1

0p

Q.1.(a) Multiple Choice (Any 10) (10)

1. Information that is produced at a reasonable cost would be considered ___________

information.

a. Relevant b. Economical c. Timely d. Business

2. Following are examples of Vertical Analysis

a. Ratio Analysis b. Cash Flow Statements

c. Trend Percentages d. (a) and (b)

3. Debenture repayable within 1 year are shown in the vertical financial statement as

a. Current assets b. current liabilities

c. loan funds d. none of the above

4. Current Ratio

a. Balance Sheet Ratio b. Revenue Statement Ratio

c. Composite Ratio d. None of the above

5. Gross Profit Ratio

a. Balance Sheet Ratio b. Revenue Statement Ratio

c. Composite Ratio d. None of the above

6. Return on Equity Capital Ratio

a. Balance Sheet Ratio b. Revenue Statement Ratio

c. Composite Ratio d. None of the above

7. Standard Current Ratio

a. 2 : 1 b. 1: 1 c. 65% d. 1.33

8. The total current Assets without deducting the current Liabilities.

a. Gross Working Capital b. Net working Capital

c. Permanent Working Capital d. Temporary Working Capital

9. Cash Working Capital includes

a. Fixed assets less depreciation

b. Debtors at sales value

c. Debtors at sales less profit margin

d. Creditors at purchase cost less profit margin

10. Net Profit Ratio.

a. Balance Sheet Ratio b. Revenue Statement Ratio

c. Composite Ratio d. None of the above

11. Return on Capital Employed.

a. Balance Sheet Ratio b. Revenue Statement Ratio

c. Composite Ratio d. None of the above

12. Permanent Working Capital is also known as

a. Gross Working Capital b. Net Working Capital

c. Core Working Capital d. Fixed Capital

P.T.O.

Bandra West | Vile Parle West

H. O. : Shop No. 5, Hill Crest Society, 16th

Road, Bandra (W),

Mum: 50. Ph: 26051635

Branch : Avon Arcade, Shop No. A/121, 1st

Fl.,Vile Parle (W),

Mumbai: 56. Ph: 26189748 / 9820418533

SYBCOM/Sem III Management Accounting Pre Final Test

2

Q.1.(a) State Whether True or False (Any 10) (10)

1. Budgets contain the plans of management.

2. Management accounting reports may be prepared as and when needed.

3. Information is simply data that have a particular meaning within a specific context.

4. Quick Assets = Current Assets – (Stock – Prepaid Expenses)

5. Bank Overdraft = Current Liabilities – Quick Liabilities

6. Proprietory Ratio = _ Proprietor’s Funds___________ × 100

Capital Employed + Current Liabilities

7. Proprietory Ratio = _ Proprietor’s Funds________________ × 100

Fixed Assets + Investments + Working Capital

8. Strategic management is the second level in the traditional organization pyramind.

9. Horizontal Analysis involves analysis of two items in the financial statement of the

same concern and in the same year.

10. Owed Funds is an internal source of Finance.

11. Common-size statements are used for both horizontal and vertical analysis.

12. While comparative statement shows the size of change , trend Statement shows the

direction of Change.

Q. 2. Calculate Trend Percentage from the following information extracted from financial

statements of M/s. Pranita Ltd., after arranging in Vertical Form. (15)

Balance Sheet as on 31st March…..

Particulars 2012 (`) 2013 (`) 2014 (`)

Assets:

Fixed Assets 43,200 45,360 54,000

Investments 3,600 1,800 3,600

Current Assets 48,600 60,408 70,380

95,400 1,07,568 1,27,980

Liabilities:

Share Capital 52,200 61,200 73,800

Bank Loan 10,800 10,800 14,580

Current Liabilities 32,400 35,568 39,600

95,400 1,07,568 1,27,980

Income Statements for the year ended 31st March …..

Particulars 2012 (`) 2013 (`) 2014 (`)

Net Sales 40,000 44,000 48,000

Less: Cost of Sales 30,000 36,000 36,000

Gross Margin 10,000 8,000 12,000

Less: Operating Expenses 4,000 2,000 3,600

Operating Profit 6,000 6,000 8,400

OR P.T.O.

