St. Joseph’s college of commerce (Autonomous)
End Semester Examination – OCTOBER 2013
MIB – I SEMester
Accounting for Decision Making
Duration: 3 hours Max. Marks: 100
SECTION-A
- Answer any SEVEN questions out of Ten: (7×5=35)
- The income statements of a concern are given for the year ending on 31st December 2010 and 2011. Rearrange the figures in a comparative form the study the profitability position of the concern. ‘000
| 2010 (Rs.) | 2011 (Rs.) | |
| Net sales | 785 | 900 |
| Cost of goods sold | 450 | 500 |
| General and administrative expenses | 70 | 72 |
| Selling expenses | 80 | 90 |
| Interest paid | 25 | 30 |
| Income tax | 70 | 80 |
- These are two similar factories under the same management. The management desires to merge these two plants. The following particulars are available:
| Factory I | Factory II | |
| Capacity operation | 100% | 60% |
| Sales | 300 lakhs | 120 Lakhs |
| Variable costs | 220 Lakhs | 90 Lakhs |
| Fixed costs | 40 Lakhs | 20 Lakhs |
You are required to calculate:
- What would be the capacity of the merged plant to be operated for the purpose of Break-even?
- ii) What would be the profitability on working at 75% of the merged capacity?
- From the following forecasts of income and expenditure, prepare a cash budget for the months January and April, 2011: (Rs)
| Months | Sales (credit) | Purchases (credit) | wages | Manufacturing expenses | Administrative expenses | Selling expenses |
| 2007 November | 30,000 | 15,000 | 3,000 | 1,150 | 1.060 | 500 |
| December | 35,000 | 20,000 | 3,200 | 1,225 | 1,040 | 550 |
| 2008 January | 25,000 | 15,000 | 2,500 | 990 | 1,100 | 600 |
| February | 30,000 | 20,000 | 3,000 | 1,050 | 1,150 | 620 |
| March | 35,000 | 22,500 | 2,400 | 1,100 | 1,220 | 570 |
| April | 40,000 | 25,000 | 2,600 | 1,200 | 1,180 | 710 |
Additional information is as follows:
- Customers are allowed a credit period of 2 months
- A dividend of Rs. 10,000 is payable in April
- Capital expenditure to be incurred: plant purchased on 15th of January for Rs. 5,000; a Building has been purchased on 1st March and the payments are to be made in monthly installments of Rs. 2,000 each
- The creditors are allowing a credit of 2 months
- Wages are paid on the 1st of the next month
- Lag in payment of other expenses in one month
- Balance of cash in hand on 1st January,2011 is Rs. 15,000
- The following information at 50% capacity is given, prepare a flexible budget and forecast the profit and loss at 60%, 70% and 90% capacity:
| Expenses at 50% capacity | |
| Fixed expenses: salaries | 50,000 |
| Rent and taxes | 40,000 |
| Depreciation | 60,000 |
| Administrative expenses | 70,000 |
| Variable expenses | |
| Material | 2,00,000 |
| Labour | 2,50,000 |
| Others | 40,000 |
| Semi-variable expenses: Repairs | 1,00,000 |
| Indirect Labour | 1,50,000 |
| Others | 90,000 |
It is estimated that fixed expenses will remain constant at all capacities. Semi-Variable expenses will not change between 45% and 60% capacity, will rise by 10% between 60% and 75% capacity, a further increase of 5% when capacity crosses 75%.
Estimated sales at various levels of capacity are:
Capacity. Sales (Rs.)
60% 11, 00,000
70% 13, 00,000
90% 15, 00,000.
- Write a note on Activity based costing, life cycle costing and target costing.
- Write journal entries for the following:
(1) Proprietor withdrew for his personal use cash Rs.2000 and goods worth RS.1000.
(2)Rs.1000 due from Rohit is now written off as bad debts.
(3)Rahul who owed us Rs.20,000 becomes insolvent and a final dividend of 60 paise in a rupee is received from his estate.
(4)Goods worth Rs.10,000 were destroyed by a fire. Insurance company admitted a claim for 60% amount.
(5)Goods worth Rs.5000 were distributed as free samples.
