Code No: 15
Time: 3hours Max.Marks:60
Answer any Five questions
All questions carry equal Marks
1.a) Define accounting. State its functions. State the parties who should be interested
in accounting information.
b) Explain various accounting concepts and conventions with suitable examples.
2.a) What are the uses, limitations and assumptions of Break-Even Analysis?
b) Explain the following:
i) Contribution ii) Marginal Cost iii) Semi-Variable Cost
3. Financial Management is an integral part of the jobs of all managers. Hence it
cannot be entrusted to a staff department. Discuss.
4.a) What do you mean by over-capitalization and under-capitalization? Also explain
various sources of finance.
b) What is cost of capital? Why is the wealth of equity shareholders enhanced if a firms rate of return on its investments exceeds its cost of capital.
5. The Financial Statements of Good Luck Limited for the year 2004, reveal the
following information:
Ratio of current assets to current liabilities 1.75 to 1.0 Liquidity Ratio(Debtors and Bank balance to current liabilities) 1.25 to 1.0 Issued Capital in equity shares of Rs.10/- each Rs.120000 Net Current Assets(as over current liabilities) Rs.60600 Fixed Assets(Net blocks)-Percentage of Shareholders equity as on the closing date 60% Gross Profit-Percentage of Turn over 20% Annual rate of turn over of stock(based on cost on 31.12.04) 5.26 times
Average of outstanding debtors for the year 2004 2 months Net profit(Percentage on issued share capital) 16% On 31st December, 2004, Current assets consisted of stock, debtors and bank balances. You are required to reconstruct in as much details as possible:
(a) The balance sheet as on 31.12.04 and
(b) Trading and Profit & Loss a/c for the year ended 31.12.04.
Cont…2
6. From the following Balance Sheet of X Company Ltd, prepare statement of changes in working capital, Funds Flow Statement and Cash Flow statement.
Liabilities 2003
(Rs) 2004
(Rs) Assets 2003
(Rs) 2004
(Rs) Share Capital 300000 350000 Goodwill 100000 80000
Debentures 150000 250000 Machinery 410000 540000
General Reserve 100000 150000 Investment(ST) 30000 80000
Profit & Loss a/c 60000 70000 Discount on issue
of debentures 5000 ---
Provision for depreciation on machinery 90000 130000 Cash at Bank 120000 130000 Sundry Creditors 75000 110000 Sundry Debtors 80000 190000Bills Payable 10000 15000 Stock 40000 55000 785000 1075000 785000 1075000 During the year investment costing Rs.30000 were sold for Rs.28000. A new machine was purchased for Rs.45000 and the payment was made in fully paid shares.
7. A limited company is considering the purchase of a new machine which will carry out some operations performed by labour. X and Y are alternative models. From the following information, you are required to prepare a profitability statement and workout the pay-back period for each model. Particulars Model X Model Y Estimated Life 5 years 6 years Cost of Machine 1,50,000 2,50,000 Cost of indirect material 6000 8000 Estimated savings in scrap 10000 15000 Additional cost of maintenance 19000 27000 Employees no.of required 150 200
Wages per employee 600 600 Taxation to be regarded as 50% of profit beforecharging depreciation. Which model would you recommend?
8. The Alpha Ltd is considering the purchase of new machine. Two alternatives( A and B) have been suggested, each having an initial cost of Rs.400000 and requiring Rs.20000 as additional working capital at the end of I st year. The cash flow after taxes are expected to be as follows:
Cash Inflows
Year Machine A(Rs.) Machine B(Rs.)
1 40000 120000
2 120000 160000
3 160000 200000
4 240000 120000
5 160000 80000
Which profit is more profitable? Appraise the profits through IRR. The
company's cost of capital is 10%.
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