3

Q.2. Following are the Profit & Loss Accounts of M/s Prajakta Enterprises for the years ended

31st March, 2012 and 2013. (15)

Profit & Loss Account for the year ended 31st March 2012 & 2013

Particulars 2012 (`) 2013 (`) Particulars 2012 (`) 2013 (`)

To cost of sales 2,00,000 3,00,000 By Sales 3,00,000 4,00,000

To Salaries 20,000 20,000 By Interest 10,000 20,000

To office Rent 10,000 15,000

To Advertisement Exp. 30,000 12,000

To Travelling Exp. 15,000 30,000

To Income Tax 5,000 10,000

To Net profit c/d 30,000 33,000

Total 3,10,000 4,20,000 Total 3,10,000 4,20,000

Prepare a comparative Income statement from the above, in vertical form.

Q.3. Following are the Balance Sheets of X Ltd. as on 31st March, 2013 and 31st March, 2014.

Balance Sheets (Amount `)

Particulars 31-3-2013 (`) 31-3-2014 (`)

Liabilities:

Share Capital 4,50,000 6,60,000

Retained Earnings 2,31,000 2,00,000

Provision for Income Tax 84,000 --

Debentures 2,20,000 1,80,000

Accounts Payable 58,000 64,000

Other Current Liabilities 21,000 33,000

Total 10,64,000 11,37,000

Assets:

Building and Equipments 4,50,000 5,00,000

Land 80,000 80,000

Patents 55,000 65,000

Accounts Receivables 54,000 46,000

Inventories 3,00,000 3,12,000

Prepaid Expenses 6,000 4,000

Cash 1,19,000 1,30,000

Total 10,64,000 11,37,000

Calculate following ratios for two years after preparing vertical format statement and

make comparison. Debt-Equity Ratio (2) Quick Ratio (3) Stock to Working Ratio (4)

Proprietary Ratio. (15)

OR Q.3 From the following information calculate: (15)

(a) Return on Capital employed

(b) Debtors turnover ratio (in times)

(c) Stock working capital ratio

(d) Current Ratio

(e) Proprietory ratio (on the basis of Total Fund)

Some of relevant balances as on 31st March 2007 are given below:

P.T.O.

4

Particulars `. Equity share capital (of `.10 each) 6% Preference share capital 8% Debentures Debtors Creditors Cash in hand Bills Receivable Bank Overdraft Reserves and Surplus Closing stock Provision for taxation Proposed Dividends

…………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… ……………………………………………

2,00,000 1,00,000 1,50,000

18,000 15,000 20,000 12,000

8,000 43,000 32,500 35,000 10,000

Other information for the year 2006-07: Sales `. 10,00,000 Cost of Sales `. 7,50,000 Net Profit before tax `. 1,00,000

Q.4. From the following data provided by M/s. Alpha Ltd. estimate working capital

requirements for the year ended 31st March 2014. (a) Estimated activity / operations for the year 2,60,000 units (52 weeks). (b) Raw material remains in stock for 2 weeks and production cycle takes 2 weeks. (c) Finished goods remaining in stock for 2 weeks. (d) 2 weeks credit is allowed by suppliers. (e) 4 weeks credit is allowed to Debtors. (f) Time lag in payment of wages and overheads is 2 weeks each. (g) Cash & Bank Balance to be maintained `25,000.

(h) Selling price per unit is `15. (i) Analysis of cost per unit as follows: (i) Raw Material ` 5 per unit. (ii) Labour ` 3 and overheads ` 2 per unit. (iii) Profit is at `5 per unit.

Assume that operations are evenly spread throughout the year; Wages and Overheads accrue similarly. Manufacturing process required feeding of material fully at the beginning. Degree of work-in progress is 50%. Debtors are to be estimated at selling price.

OR Q.4. Miss Lovely wants to start a New Trading Business and provides you with the

following information:- (15) a. Projected annual sales `15,00,000.

b. She expects that sales and purchases will evenly spread throughout the year.

c. Average gross profit to sales 20%.

d. Average stock holding in terms of sale requirements one month.

e. Average credit period allowed to Debtors two months.

f. Average credit period allowed by Creditors one month.

g. 25% of sales for cash and balance on credit.

h. Cash on hand estimated at ` 17,000. You are required to estimate Working Capital requirements.

