Accountancy and Business Statistics Second Paper : Management Accounting

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B. Com (Part-I) Examination, 2011

(10+2+3 Patterns) (Faculty of Commerce)

Accountancy and Business Statistics

Second Paper : Management Accounting

Objective Part-I

2011 Time: One Hour Max. Marks. : 40

Attempt all questions.

1. Answer the following in not more than 20 words each : 10 x 2 =20

(i) Define Management Accounting.

(ii) Write the names of any four theories of capital structure?

(iii) Give any two characteristics of Financial Leverage.

(iv) What is qualitative concept of working capital?

(v) Give any four names of fictitious assets.

(vi) Give the name of five activity ratios.

(vii) Define the Fund Flow Statement.

(viii) Give the formula for calculating cost of redeemable preference shares.

(ix) What is meant by responsibility accounting?

(x) Define activity based costing.

2. Answer following in not more than 50 words each : 5 x 4 = 20

(i) Give five advantage of management accounting.

(ii) What is difference between capital structure and financial structure?

(iii) When does flow of funds take place?

(iv) Explain two differences between control reports and information reports..

(v) Find out the weighted average cost of capital from the following information:

Amount After Tax Cost of Capital

Equity share capital 4,00,000 .15

Preference share capital 1,50,000 .10

Debentures 2,50,000 .10

Retained Earnings 2.00,000 .08



Descriptive Part-IITime : Two Hour Max. Marks: 60

Attempt three questions in all, selecting at least one question from each section. Each

question carries 20 marks.

Section A3. (a) The following data relate to the companies A and B which are of homogeneous

groups. A B

Net Operating leverage income Rs 50,000 Rs 50,000

Overall cost of capital 12.5% 12.5%

5% debentures Rs 2,00,000

Calculate value of companies under Net Operating Income Theory and also compute cost

of equity capital.

(b) Shivam Enterprises has a turnover of Rs 15,00,000. Variable cost is Rs 8,00,000 while

fixed cost is Rs 3,00,000. Debenture worth Rs 3.00.000 at 12% per annum. Calculate

operating, financial and combined leverage. Rate of tax is 50%.

4. The Board of Directors of Jai Engineering Ltd. request you to prepare a statement showing

the working capital requirements. Forecast for an expected level of production is 26,000

tonnes. The following information is available for your computation.

Raw material to remain in stock on an average 4 weeks

Process period 2 weeks

Permanent material in process 200 tonnes

Finished goods in stock 6 weeks

Credit allowed to customers 8 weeks

Expected ratio of material to sales price 70%

Wages and overheads 20%

Selling price per ton Rs 300

Section B



5. (a) From the following income statement of ‘X’ Ltd. prepare a common size income

statement .

2009

Amount

2010

Amount

Gross sales 1,38,000 1,65,000

Less: Sales return -3,000 -3,5000

Net Sales 1,35,000 1,61,500

Cost of Good sold -82,000 -90,000

Gross Profit 53,000 71,500

Sales Expenses 27,000 30,000

Administration Expenses +13,500 +15,000

Total Expenses 40,500 16,500

Income from operation 12,500 16,500

Other Incomes +1,500 +2,000

Total Income 14,000 18,500

Less: Other Expenses -2,000 -3,000

Net Income 12,000 15,500

(b) From the following items of the assets side of the balance sheet of ABC Ltd for the period

from 31-3-2007 to 31-3-2010. Calculate trend percentages taking 2007 as the base year:

As on 31st March

Assets 2007 2008 2009 2010

Cash 40 60 80 70

Debtors 20 40 30 15

Stock 50 75 60 70

Other CurrentAssets

20 10 25 30

Land and

Building

400 500 600 600

Furniture 80 100 60 100



Plant &

Machinery

100 125 130 150

Total Assets 710 910 985 1035

6. (a) A firm had current aeests of Rs 1,50,000. It then paid a current liability of Rs 30,000.

After the payment, the ratio was 2:1. What were the current liabilities before the payment was made?

(b) Current liabilities = Rs 40,000Capital employed= Rs 4,00,000

Fixed Assets = Rs 2,80,000

Calculate current ratio, assuming that there were no long-term investments.

( c) From the following informations calculate cash from operating activities:

2009

31st March

2010

31st March

Profit & Loss Appropriation 20,000 30,000

General Reserve 30,000 35,000

Bills receivables 14,000 18,000

Provision for depreciation 30,000 34,000

Outstanding Rent Payable 1,600 4,000

Prepaid Insurance 1,400 1,200

Goodwill 20,000 16,000

Stock 14,000 18,000Accrued Income 3,000 3,750

Income received in Advance 1,250 600

An old machine costing Rs 20,000 having book value of Rs 14,000 was for Rs 18,000

during the year 2010.

Section C

7. Laxmi Plastic Ltd. desires to purchase a new machine in order to increase its presentlevel of production. The cost of machine will be Rs50,000 and net income after tax but

before depreciation during its life will be as follows:

Year Net Income after tax before depreciation

1 15,000

2 20,000

3 25,000



4 15,000

5 10,000

Evaluate the project according to:

(i) Net present value method(assuming discount rate 16%)

(ii) Internal rate of return of the project with the help of 20% and 25%discount factor.

