8/8/2019 MS-4_d091

1/6

MANAGEMENT PROGRAMMETerm-End Examination

June,2OO8

MS-4 : AGGOUNTINGND FINANGE ORMANAGERSTime : 3 hours

Noe' ::';': "i;:';:: "Jl,'il,i,;,"I",,',l,!J'Jlc Yl. (a) What do you understand by the concept of

conservatism? Why is it also calledthe concept ofpruden e ? Why is it not appliedas strongly oday asit usedto be in the Past?

(b) What is a BalanceSheet ? How does a FundsFlowStatementdiffer from a BalanceSheet ? Enumeratethe items which are usually shown in a BalanceSheetand a FundsFlow Statement'

2. (a) Why does depreciationneed to be providedon fixed

:ilr,:.,T:Jl" areheusuar ethodsf providins

Maximum Marks: 100(Weishtage70%)

MS-4 P .T .o ,

8/8/2019 MS-4_d091

2/6

3.

(b) Discusshe role of the Boardof Directors n dividenddecision.

What do you understand by Discounted Cash FlowTechniquesof Capital Budgeting? Briefly explain the NetPresentValueMethodand InternalRateof ReturnMethod.which of the two would you rank better and why ?Distinguishbetween(a) FinancialLeverageand operating Leverage(b) CashBudgetand CashFlow Statement

'Last in, First out' systems ofc) 'First iD, First out' andInventory Valuation.

(d) Preference shares and Rightsshares

4.

5 . A company manufactures singleutilising 600/oof its capacity.Thedetailsaregivenbelow :

Sales 6,000 units)Direct materialsDirect labourDirect expensesFixed overheads

FactoryAdministrationSellingand Distribution

product in its factoryselling price and cost

Rs.5,40,00096,000r,20,000

19,000

2,00,0002r,00025,000

MS-4

8/8/2019 MS-4_d091

3/6

L2.5o/o of factory overheads and 20e/o of selling anddistribution overheads are variable with production andsales. Administrative overheads are wholly fixed.Since the existing product could not achieve budgeted levelfor two consecutive years, the Company decides tointroduce a new product with marginal investment butlargely using the existing plant and machinery.The cost estimatesof the

Cosf elemenfsnew product are as follows :

Rs.per unit16.0015.00

1 .502.00

Direct materialsDirect labourDirectexpensesVariablefactoryoverheadsVariablesellingand distribution 1'50' overheads

It is expected hat 2,000 unitsof the new productcan besold at a price of Rs. 60 per unit. The fixed factoryoverheadsare expected o increaseby t}o/o, while fixedsellingand distribution xpenseswill go up by Rs. 12,500annually. Administrative overheads remain unchanged.However, there will be an increaseof working capital tothe extent of Rs. 75,000, which would take the total costof the projectto Rs. 8'75 lakh.

MS-4 P . T . O .

8/8/2019 MS-4_d091

4/6

The company considers hat 20o/opre-tax and interestreturn on investment s the minimum acceptableo justifyany new investment.You are required o(a) Decidewhether he new productbe introduced.(b) Make any further observationsrecommendations

about oroftaubility f the company on the basisofthe above data af,termaking assumptionthat thepresent nvestments Rs. 8 lakh.

6- Explainfully the followingstatements(a) "Lower the Break-even oint, better t is.,,(b) "Greater the variabilityof cash flows, higher shouldbe the minimumcashbalanc.,,(c) "Weighted averagecost of capital would alwaysbehigher, f the marketvalueweightsare used.(d) "Capitalisationof reserves s different from capitalresgrves.

7 Why do you understand y the term 'pay-outratio' ? Whatfactors are taken into considerationwhile determiningpay-out ratio ? should a company follow a fixed pay-outratio policy ? Discussully.

MS-4

8/8/2019 MS-4_d091

5/6

8. From the ratios and other data given below for BharatAuto AccessoriesLtd. indicate your interpretation of thecompany's financial position, operating efficiency andprofitability.

Year 1 Year 2 Year 32650/o 278o/o 302o/oILSo/o 11006 99o/o2.75 3.00 3'259.83 8.41 7'2037 43 50

95o/o 100% LLOo/o6 .11 6.01 5 '4L5.10 4.05 2'50

11 O7o/o.''5o/o 7 0o/o22o/o 23o/o 25o/oL}o/o 160/o 23o/o

70o/o 7 Lo/o 73o/oRs. 3 Rs. 3 Rs. 3L6'4o/o L8o/o 22'7o/o7'A3o/o 5'O9o/o 2'0o/o

Current RatioAcid Test RatioWorking Capital Turnover(times)ReceivablesTurnoverAverage Collection Period(Days)Inventory to WorkingCapitalInventory Turnover (times)Income per Equity ShareNet Income to Net WorthOperating Expenses o NetSalesSales ncreaseduring theyearCost of goods sold to NetSalesDividend per shareFixed Assets to Net WorthNet Profit on Net Sales

MS-4 14,000

8/8/2019 MS-4_d091

6/6