- From the following list balances, extract from the books of Rakesh, prepare a trial balance as on 31/3/2005. The amount requires to balance should be entered as capital.
| PARTICULARS
Purchases Stock(1/4/2004) Sales Sundry expenses Leasehold premises Free hold premises Return inward Furniture &Fixtures Equipment Repairs to equipment Depreciation Bank |
AMNT(Rs)
18,20,000 3,50,000 40,00,000 15,000 5,00,000 18,00,000 25,000 2,90,000 8,00,000 5000 80,000 34,600 |
PARTICULARS
Drawings Sundry Debtors Sundry Creditors Bad debts Investments (10%) Interest-investments Long term borrowings Loan from UTI bank Interest on loan Petty cash A/C Stock(31/3/2005)
|
AMNT(Rs)
60,000 3,60,000 1,20,000 10,000 2,00,000 20,000 6,00,000 8,00,000 65,000 400 4,60,000
|
- M/s Raj and Co. purchased a machine for Rs.1,00,000. Estimated useful life and scrap value were 10 years and Rs.12000 respectively. The machine was put to use on 1/1/2006. Show the machinery A/C and depreciation A/C in their books for 2011 by using Sum of Years digits method.
- Under what headings will you show the following items in the balance sheet of a company
(A) Interest accrued and due on unsecured loans
(B) Interest accrued and due on secured loans
(C) Interest accrued but not due on loan
(D) Mortgage Loan
(E) Government and trust securities
(F) Loose tools
(G) Live Stock
(H) General Reserve
(I) Capital Reserve
(J) Discount on issue of shares
- Write short notes on any two:
(a) Going Concern Concept
(b) Money Measurement Concept
(c) Periodicity Concept
SECTION-B
- II) Answer any three out of five questions: (3×15=45)
- The following are the summarized balance sheets of Good Luck Ltd., as on 31st December, 2010 and 31st December 2011.
| Liabilities | 31st Dece. 2010 | 31st Dec 2011 | Assets | 31st Dec. 2010 | 31st Dec. 2011 |
| Equity share capital | 2,00,000 | 2,40,000 | Land and buildings | 1,05,000 | 1,50,000 |
| 8% Debentures | 50,000 | – | Plant and machinery ( at cost) | 2,90,000 | 3,20,000 |
| Share Premium | 10,000 | Furniture (at cost) | 9,000 | 10,000 | |
| General reserve | 30,000 | 50,000 | Inventories | 1,30,000 | 1,05,000 |
| Profit and Loss account | 48,000 | 68,000 | Sundry debtors | 75,000 | 85,000 |
| Sundry Creditors | 1,30,000 | 1,50,000 | cash | 15,000 | 26,000 |
| Proposed Dividend | 20,000 | 24,000 | |||
| Provision for depreciation | |||||
| Plant and machinery | 1,40,000 | 1,50,000 | |||
| Furniture | 6,000 | 4,000 | |||
| 6,24,000 | 6,96,000 | 6,24,000 | 6,96,000 |
Additional information is as follows:
- Furniture which cost Rs. 5,000 written down value Rs. 1,000 was sold during the year 2011 for Rs. 2,000
- Plant and machinery which cost Rs. 20,000 and in respect of which Rs. 13,000 had been written off as depreciation was sold during the year 2011 for Rs. 3,000
- The dividend of 2010 was paid during 2011
- You are required to prepare:
The statement of change in working capital during 2011
Funds flow statement for the year 2011.
- A company finds on 1st January, 2008 that it is short of funds with which to implement its programme of expansion. On 1st January, 2007 it had a bank balance of Rs. 1.80,000. From the following information, prepare a statement for Board of directors, to show how the overdraft of Rs. 68,750 as at 31st December, 2007, has arisen:
Figures as per balance sheet as at 31st December of each year are as follows:
| 2006 (Rs.) | 2007 (Rs.) | |
| Fixed assets | 7,50,000 | 11,20,000 |
| Stock and stores | 1,90,000 | 3,30,000 |
| Debtors | 3,80,000 | 3,35,000 |
| Bank balance | 1,80,000 | 68,750 (overdraft) |
| Trade creditors | 2,70,000 | 3,50,000 |
| Share capital (in shares of Rs. 10 each) | 2,50,000 | 3,00,000 |
| Bills receivable | 87,500 | 95,000 |
- The profit for the year ended 31st December, 2007 before charging depreciation and taxation amounted to Rs. 2, 40,000.
- 5,000 shares were issued on 31st January, 2007 at a premium of Rs. 5 per share.
- 1, 37,500 were paid in March, 2007 by way of income tax. Dividend was paid as follows.
2006 (final) on the capital on 31-12-2006 at 10% less tax at 25%.
2007(interim) 5% free of tax
- Given the following information for ABC Company at the end of 2011 determine balances for the income statement and the balance sheet:
Net sales Rs. 1, 00,000
Debtor’s turnover ratio based on net sales: 2
Inventory turnover ratio: 1.25
Fixed assets turnover ratio: 0.8
Debt-assets ratio: 0.6
Net profit margin: 5%
Gross profit margin: 25%
Return on assets: 2%
ABC Company
Income statement
(For the year ending Dec 31, 2011)
| sales | Rs. 1,00,000 |
| Cost of goods sold | ……………….. |
| Gross profit | ……………….. |
| Other expenses | ……………….. |
| Earnings before tax | ……………….. |
| taxes@50% | ……………….. |
| Earnings after tax | ……………….. |
Balance sheet
As on 31st Dec 2011
| Liabilities | Rs. | Assets | Rs. |
| Equity | ……………….. | Net fixed assets | ……………….. |
| Long term debt | ……………….. | Inventory | ……………….. |
| Short term debt | 50,000 | Debtors | ……………….. |
| Cash | ……………….. | ||
| Total | ……………….. | Total | ……………….. |
- On 1st August 2010 a firm purchased 2 vehicles at Rs.3,00,000 each to serve for 10 years, at the end of which scrap value shall be 25% of the cost price. Another vehicle was purchased on 1st October 2010 for Rs.4,00,000, charging depreciation at 10% on original cost. On 1st January 2012, a new vehicle was acquired for Rs.4,20,000 to serve for 5 years. On 1st July 2012 one vehicle which was purchased on 1st August 2010, was auctioned at 20% of book value. Prepare the Vehicle A/C from 1st August 2010 to 31/3/2013.
Books are closed on 31st March every year.
Also prepare depreciation A/C for the above period.
- Oil India is a bulk distributor of high octane petrol. A periodic inventory of petrol on
hand is taken when the books are closed at the end of each month. The following summary of information is available for the month of June 2008.
| ITEMS:
Sales General Administrative Cost Opening Stock: 1,00,000 litres at Rs.3 per litre Purchases (Including Freight) in: June 1 – 2,00,000 litres June 30 – 1,00,000 litres Closing Stock on June 30th – 1,30,000 litres |
AMOUNT(Rs)
9,45,000 25,000
Rs.2.85/litre Rs.3.03/litre |
Compute the following data by FIFO, weighted average and LIFO method of inventory costing.
- Value of inventory on June- 30th
- Amount of the goods of goods sold for June
- Profit or loss for June
SECTION – C
III) Compulsory case study. (20 marks)
- From the ratios given below, draw the profit and loss and the balance sheet of X Co. Ltd.,
Trading and profit and loss account
For the year ending 31st December, 2010
| To opening stock | 4,80,000 | By sales | …………… |
| To purchases | …………… | By closing stock | …………… |
| To purchases expenses | 40,000 | ||
| To gross profit | …………… | ||
| …………… | …………… | ||
| To office expenses | 2,40,000 | By gross profit | …………… |
| To selling expenses | 1,86,000 | By commission | …………… |
| To interest on debentures | 30,000 | ||
| To provision for taxation | …………… | ||
| To net profit | …………… | ||
| …………… | …………… | ||
| To proposed dividends | …………… | By balance b/f | 60,000 |
| To transfer to general reserves | …………… | By net profit this year | …………… |
| To balance carried to balance sheet | …………… | ||
| …………… | …………… |
Balance sheet
As at 31st December 2010
| Authorized share capital:
5,000 equity shares of Rs. 100 each |
5,00,000 | Fixed Assets | |
| Issued, subscribed and paid up capital:
4,000 equity shares of issued, subscribed and Rs. 100 each fully paid. |
4,00,000 | Goodwill | 72,000 |
| Reserves and surplus | Land | 3,00,000 | |
| Previous reserves | …………… | Plant and machinery | 2,00,000 |
| Additions during the year | …………… | Current assets | |
| Balance of P/L A/c | …………… | Stock in trade | …………… |
| Secured loans: | Sundry debtors | …………… | |
| 15% debentures of Rs. 100 each | …………… | Bank balance | 40,000 |
| Current Liabilities | …………… | ||
| …………… | …………… |
- dividends proposed are 30% of share capital
- current ratio 2:1
- sundry debtors represents 2 months sales
- stock turnover ratio 6 2/3 %
- gross profit ratio 33 1/3 %
- provisions for taxation is at 50% of profits
- profit carried forward were 10% of the transfer to general reserve
- transfer to general reserve was equivalent to proposed dividends
- Secured loans were half of current liabilities.
- Balance to the credit of general reserve at the beginning of the year was twice the amount transferred to that account from current profits. Workings should form part of your answer.
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