P.T.O.

5

Q. 5 The management of Omkar Ltd. is considering selecting a machine out of two mutually

exclusive machines. The company cost of capital is 12%. Details of the machine are as

follows: (15)

Particulars Machine 1 Machine2

Cost of Machine 20,00,000 30,00,000

Expected Life 5 years 6 years

Annual Cash Flow 6,03,000 7,87,000

You are required to calculate (i) the discounted payback period and (ii) Net present

value. The PV of factor are as follows:

Year 1 2 3 4 5 6

At 12% 0.893 0.797 0.712 0.636 0.567 0.507

OR Q. 5 Following is the Balance Sheet of M/s. Surendra Ltd. as on 31st March, 2013. (15)

Balance Sheet as on 31st March 2013

Liabilities ` Assets `

Equity Share Capital 2,50,000 Land & Building 2,00,000

10% Preference Share Capital 1,50,000 Machinery 2,50,000

General Reserve 2,00,000 Furniture 2,00,000

8% Debentures 1,50,000 Investment 90,000

Creditors 1,00,000 Stock 35,000

Bills Payable 50,000 Debtors 50,000

Cash 40,000

Bills Receivable 30,000

Preliminary Expenses 5,000

9,00,000 9,00,000

Prepare a common size balance sheet from the above in vertical form.

Q.6.(a) Define Management accounting. (10)

(b) Explain in Brief Working Capital Cycle. (10)

OR Q.6. Write a Short Note (Any 4) (20)

1. Meaning of Working Capital

2. Functions of Management Accounting

3. Objectives of Financial Statements

4. Cost of Goods Sold

5. Current Ratio

6. Limitations of Ratio Analysis _*_*_*_*_*_*_

6

0p

Q.1.(a) Multiple Choice (Any 10) (10)

1. Information that is produced at a reasonable cost would be considered ___________

information.

a. Relevant b. Economical c. Timely d. Business

2. Following are examples of Vertical Analysis a. Ratio Analysis b. Cash Flow Statements c. Trend Percentages d. (a) and (b)

3. Debenture repayable within 1 year are shown in the vertical financial statement as a. Current assets b. current liabilities c. loan funds d. none of the above

4. Current Ratio a. Balance Sheet Ratio b. Revenue Statement Ratio c. Composite Ratio d. None of the above

5. Gross Profit Ratio a. Balance Sheet Ratio b. Revenue Statement Ratio c. Composite Ratio d. None of the above

6. Return on Equity Capital Ratio

a. Balance Sheet Ratio b. Revenue Statement Ratio

c. Composite Ratio d. None of the above

7. Standard Current Ratio

a. 2 : 1 b. 1: 1 c. 65% d. 1.33

8. The total current Assets without deducting the current Liabilities. a. Gross Working Capital b. Net working Capital c. Permanent Working Capital d. Temporary Working Capital

9. Cash Working Capital includes

a. Fixed assets less depreciation

b. Debtors at sales value

c. Debtors at sales less profit margin

d. Creditors at purchase cost less profit margin

10. Net Profit Ratio. a. Balance Sheet Ratio b. Revenue Statement Ratio c. Composite Ratio d. None of the above

11. Return on Capital Employed. a. Balance Sheet Ratio b. Revenue Statement Ratio c. Composite Ratio d. None of the above

12. Permanent Working Capital is also known as a. Gross Working Capital b. Net Working Capital c. Core Working Capital d. Fixed Capital

P.T.O.

