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

MANAGEMENT PROGRAMME
Term-End Examination

December, 2005

MS4 (S) : 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) What do you understand by Management Accounting ? How does it differ from Financial Accounting ? Discuss.

(b) Why does an accountant follow, the principle "anticipate no profit, provide for all losses" ? On which accounting concept is this based ? Explain it and discuss its significance.

2. From the following particulars extracted from the books of Mr. Gandhi, prepare Trading and Profit and Loss Account for the year 2004-05 and Balance Sheet as on 31st March 2005 after making necessary adjustments :

	Rs.
Mr Gandhi's Capital a/c	54,050
Stock as on 1-4-2004	23,400
Sales	1,44,800
Sales Return	4,300
Purchases	1.21,550
Purchases Return	2,900
CarriageIn wards	9,300
Rent	2,850
Cash with Traders Bank Ltd.	4,000
Discount Received	1,495
Investments(5%) as on 1-4-2004	2,500
Furniture (as on 1-4-2004)	900
Discount Allowed	3,770
General Expenses	1,960
Salaries	4,650
Sundry Debtors	12,000
Sundry Creditors	7,400
Loan from Dena Bank @ 12%	10,000
Interest paid	450
Printing and Stationery	1,700
Advertisement	5,600
Interest Received	725
Audit Fees	350
Fire Insurance Premium	300
Travelling Expenses	1,165
Postage and Telegrams	435
Cash on hand	190
Deposits @ 10% as on 1-4-2004 (Dr)	15,000
Drawings	5,000

Adjustments :

(a) Value of stocks as on 31-3-2005 is Rs. 39,300. This includes goods returned by customers on 31-3-2005 to the value of Rs. 1,500 of which no entry has been passed in the books.

(b) Purchases include furniture purchased on 1-1-2005 for Rs. 1,000.

(d) The Loan Account from Dena Bank in the books of Mr Gandhi appears as follows :

Date	Particulars	Amount Rs.	Date	Particulars	Amount Rs.
31-3-05	To Balance c/d	10,000	1-4-04	By Balance b/d	5,000
			31-3-05	By Bank a/c	5,000
		10,000			10,000

(a) Interest paid included Rs. 300 paid to Dena Bank.
(b) Interest received represents Rs. 100 from sundry debtors and the balance on investments and deposits.
(c) Provide for interest payable to Dena Bank and for interest receivable on investments and deposits.
(d) