St.Joseph’s college of commerce (autonomous)

End semester examination – APRIL 2013

BBM – VI SEMESTER

MANAGEMENT ACCOUNTING

Duration : 3 hours                                                                                                Marks: 100

 

SECTION – A

1. Answer ALL the following questions.                                                    (10 x 2 = 20)

 

1. State two differences between a FFS and a CFS.
2. How will you treat interest received on investments under the indirect method of a cash flow statement?
3. Explain the term notional flow of cash with an example.
4. M. company presents the following information and you are required to calculate funds from operations:

 

Profit and Loss Account Rs.
To Operational Expenses	1,00,000	By Gross Profit	2,00,000
To Depreciation	40,000	By Gain on Sale of Plant	20,000
To Loss on Sale of building	10,000
To Advertisement Suspense A/c	5,000
To Discount (allowed to customers)	500
To Discount on Issue of Shares written off	500
To Goodwill	12,000
To Net Profit	52,000
	2,20,000		2,20,000

 

5. A firm’s current assets and current liabilities are Rs.24,000 and Rs.6,000 respectively. How much can it borrow from a bank without reducing its current ratio below 1.5?

 

6. What is Trend Analysis?

 

7. What is meant by capital gearing ratio?

 

8. Distinguish between Management Accounting and Financial Accounting on the basis of
9. Period of reporting ii)  Users of information.

 

9. How are routine reports different from special reports?

 

10. Assuming the current ratio of a company is 2, state with reasons in each case whether the ratio will improve or decline or will have no change.
11. Payment of current liabilities ii) Purchase of fixed assets.

                                  SECTION – B

 

1. Answer any FOUR  Each carries 5 marks.                           (4×5=20)

 

11. The following is the Profit & Loss Account of I.T.R. Co., for the year 2012 and its previous year:

I.T.R. Co.

Profit & Loss Account

 

Particulars	2011	2012	Particulars	2011	2012
	Rs.	Rs.		Rs.	Rs.
To Cost of Sales	4,63,250	4,83,899	By Sales	7,21,456	8,34,250
To Administration Expenses	46,531	54,137	Less: Returns	11,588 7,09,868	13,903 8,20,347
To Selling Expenses	91,823	1,15,632	By Other Incomes: Interests & Dividends	3,795	2,620
To Interest paid	4,275	3,500	Purchase Discount	4,250	3,792
To Loss on Sale of                                                                                                                                                                                                                                                                        Fixed Assets	1,254	350	Profit on Sale of Land	3,000	–
To Income-tax	43,038	80,390
To net profit	70,742	88,851
	7,20,913	8,26,759		7,20,913	8,26,759

 

Present the above data in the form of a common size statement.

 

12. State by giving reasons whether the following transactions increase or decrease or do not affect the working capital :

 

1. a) A company issues Rs.1,00,000 worth of shares for cash.
2. b) Redemption of Debentures worth Rs.2,00,000.
3. c) Amount received from Debtors Rs.32,000.
4. d) Amount paid to creditors Rs.15,000.
5. e) Advance Income Tax paid Rs.1,00,000..
6. f) Raw materials purchased Rs.60,000 from ZB Co. on credit basis.
7. g) Furniture purchased Rs.40,000.
8. h) Purchased plant worth Rs.1,00,000 by issuing equal amount of Debentures of Rs.500 each.
9. i) Bills receivable Rs.30,000 discounted for Rs.29,000.
10. j) Debentures worth Rs.1,00,000 redeemed by raising a long-term loan of equal amount.

 

 

 

13. Calculate cash from operations from the following:

 

1. Profit made during the year Rs.2,50,000 after considering the following items:

Rs.

1. Depreciation on fixed assets 10,000
2. Amortization of goodwill   5,000
3. Transfer to general reserve   7,000
4. Profit on sales of land   3,000

 

1. The following is the position of current assets and current liabilities:

2012                2011

Rs.                   Rs.

Debtors                                                          15,000             12,000

Creditors                                                       10,000             15,000

Bills Receivable                                              8,000             10,000

Prepaid expenses                                           2,000               4,000

 

14)  i) Calculate Stock Turnover Ratio from the following information:

Opening stock                        =  Rs. 40,000

Closing stock              = Rs.  44,000

Sales                            = Rs.4,15,000

Gross Profit ratio        =        20%.

 

1. ii) Compute pay out ratio from the following data:

No. of equity shares               = 3000

Dividend per equity share     = Re. 0.40

Net profit                                = Rs.10,000

Provision for tax                    = Rs.5,000

Preference dividend               = Rs.2,000.

 

• Calculate Quick Ratio from the following Balance Sheet figures:

 

Liabilities	Rs.	Assets	Rs.
Capital	2,20,000	Fixed Assets	2,00,000
Loan (long-term)	50,000	Stock	50,000
Creditors	40,000	Debtors	50,000
B/P	10,000	B/P	15,000
Other current liabilities	7,500	Cash and Bank Balance	15,000
Provision for Doubtful Debts	2,500
	3,30,000		3,30,000

 

 

 

15)  The following data relates to Wipro Ltd.

	2006	2007	2008	2009	2010	2011
	Rs.	Rs.	Rs.	Rs.	Rs.	Rs.
Capital	2,00,000	2,50,000	2,80,000	3,00,000	3,50,000	4,00,000
Fixed Assets	1,50,000	1,80,000	2,00,000	2,10,000	1,90,000	2,00,000
Current Assets	90,000	1,40,000	1,50,000	1,70,000	2,60,000	2,90,000
Current Liabilities	40,000	70,000	70,000	80,000	1,00,000	90,000

 

From the above figures

1. Calculate trend ratios for each item taking 2006 as the base year.
2. Establish relationships (i.e., ratio) between

• Current Assets and Current Liabilities, and
• Capital and Fixed Assets and convert these two ratios into trend percentages for all the six years

 

16)  “There are no externally imposed generally accepted accounting principles for management accounting”.  In light of the above statement discuss the nature of Management Accounting.

 

SECTION – C

 

• Answer any THREE Each carries 15 marks.              (3×15=45)   

 

17. Following are the Balance Sheets of M.S. Sales Corporation as on 31^st March 2012 and 2013:

 

Liabilities	2012 Rs.	2013 Rs.	Assets	2012 Rs.	2013 Rs.
Equity share Capital	3,10,000	3,60,000	Goodwill	10,000	15,000
General Reserve	50,000	55,000	Buildings	3,00,000	2,90,000
Profit & Loss A/c	30,500	35,600	Machinery	1,50,000	1,69,000
Bills Payable	70,000	–	Stock	1,00,000	74,000
Creditors	1,50,000	1,35,200	Debtors	80,000	64,200
Provision for Tax	30,000	35,000	Cash & Bank	500	8,600
	6,40,500	6,20,800		6,40,500	6,20,800

 

The following transactions took place during the year 2013

1. Dividend of Rs.25,000 was paid during the year.
2. Assets of another company were purchased for Rs.50,000 payable in shares-assets purchased were stock Rs.20,000, machines Rs.25,000.
3. Machine was further purchased for cash Rs.6,000.
4. Taxes paid during the year Rs.28,000.

 

You are required to prepare a statement of Sources and Application of funds.

 

18)  Following are the Balance Sheets of Deon and Co., as on 31.12.2011 &

31.12. 2012

Liabilities	2011	2012	Assets	2011	2012
Equity Share capital	2,00,000	3,00,000	Land	80,000	1,20,000
12% Deb.	1,00,000	2,00,000	Plant	3,00,000	6,25,000
10% pref. Capital	2,00,000	2,50,000	Investment	1,00,000	2,00,000
Reserve & Surplus	1,00,000	1,20,000	Stock	1,50,000	2,00,000
Sundry Crs.	1,50,000	4,10,000	S. Debtors	1,00,000	1,20,000
Bank O.D.	–	50,000	Bank Bal.	70,000	1,35,000
Dividend  O/S	50,000	70,000
	8,00,000	14,00,000		8,00,000	14,00,000

1. Compare the financial position of the two companies with the help of a Comparative Balance Sheet.
2. Analyse the changes in the working capital position of the firm.

• Has the firm used long term or short term funds to finance its fixed assets?

1. Comment on the overall profitability of the firm after a detailed analysis of its short and long term financial position.

 

19) From the following information, prepare the Balance Sheet of R.K. Motors Ltd.

Current ratio                                                      2

Working capital                                                Rs.4,00,000

Capital block to current assets                       3 : 2

Fixed assets to turnover                                  1 : 3

Sales cash/credit                                              1 : 2

Stock velocity                                                    2 months

Creditors velocity                                             2 months

Debtors velocity                                               3 months

Share capital                                                      Rs.6,00,000

Debenture / share capital                               1 : 2

Net profit                                                           10% of sales

Gross profit                                                       25% of sales

Reserves                                                             2.5% of sales.

