features of #apital 2udgeting? It involves investment of (unds in the present for achieving future benefits (uture benefits are usually spread over several years Investment of (unds is in =ong +erm activities !hich are usually 6on " (lexible +he )ro0ect in !hich the Investment is to be made !ill determine the financial future of the organisation. %ach pro0ect involves huge amount of (unds #apital %xpenditure ecisions are Irreversible.

12. What are the factors influencing #apital 2udgeting ecisions? Availability of (unds (uture %arnings =egal #ompulsions egree of ,ncertainty of &isk ,rgency &esearch and evelopment )ro0ects /bsolescence #ompetitorEs Activities Intangible factors

1$. %xplain the Importance of #apital 2udgeting? 1uge Amount of Investments )ermanent and Irreversible commitment of (unds =ong term Impact on )rofitability >ro!th and %xpansion #ost /ver &uns Alternatives Multiplicity of *ariables

+op Management Activity SECTION C (10 MARKS)

1. %xplain the methods of #apital 2udgeting. TRADITIONA& MET9ODS@ (a) BacD M#!,o/ It is also called )ay out Method. It is the time span in !hich a pro0ect Ppays for itselfE through surplus cash flo!s. It is the period !ithin !hich investment in (ixed Assets can be recovered. M#.i!%@ -imple to ,nderstand %asy to #alculate =oss through obsolescence is minimised as short term pro0ects are preferred. D#$#.i!%@ It ignores post payback period returns It completely ignores time value of money. It does not measure profitability. It does not make use of #ost of #apital. Acco n!in" Ra!# o+ R#! .n M#!,o/ +his method takes into account the total earnings expected from an Investment proposal over its full time. +he method is called Accounting &ate of &eturn Method because it uses the accounting concept of )rofit. M#.i!%@ %asy to ,nderstand and /perate Measures )rofitability Method is based on net %arnings D#$#.i!%@ It ignores time value of money.

&eliability of A.&.& method is affected due to various concepts of Investment DISCOUNTED CAS9 F&OC MET9ODS@ N#! *.#%#n! 2al # M#!,o/ It recogni5es the time value of money. #ash flo!s arising at different periods of time are not comparable unless their e.uivalent present values are found. +he net present values of all inflo!s and outflo!s of cash occurring during the entire life of a pro0ect is determined by discounting these flo!s by the firmEs cost of capital or some other pre3determined rate. M#.i!%@ It recogni5es the time value of Money It considers earnings over the entire life of the )ro0ect !hich makes true assessment of profitability possible. D#$#.i!% It is complicated to understand and operate. #omparing different pro0ects !ith different Investments becomes difficult. (.o+i!a-ili!) In/#? M#!,o/ It is also called 2enefits #ost &atio. It is only a refinement of Net (resent 2alue Method. It sho!s the relationship bet!een present value of cash inflo!s and present value of #ash outflo!s. +his method is also kno!n as %xcess )resent value Index Method. M#.i!% It is useful in ranking t!o or most pro0ects It recogni5es the time value of Money It considers earnings over the entire life of the )ro0ect !hich makes true assessment of profitability possible. More suitable for comparative assessment of )ro0ects D#$#.i!% It is complicated to understand and operate. #omparing different pro0ects !ith different Investments becomes difficult.

In!#.nal Ra!# o+ R#! .n M#!,o/ Internal &ate of &eturn is that rate of return at !hich the present values of #ash Inflo!s and #ash /utflo!s are e.ual. I.&.& discounts the total cash flo!s to the level of Rero. M#.i!% It takes into account +ime *alue of Money It considers the profitability of a pro0ect over its entire economic life. #ost of #apital is not a pre3re.uisite for applying I.&.& method It provides for ranking of various proposals because it is a percentage return D#$#.i!% iscounting rate is unkno!n factor +he assumption of I.&.& that the earnings are re3invested at I.&.& for the remaining life of the pro0ect is not a 0ustifiable assumption.

2. *i0ay F #o. is considering investing in a pro0ect re.uiring a capital outlay of &s.2:::::. (orecast for annual income after depreciation but before tax is as follo!s9 '#a. 1 2 $ ' 4 R%5 1::::: 1::::: ;:::: ;:::: '::::

epreciation may be taken as 2:J on original #ost and taxation at 4:J of net income. Bou are re.uired to evaluate the pro0ect according to each of the follo!ing methods9 1. )ay 2ack Method 2. &ate of &eturn on /riginal Investment $. &ate of &eturn on Average Investment '. iscounted #ash (lo! Method G#ost of #apital 1:JH 4. %xcess )resent *alue Index. Sol !ion@ (a.!ic la.% Annual Income after epreciation 2efore +ax =ess9 +axation Q4:J Annual Income after epreciation and after +ax Add9 epreciation Q2:J of the #ost of the )ro0ect Annual #ash Inflo!s '#a. 1 1::::: 4:::: 50000 ':::: 10000 '#a. 2 1::::: 4:::: 50000 ':::: 10000 '#a. 0 ;:::: ':::: 70000 ':::: <0000 '#a. 7 ;:::: ':::: 70000 ':::: <0000 '#a. 5 ':::: 2:::: 20000 ':::: :0000

15 (a) BacD (#.io/@

'#a. 1 2 $ ' 4 Initial Investment )ay 2ack )eriod

Ca%, In+loB A:::: A:::: ;:::: ;:::: ?:::: 9 9 9

C $ la!i=# Ca%, In+loB A:::: 1;:::: 200000 2?:::: $':::: ':::::

&s.2::::: 2 Bears < 2:::: D ;:::: 2.24 Bears

25 Ra!# o+ R#! .n on O.i"inal In=#%!$#n! Accounting &ate of &eturn on /riginal Investment L I 1:: /riginal Investment L L ':::: D 2::::: x 1:: 2:J L G4:::: < 4:::: < ':::: < ':::: < 2::::H D 4 L ':::: 05 Ra!# o+ R#! .n on A=#.a"# In=#%!$#n! Accounting &ate of &eturn on /riginal Investment L I 1:: Average Investment L L ':::: D 1::::: x 1:: ':J L G4:::: < 4:::: < ':::: < ':::: < 2::::H D 4 Average Annual Income GAfter epreciation and +axH 333333333333333333333333333333333333333333333333333333333333333 Average Annual Income GAfter epreciation and +axH 333333333333333333333333333333333333333333333333333333333333333

6ote9 Average Annual Income

6ote9 Average Annual Income

L ':::: Average Investment L L '#a. 1 2 $ ' 4 Ann al Ca%, In+loB% R%5 A:::: A:::: ;:::: ;:::: ?:::: /riginal Investment D 2 2::::: D 2 L &s.1:::::

75 Di%co n!#/ Ca%, FloB M#!,o/ (Co%! o+ Ca*i!al 106) (52 o+ R#51 a! 106 (D5C5F) :.A:A :.;2? :.@41 :.?;$ :.?21 (.#%#n! 2al # o+ Ca%, In+loB% R%5 ;1;1: @'$': ?::;: 4'?': $@2?: 00<100

)resent *alue of the )ro0ect 9 G3H#ost of the )ro0ect 6et )resent *alue 55 E?c#%% (.#%#n! 2al # In/#? 9 9

&s.$:;1$: &s.2::::: &s.1:;1$:

%xcess )resent *alue Index L )resent *alue of #ash Inflo!s D #ost of the )ro0ect L L $:;1$: D 2::::: 1.4'1

D#ci%ion@ T,# (.oL#c! i% acc#*!a-l# on !,# -a%i% o+ all !,# $#!,o/%

$. A choice is to be made bet!een t!o competing proposals !hich re.uire an e.ual investment of &s.4:::: and are expected to generate net cash flo!s as under9 %nd of Bear )ro0ect I )ro0ect II

1 2 $ ' 4 ?

&s. 24::: 14::: 1:::: 6il 12::: ?:::

&s. 1:::: 12::: 1;::: 24::: ;::: ':::

+he #ost of #apital of the #ompany is 1:J. Which )ro0ect should be chosen? Why? %valuate the )ro0ect )roposals under9 Sol !ion@ 15 (a) BacD (#.io/@ '#a. 1 2 $ ' 4 ? Ca%, In+loB 24::: 14::: 1:::: 6il 12::: ?::: (.oL#c! I C $ la!i=# Ca%, In+loB 24::: ':::: 50000 4:::: ?2::: ?;::: Ca%, In+loB 1:::: 12::: 1;::: 24::: ;::: '::: (.oL#c! II C $ la!i=# Ca%, In+loB 1:::: 22::: ':::: 50000 ?4::: @$::: @@::: )ay 2ack Method iscounted #ash (lo! Method

(.oL#c! I Initial Investment )ay 2ack )eriod (.oL#c! II Initial Investment )ay 2ack )eriod 9 9 9 &s.4:::: $ Bears < 1:::: D 24::: $.' Bears 9 9 &s.4:::: $ Bears