Bandra West | Vile Parle West

H. O. : Shop No. 5, Hill Crest Society, 16th

Road, Bandra (W),

Mum: 50. Ph: 26051635

Branch : Avon Arcade, Shop No. A/121, 1st

Fl.,Vile Parle (W),

Mumbai: 56. Ph: 26189748 / 9820418533

SYBCOM/Sem III Management Accounting Marks: Pre Final Test Solution

7

Q.1.(a) State Whether True or False (Any 10) (10)

1. Budgets contain the plans of management. :- True

2. Management accounting reports may be prepared as and when needed.:- True

3. Information is simply data that have a particular meaning within a specific context.:-

True

4. Quick Assets = Current Assets – (Stock – Prepaid Expenses):- False

5. Bank Overdraft = Current Liabilities – Quick Liabilities:- True

6. Proprietory Ratio = _ Proprietor’s Funds___________ × 100 :- True

Capital Employed + Current Liabilities

7. Proprietory Ratio = _ Proprietor’s Funds________________ × 100 :- False

Fixed Assets + Investments + Working Capital

8. Strategic management is the second level in the traditional organization pyramid.:-

False

9. Horizontal Analysis involves analysis of two items in the financial statement of the

same concern and in the same year.:- False

10. Owed Funds is an internal source of Finance.:- False

11. Common-size statements are used for both horizontal and vertical analysis.:- True

12. While comparative statement shows the size of change , trend Statement shows the

direction of Change. :- True

Q. 2 Solution: Pranita Ltd.

Trend Analysis of Balance sheet Particulars Absolute Amounts Trend % Base Year 2012

2012 2013 2014 2012 2013 2014 I SOURCES OF FUNDS Share Capital 52,200 61,200 73,800 100 117.24 141.38 Bank Loan 10,800 10,800 14,580 100 100.00 135.00 Capital Employed 63,000 72,000 88,380 100 114.29 140.29

II APPLICATION OF FUNDS 1. Fixed Assets 43,200 45,360 54,000 100 105.00 125.00 2. Investments 3,600 1,800 3,600 100 50.00 100.00 3. Working Capital a. Current Assets 48,600 60,408 70,380 100 124.30 144.81 b. Less: Current Liabilities 32,400 35,568 39,600 100 109.78 122.22 c. Working Capital (a – b) 16,200 24,840 30,780 100 153.33 190.00 4. Capital Employed (1+2+3) 63,000 72,000 88,380 100 114.29 140.29

Trend Analysis of Income Statement

Particulars Absolute Amounts Trend % Base Year 2012

2012 2013 2014 2012 2013 2014 1. Net Sales 40,000 44,000 48,000 100 110.00 120.00 2. Less: Cost of Sales (30,000) (36,000) (36,000) 100 120.00 120.00 3. Gross Profit 10,000 8,000 12,000 100 80.00 120.00 4. Less: Operating Expenses (4,000) (2,000) (3,600) 100 50.00 90.00 5. Operating Profit 6,000 6,000 8,400 100 100.00 140.00

8

OR/- Q.2. Solution:- In the Books of Prajakta Enterprises

Comparative Income Statement Particulars 2012

(`) 2013

(`) Increases/ (Decrease)

% Increase/ (Decrease)

1. Net sales 3,00,000 4,00,000 1,00,000 33.33 2. Less: Cost of Goods Sold 2,00,000 3,00,000 1,00,000 50.00 3. Gross Profit 1,00,000 1,00,000 0 0.00 4. Less: Operating Expenses a. Office & Administrative Expenses

Salaries 20,000 20,000 0 0.00 Office Rent 10,000 15,000 5,000 50.00 30,000 35,000 5,000 16.67

b. Selling & Distribution Expenses Advertisement Expenses 30,000 12,000 (18,000) (60.00) Travelling Expenses 15,000 30,000 15,000 100.00 45,000 42,000 (3,000) (6.67)

5. Total Operating Expenses (I + II) 75,000 77,000 2,000 2.67 6. Operating Profit 25,000 23,000 (2,000) (8.00) 7. Add: Non- Operating Income Interest 10,000 20,000 10,000 100.00 8. Profit Before tax 35,000 43,000 8,000 22.86 9. Less: Income tax 5,000 10,000 5,000 100.00 10. Net Profit After Tax 30,000 33,000 3,000 100.00 Q. 3 Solution:

