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Q1. Accounting is the oldest financial information system Discuss. Also bring out the
role and functions of accountant in modern business.
Q.2. What is a Budget? E!lain the meaning" ob#ecti$es and the !rocess of !erformance
budgeting. Distinguish bet%een !erformance budgeting and traditional budget.
Q.&. 'a( )n managing cash the finance manager faces the !roblem of com!romising the
conflicting goals of *i+uidity and !rofitability, -omment.
'b( *ist out the im!ortant factors %hich influence the re+uirement of %or.ing ca!ital
manufacturing firm.
Q/. 0he modern 1urniture *td. manufactures office chairs. )t follo%s standard costing
system. 0he direct material cost standards for its Eecuti$e brand are established as
follo%s2
3roduction 4chedule for 5666 chairs
0he month of December 78 'Eecuti$e(
Direct material cost !er chair2
9aterial A 16 .gs : ;s. &6 !er .g. ;s.&66
9aterial B 5 .gs : ;s. 56 !er .g. ;s.256
3roduction records for the month of December 78 sho%ed as follo%s2
Eecuti$e chairs manufactured <"666
Direct material used.
9aterial A <6"666.gs
9aterial B &2"666.gs
0here %as no closing stoc. in the month of =o$ember 78 you are re+uired to2
a( -alculate direct material cost $ariances.
b( Write a brief re!ort indication the etent and causes.
of total direct material cost $ariance.
Q.5. Distinguish bet%een any three of the follo%ing2
a( 3aybac. method and =et !resent $alue
b( *)1> and 1)1>
c( ?ross %or.ing ca!ital and =et %or.ing ca!ital
d( Direct cost and )ndirect cost
e( 3rofit and *oss A@c and Balance 4heet.
Q.<. ;ead the follo%ing case carefully and ans%er the +uestions gi$en at the end of the
case.
4ingh A -o. is a small bottling com!any" founded by Bas%ant 4ingh at the turn of
the century. )t %as founded at the site of a mineral s!ring /6 miles from 4himla and
distributes bottled %ater throughout Cimachl 3radesh and Dttar 3radesh. )ts cash sales
ha$e stabiliEed at ;s. 76 la.hs com!ared to cash e!enses of ;s.56 la.hs on its bottledF
%ater o!erations.
0here is considerable ecitement in the office of Gi#ay 4ingh" the !resident and
gradson of the founder. 0he com!any has been offered a 5Fyear lease on a %ellF.no%n
mineral s!ring near 3alam!ur. 0he %ater from this s!ring has certain medicinal
1
!ro!erties that ma.e it $aluable to !hysicians nation%ide. 9r. Gis%anathan" the
com!anys financial manager" has #ust %or.ed u! figures on the !ossibility of ta.ing o$er
the lease
Gis%anathan estimates that an o!eration at the ne% mineral s!ring %ould increase
he firms sales from. ;s. 76 to 156 la.hs each year o$er the 5Fyear !eriod. Ce also
estimates an increase in cash e!enses from ;s. 56 to 76 la.hs.
Gis%anathans !lan is to mo$e the %ater by tan. truc. from he s!ring to the
com!anys main facilities for bottling. 0he !roblem is ca!acity. At the !resent le$el of
sales" the firm cannot handle the additional bottling needs of the ne% s!ring. A chec.
%ith a machinery foundry indicates that it %ill cost a!!roimately ;s. <5 lac.s to
!urchase" trans!ort and install ne% bottling machinery ca!able of handling the ne%
s!ring. 0his machinery %ill re!lace the eisting machinery and %ill ha$e a 25Fyear
ser$ice life. )t %ill be de!reciated at 26@&2@2/@1<@H !ercentages o$er a 5F year !eriod.
0he com!anys eisting machinery has been %or.ing fairly %ill. )t is carried on
in the boo.s at a ;s. 16 la.h $alue" although it could be sold for only ;s. 5"66"666. 0he
com!any is using straight line method of de!reciation on this machine. )t is e!ected to
ha$e Eero sal$age $alue at the end of 5 years.
Gis%anathan has mentioned that the ne% o!eration %ould ties u! an additional
;s. &"66"666 in in$entories and ;s. /"66"666 in recei$ables during the life of the !ro#ect.
0he firm has the funds to finance these amounts.
Gis%anathan thin.s the firm should seriously consider the ne% !ro#ect and Gi#ay
4ingh is also fa$orably inclined. But as Gis%anathan left the office" Gi#ay 4ingh %as hear
to call out" ) %an to .no% our rate of return n the !ro#ect first. )f %ere not ma.ing our
normal 12 !ercent after taes" forget it. I0he firms ta rate is /6 !ercent.
