Test Papers / Previous Question Papers of IGNOU MS4 Accounting and Finance for Managers December 2005

MANAGEMENT PROGRAMME
Term-End Examination

December, 2005

MS4 : Accounting and Finance for Managers

Time: 3 hours
Maximum Marks: 100
(Weightage 70%)

Note : Attempt any five questions. All questions carry equal marks.

1. (a) "Accounting is a service function." Explain. What are the two facets to the role of an accountant ? Discuss.

(b) Asset like land is shown at its original cost in the balance sheet of a company. Justify this accounting practice by explaining the relevant accounting concepts on which it is based.

2. "The EBIT - EPS analysis is an important tool in the hands of the finance manager." Explain this analysis with the help of an example and discuss the purpose served by it.

3. From the following particulars prepare Trading and Profit and Loss account of Mr. R for the year ended 31-3-2001 and a balance sheet as on the same date :

	Dr. Rs.	Cr. Rs.
Buidings a/c	5,00,000
Machinery a/c	2,00,000
Furniture a/c	1,00,000
Cash at Bank	90,000
Cash on hand	10,000
18% p.a. loan obtained by Mr. R on 1-6-2000 on mortgage of building		3,00,00
R's Capital		5,20,000
Sundry Debtors/Sundry Creditors	5,00,000	4,00,000
Stock on 1-4-2000	1,20,000
Puchases/Sales	25,00,000	32,20,000
Sales Return/Purchases Return	1,20,000	1,00,000
Rent	60,000
Establishment Expenses	1,80,000
Eleciricity charges	15,000
Telephone charges	10,000
Commission on Sales	30,000
Insurance Premium	10,000
Bad Debts	20,000
Bills Receivable	75,000
	45,45,000	45,45,000

You are required to provide for depreciation on buildings @ 5% p.a., on machinery @ 25% p.a., and on furniture @ 10% p.a.

Provision for bad and doubtful debts is to be made at 5% on sundry debtors.

Mr. R's manager is entitled to a commission of 10% on the net profit after charging his commission.

Closing Stock was not taken on 31-3-2001 but on 7-4-2001. The following transactions took place during the period from 1-4-2001 to 7-4-2001 :

Sales Rs. 2,50,000
Purchase Rs. 1,50,000
Stock on 7th April 2001 was Rs. 1,80,000.

The rate of Gross Profit on Sales was 20%.

Insurance Premium was paid for the year ending 30th June 2001.

Interest on mortgage loan to be provided upto 31-3-2001.

Outstanding electricity charges were Rs. 2,500.

4. (a) What do you understand by Budgetary Control ? What steps are to be taken to install an effective system of budgetary control in an organisation ? Discuss.

(b) What is meant by Performance Budgeting ? Discuss its main objectives.

5. (a) Comment on the following statements :
(a) Higher net profit margin need not necessarily lead to higher rate of return on investment.
(b) A high operating leverage is not always desirable.
(c) A company's profitability is better judged by PBIT rather than PAT.
(d) Cost of debt is always cheaper as compared to other sources of funds.
(e) From the creditors' point of view, the lower the debt ratio, the better it is.

6. The balance sheet of Best Manufacturers Ltd. as on 31st March 2004 and 2005 are as follows.

Liabilities	31-3-04 Rs.	31-3-05 Rs.
Share Capital	2,50,000	2,50,000
5% Debentures	1,00,000	80,000
Sundry Creditors	1,15,000	1,08,000
Profit & Loss A/c	20,000	27,000
Depreciation Fund	40,000	44,000
Reserve for Contingencies	70,000	55,000
Outstanding Expenses	15,000	24,000
	6,10,000	5,88,000
Assets	31-3-04 Rs.	31-3-05 Rs.
Land & Building	1,50,000	1,50,000
Machinery	82,000	90,000
Stock in trade	1,00,000	1,14.000
Sundry Debtors	85,000	81,000
Cash & Bank Balances	60,000	55,000
Temporary investments	1,31,000	95,000
Prepaid expenses	2,000	3,000
	6,10,000	5,88,000

Following additional information is also available :

(a) A new machinery was purchased for Rs. 30,000 but old machinery costing Rs. 15,000 was sold for Rs. 5,000, accumulated depreciation was Rs.8,000.
(b) Rs. 20,000, 5% Debentures were redeemed by purchase from open market @ Rs. 96.
(c) Rs. 36,000 investment were sold at booK value.
(d) 12% dividend was paid in cash.
(e) Rs. 15,000 was debited to Contingency Reserve for settlement of previous tax liability.

You are required to prepare a Schedule of Changes in Working Capital and a Statement showing the Sources and Application of Funds.

7. A toy manufacturer earns an average net profit of Rs. 3 per piece wiih a selling price ol Rs. 25 by producing and selling 60,000 pieces at 60% of the potential capacity. Composition of his cost is as follows :

Direct material         Rs.4
Direct wages           Re.1
Works overhead       Rs.6 (50% fixed)
Sales overhead        Re. 1 (25% varying)

During the current year he intends to produce the same number but anticipates that -
(a) his fixed charges will go up by 10%
(b) rates of direct labour will increase by 20%
(c) rates of direct material will increase by 5%
(d) selling price cannot be increased.

Under these circumstances he obtains an order for a further 20% of his capacity. What minimum price will you recommend for accepting the order to ensure that the manufacturer gets an overall profit of Rs. 1,80,500 ?

8. Write explanatory notes on :
(a) Absorption Costing
(b) Break-even Point
(c) Methods of Depreciation
(d) Net Present Value Method