Year 1 2 3 4 5

Discount Factor at 16% 0.862 0.743 0.641 0.552 0.476



Minimum rate of return laid down by the management is 16% p.a. Is the investment

desirable? Give your suggestion.

8. Write short note on the following:

(i) Responsibility Reporting

(ii) Investment centre(iii) Management Information System

(iv) Cost Driver



Accountancy and Business Statistics

Second Paper : Management Accounting

Objective Part-I

2010

Time: One Hour Max. Marks. : 40Attempt all questions.

1. Answer the following in not more than 20 words each : 10 x 2 =20

(i) Give any four techniques of management accounting.

(ii) What is point of indifference?

(iii) What is the difference between favorable and unfavorable financial leverage?

(iv) If the current assets and current liabilities lf a firm are Rs.10 lakhs and 6 lakhs

respectively. What would be the amount of maximum bank credit according to

second method of Tandon Committee?

(v) What is owner's equity?

(vi) Current liabilities of a company are Rs.3,00,000 its current ratio is 3 :1 and quick

ratio 1 : 1 calculate the value of stock in trade.

(vii) Give the meaning of cash flow.

(viii) Differentiate between book value weight and market value weight.

(ix) State any two advantages of responsibility accounting

(x) Define activity based costing.

2. Answer following in not more than 50 words each : 5 x 4 = 20

(i) Explain the policy of trading on equity.

(ii) Ankit limited does not use any debt in its financing. The firm has earnings before

interest and tax of Rs.3,20,000 and the after tax capitalization rate is 16%

assuming the corporate tax of 50%, calculate the value of the firm according to

M.M. hypothesis.

(iii) Write a brief note on trend analysis.

(iv) A project costs Rs.25,000 scrap value Rs.5,000 life 5 years and annual average

income before depreciation and tax Rs.7,000 assuming tax rate at 50% and

depreciation on straight line basis, find out average rate of return.

(v) Give four advantages of ABC system.



Descriptive Part IITime : Two Hour Max. Marks: 60

Attempt three questions in all, selecting at least one question from each section. Each

question carries 20 marks.

Section A

3. The following details of Sanchit limited for the year ended 31st March 2009 are

furnished below:

Operating leverage 3:1

Financial leverage 2 : 1

Interest charges per annum Rs. 20 lakhs

Corporate tax rate 50%Prepare the income statement of the company 60%

4. What is the concept of "Working Capital"? What factors determine the needs of working

capital and how is it measured?

Section B

5. Balance sheet of Jaipur Limited is given below:

(Rs.) (Rs.)Equity Capital 50,000 Fixed Assets 1,40,000

12% Pref. Capital 30,000 Stock 20,000

15% Debentures 70,000 Debtors 16,000

Capital Reserve 5,000 Bank 14,000Profit & Loss A/C 10,000

Creditors 12,000

Bank Overdraft 8,000Proposed Dividend 5,000

Find out Current Ratio, Liquid Ratio, Capital Gearing Ratio and fixed assets ratio

6. The following are the summarized balances sheets and income statement of Tata motors.

Liabilities 31.12.08 31012.09

Rs. Rs.

Share Capital 7,20,000 8,88,888

P & L A/c 3,03,600 3,27,000Accumulated Depreciation on plant &

Equipment 2,40,000 2,64,000

Sundry Creditors 4,80,000 4,68,000



Outstanding Exp. 48,000 96,000

Prov. For Taxation 24,000 24,400

18,15,600 20,70,000

Rs. Rs.Land and Building 96,000 1,92,000

Plant and Equipment 7,00,000 11,52,000

Cash 1,20,000 1,44,000Debtors 3,36,000 3,72,000

Stock 5,28,000 1,92,000

Advances 15,600 18,000

18,15,6,00 20,70,000

Note : Cost of equipment sold was Rs. 1,44,000

Income Statement for 2009

Net sales Rs. Rs.Less : Cost of sales 39,60,000 50,40,000

Depreciation 1,20,000

Salaries and wages 4,80,000Operating Expenses 1,60,000

Provision for taxation 1,76,000 48,96,000

1,44,000Add: Non-Recurring income :

Profit on sales of an item ofEquipment 24,000

Retained Earnings 1,68,000

Balance in P & L A/c brought forward 3,03,600

4,71,000Less : Dividend declared and paid during the Year 1,44,000

3,27,600

You are required to prepare a statement of changes in working capital and statement of

changes in working capital and statement of sources and application of funds assuming

provision for taxation as current liability.

Section C

7. The capital structure of Kavita Limited is as under :

2,000 6% debentures of Rs.100 each Rs.

(First issue) 2,000,000

1,000 7% debentures of Rs.100 each

(Second issue) 1,00,000



2,000 8% cumulative preferebee shares of Rs.100 each 2,00,000

4,000 equity shares of Rs.100 each 4,00,000

Retained Earnings 1,00,000

The earnings per share of the company in the past many years have been Rs. 15. The

shares of the company are sold in the market at book value. The company's tax rate is

50% and shareholders personal tax liability is 10% find out the weighted average cost of

capital.

8. Discuss various kinds of reports prepared by the management accountant for different

levels of management.

Accountancy and Business Statistics Second Paper : Management Accounting

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