Questions2
1. What is the rate of return on this !ro#ect?
2. What is the net !resent $alue at 12 !resent ?
=ote2
Jear 1 2 & / 5
3.G. 1actor 6.H7& 6.878 6.812 6.<&< 6.5<8
Q.8 'a( Discuss the role lf accountants in modern business organisations.
'b( Why should accounting !ractices be standardiEed? E!lain.
Q.H. )tem from the income statement for the year ended December &1"177H" the Balance
4heet as at December &1"177H of Kumar 4!orts%ear -om!any *td are listed belo%2
2
4hare !remium account
=et sales
4undry -reditors
-ash
)ncome ta !aid
)n$entory
Accrued e!enses
0otal liabilities
4ales returns and allo%ances.
=et income after taes
9ar.etable securities
?ross fied assets
?ross !rofit
;etained earnings
=et fied assets
4undry creditors
-ost of goods sold
4ecured loan

;s. &6"566
2"/8"566
52"566
15"666
15"666
<6"666
/"566
1"56"666
2"566
15"666
/"566
28.666
1"&5"666
25.666
1H.666
&6.666
2"12"566
16"666
=umber E+uity shares
0otal current liabilities
4hare ca!ital
0otal assets
Accumulated de!reciation
Ban. o$erdraft
=et income before taes
Administrati$e e!enses
0otal liabilities
3reference Di$idends
0otal current assets
4ecured loan 're!ayable
on one year(
4elling e!enses
?ross sales
3reference share ca!ital
16"666
;s. 5/"566
16"666
1"56"666
7"666
15"666
&6"666
&6"666
</"566
1"666
1"&2"666
5"666
85"666
2"56"666
26"666
'a( 3re!are the income statement and Balance 4heet in !ro!er form.
'b( -alculate earnings !er shares.
Q.7. 'a( What is -G3 analysis? What are the im!ortant assum!tions underlying -G3
analysis ?
'b( 0ri!ura *td. is manufacturing three !roducts2 A"B" and -. 0he costs of manufacture
are as follo%s2
L
;s.
J
;s.
M
;s.
Direct 9aterial !er
unit
& / 5
Direct *abour !er
unit
2 & /
4elling 3rice !er
units
16 15 26
>ut!ut 'units( 1666 1666 1666
0he total o$erheads are ;s. 12"666 out of %hich ;s. 7"666 are fied and the rest are
$ariable. )t is decided to a!!ortion these costs o$er different !roducts in the ratio of
out!ut.
>n the basis of this information" !re!are a statement sho%ing the cost and !rofit of each
!roduct according to absor!tion costing.
&
Q.16. Discuss the conce!t of %or.ing ca!ital. What factors %ould a financial manager
ordinarily ta.e into consideration" %hile estimating %or.ing ca!ital needs of a
manufacturing firm?
Q.11. Write e!lanatory notes on any t%o of the follo%ing2
'a( 4imilarities and dissimilarities bet%een =3G and );; methods of in$estment
a!!raisal.
'b( 1)1> and *)1> methods of in$entory $aluation
'c ( MeroFbased budgeting.
'd( 1actors affecting di$idend decisions.
Q.12. 0he Well Established -om!anys most recent Balance 4heet is as follo%s2
*iabilities Amount
';s.(
Assets Amount
';s. (
E+uity -a!ital
';s. 16 !er share (
16N *ongFterm Debt
;etained Earnings
-urrent *iabilities
<6"666
H6"666
26"666
/6"666 .
2"66"666
=et 1ied
Assets
-urrent Assets
1"56"666
56"666
. .
2"66"666
0he com!any total assets turno$er ration is &" its fied o!erating costs are ;s. 1"66"666
and its $ariable o!erating costs ratio is /6N. 0he income ta rate is 56N. -alculate for
the com! any all the le$erages 'o!erating" financial and combined ( and determine the
li.ely le$el of EB)0 if E34 is 'a( one ru!ee" 'b( three ru!ees and 'c ( Eero. ?i$e %or.ing
notes in su!!ort of your calculations.
Q.1&. What are the !ur!oses of accounting information ? What !ur!ose" in your o!inion"
is the most im!ortant and %hy ?