D#ci%ion

(.oL#c! I i% -#!!#. -#ca %# o+ &oB#. (a) BacD (#.io/5

25 Di%co n!#/ Ca%, FloB M#!,o/ (Co%! o+ Ca*i!al 106) (.oL#c! I '#a. 1 2 $ ' 4 ? Ann al Ca%, In+loB% R%5 24::: 14::: 1:::: 6il 12::: ?::: (52 o+ R#51 a! 106 (D5C5F) :.A:A :.;2? :.@41 :.?;$ :.?21 :.4?' TOTA& R%5507:1 &s.4:::: R%507:1 (.#%#n! 2al # o+ Ca%, In+loB% R%5 22@24 12$A: @41: : @'42 $$;' 507:1

(.#%#n! 2al # o+ !,# (.oL#c!@ G3H#ost of the )ro0ect N#! (.#%#n! 2al # E?c#%% (.#%#n! 2al # In/#? 9 @

%xcess )resent *alue Index L )resent *alue of #ash Inflo!s D #ost of the )ro0ect L L 4$'?1 D 4:::: 1.:?A

(.oL#c! II '#a. 1 2 $ ' 4 ? Ann al Ca%, In+loB% R%5 1:::: 12::: 1;::: 24::: ;::: '::: (52 o+ R#51 a! 106 (D5C5F) :.A:A :.;2? :.@41 :.?;$ :.?21 :.4?' TOTA& (.#%#n! 2al # o+ Ca%, In+loB% R%5 A:A: AA12 1$41; 1@:@4 'A?; 224? 5:<11

(.#%#n! 2al # o+ !,# (.oL#c!@ G3H#ost of the )ro0ect N#! (.#%#n! 2al # E?c#%% (.#%#n! 2al # In/#? 9 @

R%55:<11 &s.4:::: R%5:<11

%xcess )resent *alue Index L )resent *alue of #ash Inflo!s D #ost of the )ro0ect L L 4?;1A D 4:::: 1.1$?

D#ci%ion@ (.oL#c! II i% -#!!#. -#ca %# o+ ,i",#. N(2 an/ (.o+i!a-ili!) In/#? +o. !,# %a$# In=#%!$#n!

'. K =imited considers purchasing any one of the follo!ing t!o alternative machines. +he details are as given belo!9 (ARTICU&ARS #ost of Machine =ife +ime GBearsH -avings in -crap -avings in =abour A//i!ional Co%! *#. Ann $ -upervision Maintenance Indirect Materials +ax &ate MAC9INE E &s.?::::: ' &s.A:::: &s.2;:::: &s.2:::: &s.12::: &s.;::: 4:J MAC9INE ' &s.1:::::: 4 &s.1::::: &s.$?:::: &s.$:::: &s.2:::: &s.1:::: 4:J

,sing iscounted #ash (lo! Method7 prepare a statement of )rofitability and recommend the profitable machine. G iscounting (actor 12JH

STATEMENT OF (ROFITABI&IT' (ARTICU&ARS MAC9INE E INCOME A R%5 -avings in -crap A:::: -avings in =abour 2;:::: TOTA& (A) 0;0000 A//i!ional Co%! B -upervision 2:::: Maintenance 12::: Indirect Materials ;::: TOTA& (B) 70000 Inco$# -#+o.# D#*.#cia!ion > Ta? 000000 =ess9 epreciation 14:::: (Co%! o+ Mac,in# 4 &i+# Ti$#) Inco$# a+!#. D#*.#cia!ion -#+o.# Ta? =ess9 +ax Q4:J 6et Income Gafter epreciation F +axH Add 9 epreciation N#! Ann al Ca%, In+loB% MAC9INE E 1<0000 A:::: 10000 14:::: 270000

MAC9INE ' R%5 1::::: $?:::: 7:0000 $:::: 2:::: 1:::: :0000 700000 2::::: 200000 1::::: 100000 2::::: 000000

'#a. 1 2 $ '

Ann al Ca%, In+loB% R%5 2':::: 2':::: 2':::: 2'::::

(52 o+ R#51 a! 126 (D5C5F) :.;A$ :.@A@ :.@12 :.?$A TOTA&

(.#%#n! 2al # o+ Ca%, In+loB% R%5 21'$2: 1A12;: 1@:;;: 14$$?: ;21<70

(.#%#n! 2al # o+ !,# (.oL#c!@ G3H#ost of the )ro0ect N#! (.#%#n! 2al # E?c#%% (.#%#n! 2al # In/#? 9 @

R%5;21<70 &s.?::::: R%5121<70

%xcess )resent *alue Index L )resent *alue of #ash Inflo!s D #ost of the )ro0ect L L MAC9INE E '#a. 1 2 $ ' 4 Ann al Ca%, In+loB% R%5 $::::: $::::: $::::: $::::: $::::: (52 o+ R#51 (.#%#n! 2al # o+ Ca%, In+loB% R%5 2?@A:: 2$A1:: 21$?:: 1A1@:: 1@:1:: 10<2700 a! 126 (D5C5F) :.;A$ :.@A@ :.@12 :.?$A :.4?@ TOTA& (.#%#n! 2al # o+ !,# (.oL#c!@ R%510<2700 G3H#ost of the )ro0ect N#! (.#%#n! 2al # E?c#%% (.#%#n! 2al # In/#? %xcess )resent *alue Index L )resent *alue of #ash Inflo!s D #ost of the )ro0ect L L D#ci%ion@ Mo/#l E i% -#!!#. -#ca %# o+ ,i",#. N#! (.#%#n! 2al # an/ 9i",#. (.#%#n! 2al # In/#?5 1:;2':: D 1:::::: 1.:;2' 9 @ &s.1:::::: R%5<2700 @2A;': D ?::::: 1.21?'

MODE& IUESTION (A(ER - 1 SECTION A G1: I 2 L 2/ MA&K-H A6-W%& A6B +%6 8,%-+I/6A== 8,%-+I/6- #A&&B %8,A= MA&K1. efine Management Accounting 2. What are (unds from operations? $. What is a #ash (lo! -tatement? '. What are the types of Analysis of (inancial -tatements? 4. 1o! do you sho! the follo!ing items in a #ommon -i5e Income -tatement? (a.!ic la.% 01 00 2001 01 00 2010 -ales 2::::: '::::: =ess9 #ost of -ales 1':::: 2':::: ?. A )ro0ect re.uires an Investment of &s.?::::: and it is estimated to result in cash inflo!s of &s.?@4::: after discounting at #ost of #apital rate of 1:J. #ompute the 6et )resent *alue and )rofitability Index. -hould the )ro0ect be accepted? @. #alculate )resent *alue of &e.1 at 12J iscounting factor for 4 Bears ;. efine 2udget. A. What is )ayback )eriod? 1:. What is 6et )resent *alue? 11. #alculate -tock +urnover ratio #ost of >oods -old -ales Average -tock Issue of -hares 9 9 9 9 &s.?4::: &s.1::::: &s.14::: &s.1::::: &s.2::::: &s.1;::::

12. (rom the follo!ing information )repare (unds (lo! -tatementM (unds from /perations &edemption of ebentures

Increase in Working #apital &s.12::::

SECTION B G4 I 4 L 24 MA&K-H A6-W%& A6B (I*% 8,%-+I/6A== 8,%-+I/6- #A&&B %8,A= MA&K1$. istinction bet!een (inancial Accounting and Management Accounting. 1'. (rom the follo!ing details belo!7 prepare a #ommon -i5e Income -tatement of =ively =imited9 (a.!ic la.% -ales #ost of -ales /perating %xpenses 6on " /perating %xpenses '#a. En/in" 0150052001 $4:::: 2::::: ?:::: 24::: '#a. En/in" 0150052010 44:::: $$:::: ;:::: '4:::

14. #ompute GaH )ay out ratio and GbH &etained %arnings ratio from the follo!ing data. &s. 6et )rofit )rovision for +ax )reference ividend 6o. of %.uity -hares ividend per %.uity -hare #alculate Average #ollection )eriod9 (a.!ic la.% +otal -ales #ash -ales -ales &eturns ebtors G$131232:1:H #reditors G $131232:1:H )rovision for bad debts G$131232:1:H 2ills &eceivable G $131232:1:H R%5 2::::: ':::: 1'::: 1;::: 2:::: 2::: '::: 1:::: 4::: 2::: $::: &e. :.':

1?. Kuberan F #o. makes both cash and credit sales. (rom the follo!ing information7

1@. #alculation (unds from /perations from the follo!ing )rofit F =oss ADc

(a.!ic la.% +o %xpenses )aid +o epreciation +o =oss on -ale of 2uilding +o iscount +o >ood!ill +o 6et profit

R%5 1::::: ':::: 144:: 4:: 12::: 42::: 220000

(a.!ic la.% 2y >ross )rofit 2y >ain on -ale of Machinery

R%5 2::::: 2::::

220000

1;. (rom the follo!ing balances you are re.uired to calculate #ash from /perating Activities. (a.!ic la.% ebtors 2ills &eceivable #reditors 2ills )ayable /utstanding %xpenses )repaid %xpenses Accrued Income Income received in advance )rofit made during the year 01-12-2001 R%5 4:::: 1:::: 2:::: ;::: 1::: ;:: ?:: $:: 3 01-12-2010 R%5 '@::: 124:: 24::: ?::: 12:: @:: @4: 24: 1$::::

1A. +he follo!ing figures relating to product P uperE for the .uarter ending $13$3 2:1: are available9 2udgeted sales9 Canuary $7::7::: ,nits (ebruary 27':7::: ,nits March $7?:7::: ,nits -tock position9 13132:1: " 4:J of CanuaryEs 2udgeted sales. $13$32:1: " ;:7::: units

$13132:1: " ':J of (ebruaryEs 2udgeted sales. 2;3232:1: " ?:J of MarchEs 2udgeted sales. Bou are re.uired to prepare a production budget for the .uarter ending $13$32:1:.

SECTION C G$ I 1: L $: MA&K-H A6-W%& A6B +1&%% 8,%-+I/6A== 8,%-+I/6- #A&&B %8,A= MA&K2:. (rom the follo!ing 2alance -heets of I =imited 7 Bou are re.uired to prepare a #ommon -i5e 2alance -heet BA&ANCE S9EET AS ON 01ST DECEMBER &ia-ili!i#% 2001 2010 A%%#!% 2001 2010

%.uity #apital =iability for %xpenses &etained %arnings -undry #reditors ebentures To!al

$::::: A::: 4:::: A1::: 14:::: :00000

12::::: 1@::: $$::: 1::::: 24:::: 1:00000

=and F 2uildings )lant F Machinery -tock ebtors #ash 2ills &eceivable )repaid %xpenses To!al

1::::: $::::: ?:::: 114::: 1:::: 1:::: 4::: :00000

'4:::: @4:::: 21@::: 1?:::: 4::: 14::: $::: 1:00000

21. (ollo!ing are the details relating to the trading activities of A =td. -tock *elocity ebtorEs *elocity #reditorEs *elocity >ross )rofit &atio 3 3 3 3 ; months $ months 2 months 24J

>ross profit for the year &s.':::::M 2ills receivable &s.24::: and 2ills payable &s.1::::. #losing -tock of the year is &s.1:::: more than the opening stock. (ind out GaH -ales GbH ebtors GcH #losing -tock and GdH #reditors

22. (rom the follo!ing 2alance -heets7 )repare (unds (lo! -tatement &ia-ili!i#% #reditors Mrs. -omuEs =oan =oan from #anara 2ank #apital 1-1-10 R%5 ':::: 24::: ':::: 124::: 01-12-10 R%5 ''::: 3 4:::: 14$::: A%%#!% #ash ebtors -tock Machinery =and 2uildings 1-1-10 01-12-10 R%5 R%5 1:::: @::: $:::: 4:::: $4::: 24::: ;:::: 44::: ':::: 4:::: $4::: ?:::: 200000 27;000 200000 27;000 uring the year a machine costing &s.1:7:::Gaccumulated depreciation &s.$7:::H !as

sold for &s.47:::.+he )rovision for depreciation against machinery as on 13132:1: !as

&s.247::: and on $131232:1: !as &s.':7:::. 6et profit for the year 2:1: amounted to &s.'47:::. )repare the (unds (lo! -tatement. 2$. +he expenses budgeted for production of 1:7::: units in a factory are furnished belo!9 (a.!ic la.% Materials =abour *ariable /verheads (ixed /verheads G&s.17::7:::H *ariable %xpenses G irectH -elling %xpenses G1:J (ixedH istribution %xpenses G2:J (ixedH Administration %xpenses G4:7:::H G(ixed for all levelsH To!al Co%! *#. Uni! (!o $aD# an/ %#ll) (#. Uni! R%5 @: 24 2: 1: 4 1$ @ 4 155

)repare a (lexible 2udget for ?::: ,nits and ;::: ,nits 2'. *i0ay F #o. is considering investing in a pro0ect re.uiring a capital outlay of &s.2:::::. (orecast for annual income after depreciation but before tax is as follo!s9 '#a. 1 2 $ ' 4 R%5 1::::: 1::::: ;:::: ;:::: '::::

epreciation may be taken as 2:J on original #ost and taxation at 4:J of net income. Bou are re.uired to evaluate the pro0ect according to each of the follo!ing methods9 )ay 2ack Method &ate of &eturn on /riginal Investment &ate of &eturn on Average Investment

iscounted #ash (lo! Method G#ost of #apital 1:JH %xcess )resent *alue Index