 

20)  i) Inspite of increasing profits of Infotel & Co., for the last three years, the company is having shortage of cash due to which dividends cannot be paid,  Draft a report to management diagnosing the situation and suggesting the appropriate action to improve the situation.                                             (10 marks)

 

1. ii) Briefly explain the different classification of management reports.

(5 marks)

21. i) From the following particulars calculate cash from operating activities for the year ending 31^st March 2012 using the direct method.   (10 marks)

 

Income Statement
Income
Sales		20,000
Stock Adjustment:
Closing Stock	8,000
Less: Opening Stock	6,000	2,000
Income from Investments		2,400
		24,400
Expenditure
Raw material Consumed:
Opening Stock	4,000
Add: Purchases	10,000
	14,000
Less:  Closing Stock	3,000	11,000
Wages a Salaries		5,000
Other Expenses		4,000
Depreciation		1,000
		21,000
Profit Before Interest and Tax		3,400
Interest		1,600
Profit Before Tax		1,800
Provision for Tax		200
Profit After Tax		1,600

Balance Sheet

Liabilities	31.3.2012	31.3.2011	Assets	31.3.2012	31.3.2011
Share Capital	8,000	6,000	Fixed Assets(Gross)	16,000	12,000
General Reserve	2,000	1,500	Less: Acc Dep.	(3,000)	(2,000)
				13,000	10,000
Profit Loss Account	100	200	Investments (long-term)	2,400	1,600
Loans	12,000	8,000	Investments (Risk-free, Liquid)	600	400
Sundry Creditors	8,700	9,600	Inventories	11,000	10,000
Provision for Tax	200	300	Trade Debtors	4,000	3,000
Proposed Dividend	1,200	900	Cash & Bank Balances	1,000	1,200
Other current liabilities	200	300
	32,200	26,500		32,200	26,500

 

1. ii) Following is the Profit and Loss Account to Electro Matrix Ltd. for the year ended 31^st December 2012:

Particulars	Rs.	Particulars	Rs.
To Opening Stock	1,00,000	By Sales	5,60,000
’’  Purchases	3,50,000	’’ Closing Stock	1,00,000
’’  Wages	9,000
To Gross Profit c/d	201000
	6,60,000		6,60,000
To Administrative expenses	20,000	By Gross Profit  b/d	201000
’’ Selling & Distribution Expenses	89,000	’’ Interest on Investments (Outside business)	10,000
’’ Non-operating expenses	30,000	’’ Profit on Sale of Investments	8,000
To net profit	80,000
	2,19,000		2,19,000

 

You are required to calculate:

1. Gross Profit Ratio
2. Net Profit Ratio
3. Operating Ratio
4. Operating Profit Ratio
5. Administrative Expenses Ratio.                             (5 marks)

 

 

Section – D

 

1. Compulsory question – Case study                    (15 marks)

 

22. The following are the summarized Balance sheet of a company as on

December 31,  2012 and 2013

Liabilities	2012 Rs.	2013 Rs.	Assets	2012 Rs.	2013 Rs.
Share Capital	2,00,000	2,50,000	Land & Buildings	2,00,000	1,90,000
General Reserve	50,000	60,000	Machinery	1,50,000	1,69,000
Profit & Loss A/c	30,500	30,600	Stock	1,00,000	74,000
Bank Loan (long-term)	70,000	–	Sundry Debtors	80,000	64,200
Sundry Creditors	1,50,000	1,35,200	Cash	500	.600
Provision for Taxation	30,000	35,000	Bank	–	8,000
			Good will	–	5,000
	5,30,500	5,10,800		5,30,500	5,10,800

P.T.O……

 

 

 

Additional information:  During the year ended 31^st December 2013.

1)    Dividend of Rs.23,000 was paid.

2)    Assets of another company were purchased for consideration of Rs.50,000

payable in shares. The following assets were purchased:

Stock Rs.20,000;   Machinery Rs.25,000

3)    Machinery was further purchased for Rs.8,000

4)    Depreciation written off machinery Rs.12,000

5)     Income-tax provided during the year Rs.33,000

6)    Loss on sale of machinery Rs.200 was written off to general reserve.

 

Questions:

1. You are required to analyse the above information and prepare the Cash Flow Statement.
2. What was the amount of tax that the company had paid.
3. Calculate the amount of cash the company had earned or lost solely from operations.
4. How much money did the company transfer to reserves during the year.
5. State the activities of the company that have resulted in the biggest inflow and outflow of cash.

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