Q.1/. E!lain the follo%ing terms2
a( De!reciation
b( Accounting !eriod conce!t.
c( -ost f goods sold
d( Bad and doubtful debts
e( )n$entory
Q15. 4arada Enter!rises has a o%ners e+uity of ;s. 1"66"666. 4ome of the ratio for the
firm are2
-urrent debt to total debt 6./6
0otal assets turno$er 2 times
)n$entory turno$er H times
0otal debt to o%ners e+uity 6.<6
1ied assets to o%ners e+uity 6.<6
With this information" com!lete the follo%ing Balance 4heet2
/
E+uity and
*iabilities
Amount
';s.(
Assets Amount
';s.(
-urrent debt OO.. -ash OO.
*ongFterm debt OO. )n$entory OO..
0otal debt OO.. 0otal current assets OO
>%ners e+uity OO.. 1ied assets O..
0otal OO.. 0otal O..
Q.1<. 0he follo%ing information is etracted from the boo.s of a com!any by a financial
analyst2
;s. ;s.
4ales 16"66"666
Gariables -osts2
Direct 9aterial &"66"666
Direct *abour
1actory o$erheads
9ar.eting E!enses
Admin. E!enses
-ontribution
1ied -osts2
1actory o$erheads
9ar.eting E!enses
Admin. E!enses
=et 3rofit
&"66"666
H6"666
86"666
56"666
56"666
&6"666
26"666
H"66"666
2"66"666
1"66"666
1"66"666
Jou are re+uired to com!ute2
'i( 0he 3@G ratio and the brea.Fe$en !oint.
'ii( 0he com!any is considering a !ro!osal of moderniEing its eisting !lant. 0his
%ill need additional fied costs of ;s. 25"666" %ith the e!ectation of sa$ing the same
amount in each of the direct materials and the direct labour costs. -om!ute the 3@G ratio"
the brea.Fe$en !oint and the !rofit of the com!any" if this !ro!osal is acce!ted.
Q.1H. What do you understand by Budget? Discuss the need of budgetary control in an
organisation. Write a note on Eero based budgeting.
Q.17. >ne !ro#ect of Carita Enter!rises *td. is doing !oorly and is being considered for
re!lacement. 0%o mutually eclusi$e !ro#ects" L and J ha$e been !ro!osed. Each
!ro#ect is e!ected to re+uire ;s. 2"66"666 and %ill ha$e an estimated life of 5 and /
years res!ecti$ely and %ill ha$e no sal$age $alue.

0he com!anys re+uired rate of return is 16N. 0he antici!ated cash inflo%s after taes
'-1A0( for the t%o !ro#ects are2
Jear -1A0
5
3ro#ect L ';s.( 3ro#ect J ';s.(
1
2
&
/
5
56"666
56"666
56"666
56"666
1"76"666
H6"666
H6"666
H6"666
&6"666
F
;and each !ro#ect a!!lying the methods of !aybac." =3G" );; and 3rofitability )nde.
Q.26. 1rom the follo%ing data" !re!are a -ash Budget for Al!ha -om!any *td. for the
!eriod Banuary P Bune.
-redit 4ales
';s.(
Gariable -ost
';s.(
Wages
';s.(
Banuary
1ebruary
9arch
A!ril
9ay
Bune
1/"666
1&"666
16"666
12"666
1&"666
1<"666
H"666
8"866
8"666
8"566
8"856
H"856
1"266
1"666
1"666
1"166
1"266
1"&66
;ele$ant figures for =o$ember and December of the 3re$ious year are as follo%s2
=o$. ';s.( Dec. ';s.(
-redit 4ales
Gariable -ost
Wages
16"666
8"666
1"666
12"666
8"566
1"166
0he com!any is re+uired to ma.e the follo%ing !ayments during this half year2
1ied E!enses ;s. 1"566 !er month.
3reference Di$idend ;s. 1"/66 in Bune.
-or!oration 0a ;s" H"666 in Banuary
3ayments under a building contract2
;s. 5"666 in 9arch and ;s. <"666 in 9ay
0he terms on %hich goods are sold are net in the month follo%ing deli$ery. Gariable
costs are !ayable in the month follo%ing that in %hich they are incurred" and 56N are
sub#ected to 2

1
N
2
discount and the balance are net. )t is found that 85N of debtors to
%hom sales are made !ay %ithin !eriod of credit" and the %hom sales are made !ay until
the follo%ing month. 0he com!any !ays all its accounts !rom!tly.
Q.21. Distinguish bet%een the follo%ing2 'Attem!t any three(
a( -ost Accounting and 9anagement Accounting
b( >!erational *e$erage and 1inancial *e$erage
c( ?ross %or.ing -a!ital and =et Wor.ing -a!ital
d( Balance 4heet and !rofit and *oss Account.
e( 9arginal -osting and Absor!tion -osting.