No. Particulars ` ` I SOURCES OF FUNDS 1. Equity Share Capital 4,50,000 6,60,000 2. Reserves & Surplus Net Reserves & Surplus 2,31,000 2,00,000 Proprietors’ Funds (PF) PF 6,81,000 8,60,000 3. Borrowed Funds Debentures BF 2,20,000 1,80,000 Capital Employed [PF + BF] 9,01,000 10,40,000 II USE OF FUNDS 1. Fixed Assets Building 4,50,000 5,00,000 Land 80,000 80,000 Patents 55,000 65,000 Total Fixed Assets FA 5,85,000 6,45,000 2. Quick Assets Debtors 54,000 46,000 Cash 1,19,000 1,30,000 QA 1,73,000 1,76,000 Closing Stock CST 3,00,000 3,12,000 Pre-paid Expenses 6,000 4,000 3. Current Assets CA 4,79,000 4,92,000 4. Quick Liabilities Creditors 58,000 64,000 Prov. For Tax 84,000 Other Liabilities 21,000 33,000 5. Quick/ Current Liabilities QL/CL 1,63,000 97,000 Working Capital WC 3,16,000 3,95,000 Capital Employed [FA+WC] 9,01,000 10,40,000

9

Calculation of Ratios:

Ratios 2013 2014

1. Debt-Equity Ratio: BF

PF

2. Quick/ Liquid Ratio : QA

QL

3. Stock Working Capital :

4. Proprietors Ratio [TA =

FA + CA] :

Comparison:

1. Debt-Equity ratio has decreased from 0.32 to 0.21 due to repayment of debentures and

increase in share capital.

2. Quick Ratio has increased from 1.06 to 1.81 due to reduction in liabilities (mainly tax

provision).

3. Stock – Working Capital Ratio has decreased from 95% to 79% due to increase in

working capital from ` 3,16,000 to ` 3,95,000.

4. Proprietor’s Ratio has increased from 64% to 76% due to increase in share capital.

OR/- Q.3. Solution:- 1. Vertical Balance Sheet

No Particulars ` ` `

1. Sources of Funds

Equity Share Capital 2,00,000

Reserves & Surplus 43,000

Equity Shareholders Funds 2,43,000

Pref. Share Capital 1,00,000

Proprietor’s Funds PF 3,43,000

Borrowed Funds

8% Debentures BF 1,50,000

Capital Employed (PF + BF) CE 4,93,000

2. Use of Funds

Fixed Assets

Total Fixed Assets (4,93,000 14,500) 4,78,500

Quick Assets

Debtors DR 18,000

Bills Receivable BR 12,000

Cash / Bank 20,000

Closing Stock CST 32,500

Current Assets 82,500

Current Liabilities

Creditors 15,000

Prov. For Tax 35,000

Proposed Dividends 10,000

Bank Overdraft 8,000

Current Liabilities CL 68,000

Working Capital WC 14,500

Capital Employed (FA + WC) CE 4,93,000

10

2. Income Statement

No. Particulars `

1. Total Sales CRS 10,00,000

2. Cost of Goods Sold 7,50,000

3. Gross Profit 2,50,000

4. Operating Expenses (Bal. 2,50,000 1,12,000) 1,383,000

5. Operating Profit / Profit Before Interest & Tax PBIT 1,12,000

Interest on Debenture (8% × 1,50,000) 12,000

6. Net Profit Before tax 1,00,000

Income Tax 35,000 7. Net profit After tax 65,000

Preference Dividends (6% × 1,00,000) 6,000

8. Profit Avl. For Eq. holders 59,000

Equity Dividends (10,000 6,000) 4,000

9. Retained Earnings 55,000

a. Return on Capital Employed = PBIT × 100 = 1,12,000 × 100 = 22.72% CE 4,93,000

b. Debtors Turnover = CRS __ = 10,00,000 × 100 = 33.33 DR + BR 18,000 + 12,000

c. Stock Working Capital = CST = 32,500__ = 2.24 WC 14,500

d. Current Ratio = CA = _82,500_ = 1.21 CL 68,000

e. Proprietor’s Ratio = PF × 100 = 3,43,000 × 100 = 70%

CE 4,93,000 Q. 4 Solution: Working Capital Estimate

Particulars ` `

(A) Current Assets 1. Stock (a) Raw-Material 50,000 (b) Work-in-Progress -Materials 50,000 -Labour 15,000 -Overhead 10,000 75,000 (c) Finished Goods @ COP 1,00,000 2. Debtors 3,00,000 3. Cash & Bank Balance (Given) 25,000 Total Current Assets 5,50,000 (B) Less: Current Liabilities 1. Creditors 50,000 2. Outstanding Wages 30,000 3. Outstanding Overheads 20,000 Total Current Liabilities 1,00,000 (C) Estimated Working

Capital (A – B) 4,50,000

Note: In absence of specific instruction, margin of safety is not added.

11

Working Notes:

(1) Units:

Yearly Production 2,60,000 units

Weekly Production =

= 5,000 units.

(2) Cost Structure:

Per Unit

Raw Material 5.00

Add: Labour 3.00

Overheads 2.00

Total Cost 10.00

Add: Profit 5.00

Sales 15.00

OR/- Q.4. Solution:-

Particulars Working (Amt. × Period) ` `

A Current Assets

1. Stocks (COS ` 12,00,000 × 1/12 month) 1,00,000

2. Debtors at Selling Price (` 15,00,000 × 2/12 months × 75%) 1,87,500

3. Cash on Hand 17,000

Total Current Assets (a) 3,04,500

B. Less: Current Liabilities

Creditors (COS ` 12,00,000 × 1/12 month) (b) 1,00,000

C. Estimated Working Capital (a – b) 2,04,500

Working Note:-

Cost of Sale (COS) = Sales Gross Profit = 15,00,000 3,00,000 = 12,00,000.

Q.5. Solution: Machine 1: Cost ` 20,00,000

Year CIF Discount @ 12% P.V. Cumulative P.V. 1 6,03,000 0.893 5,38,479 5,38,479 2 6,03,000 0.797 4,80,591 10,19,070 3 6,03,000 0.712 4,29,336 14,48,406 4 6,03,000 0.636 3,83,508 18,31,914 5 6,03,000 0.567 3,41,901 21,73,815 21,73,815

(i) Discounted pay back period = 4 years +[

]

4 years +

4 years + 0.49 = 4.49 years

(ii) NPV = PV of Cash Inflow – PV of Cash Outflow

= 32,36,144 – 30,00,000 = ` 2,36,144

12

Machine 2: Cost ` 30,00,000 Year CIF Discount @ 12% P.V. Cumulative P.V.

1 7,87,000 0.893 7,02,791 7,02,791 2 7,87,000 0.797 6,27,239 13,30,030 3 7,87,000 0.712 5,60,344 18,90,374 4 7,87,000 0.636 5,00,532 23,90,906 5 7,87,000 0.567 4,46,229 28,37,135 6 7,87,000 0.507 3,99,009 32,36,144 32,36,144

(i) Discounted pay back period = 5 years +[

]

5 years +

5 years + 0.41 = 5.41 years (ii) NPV = PV of Cash Inflow – PV of Cash Outflow

= 32,36,144 – 30,00,000 = ` 2,36,144

OR/- Q. 5 Solution: In the books of Surendra Ltd.

Commonsize Balance Sheet as on 31st March, 2013 No. Particulars ` ` % %

I SOURCES OF FUNDS 1. Shareholders Funds

Equity share capital 2,50,000 33.56

10% Preference Share Capital 1,50,000 20.13 4,00,000 53.69 Add: General Reserve 2,00,000 26.85 6,00,000 80.53 Less: Preliminary Expenses 5,000 (00.67) 5,95,000 79.86

2. Loan Funds

8% Debentures 1,50,000 20.14 Total Funds Available 7,45,000 100.00

II. APPLICATION OF FUNDS 1. Fixed Assets Land & Building 2,00,000 26.85

Machinery 2,50,000 33.55 Furniture 2,00,000 26.85 6,50,000 87.25

2. Investment 90,000 12.08 3. Working Capital A Current Assets Debtors 50,000 6.71 Cash 40,000 5.36

Bills Receivables 30,000 4.03 Stock 35,000 4.70 [A] 1,55,000 20.80

B. Current Liabilities Creditors 1,00,000 13.42

Bills Payable 50,000 6.71 [B] 1,50,000 20.13 Working Capital (A – B) 5,000 0.67 Total Funds Employed (1+2+3) 7,45,000 100.00

****************