Q.22. IAccounting is an information 4ystem,. Do you agree? 4ubstantiate your ans%er
%ith reasons. Co% does an Accountant hel! ) !lanning and controlling a large
commercial organisation ? E!lain.
<
Q.2&. 1rom the follo%ing Balance 4heets of Ar$ind *td. !re!are2
a( 4tatement of -hanges in Wor.ing -a!ital
b( 1unds 1lo% 4tatement
*iabilities 177HF1777 1777F2666 Assets 177HF
1777Q
1777F
2666
E+uity 4hare -a!ital
11N ;edeemable
3reference share ca!ital
?eneral reser$e
3rofit A *oss A@c
3rofit Di$idend
-reditors
Bills !ayable
3ro$isional for taation
&"66"666
1"56"666
/6"666
&6"666
/2"666
55"666
22"666
/6"666
/"66"666
1"66"666
86"666
/H"666
56"666
H&"666
1<"666
56"666
?ood%ill
*and ABuilding
3lant
Debtors
4toc.
Bills recei$ables
-ash in hand
-ash in ban.
1"15"666
2"66"666
H6"666
1"<6"666
88"666
26"666
15"666
16"666
76"666
1"86"666
2"66"666
2"66"666
1"67"666
&6"666
16"666
H"666
<"88"666 H"18"666 <"88"666 H"18"666
Additional )nformation2
1. De!reciation of ;s. 16"666 and ;s. 26"666 %as
charged to the 3lant" and *and and buildings res!ecti$ely for the year 1777F2666.
2. An interim di$idend of ;s. 26"666 %as !aid during
the year.
&.

)ncome ta of ;s. &5"666 %as !aid during the year.
Q.2/. ;a#a Cansa Enter!rises *td. has !roduction ca!acity of 2"66"666 units !er year.
=ational ca!acity utiliEation is at an a$erage of 76N 4tandard $ariable !roduction cost is
;s.11 !er unit. 0he fied cost is ;s. &"<6"666 !er year. Gariable selling cost is ;s. & !er
unit and fied selling cost is ;s. 2"86"666 !er year. 0he unit selling !rice is ;s.26. )n the
year #ust ended the !roduction %as 1"<6"666 units and the sales %ere 1"56"666 units. 0he
closing in$entory %as 26"666 units" the actual $ariable !roduction cost for the year %as
;s. &5"666 higher than the standard cost.
'i( -alculate the !rofit for the year by absor!tion costing method and by marginal
costing method.
'ii( E!lain the difference in !rofit if any" calculated according to the abo$e methods.
Q.25. 4%eta Enter!rises is considering re!lacement of one of its old machines. 0%o
mutually eclusi$e !ro!osals '!ro!osal A and B ( for re!lacing this machine %ith the ne%
one ha$e !ro!osed. Both the !ro!osals" A and B" re+uire an initial in$estment of ;s.
2"66"666 each and both the machines %ill ha$e an astimated li.e of 5 and & years
res!ecti$ely. Both the machines shall ha$e no sal$age $alue.
0he com!anys re+uired rate of return is 16N. 0he antici!ated cash inflo%s after
taes from both the !ro!osals are2
Jear -1A0
3ro!osal A
';s.(
3ro!osal B
';s.(
1 56"666 1"66"666
8
2
&
/
5
56"666
56"666
56"666
1"76"666
1"66"666
16"666
F
;an. each !ro!osal a!!lying the methods of 3aybac." =et 3resent Galue" )nternet ;ate of
;eturn and !rofitability )nde.
Q.2<. 403 *td. has to arrange for o$erdraft facilites %ith its ba.ers during the !eriod.
A!ril to Bune of a !articular year" %here it %ill be manufacturing %ater coolers. 3re!are a
cash budget for the abo$e !eriod from the follo%ing data" indicating the etend of ban.
facilities the com!any %ill re+uire at the end of each month.
9onth -redit 4ales
';s.(
3urchases
';s.(
Wages
';s.(
1ebruary
9arch
A!ril
9ay
Bune
1"H6"666
1"72"666
1"6H"666
1"81"666
1"25"666
1"2/"666
1"//"666
2"/&"666
2"/<"666
2"<H"666
12"666
1/"666
11"666
16"666
15"666
56N of the credit sales are realised in the month follo%ing the sales" and the reining
sales in the second month follo%ing.
-reditors are !aid in the follo%ing month of the !urchase.
-ash in ban. on 1
st
A!ril is ;s. 25"666.
Q.28. Discuss different di$idend !olicy o!tions a$ailable to com!anies in )ndia and
e!lain the factors %hich are ta.en into consideration %ith ma.ing di$idend decisions.
H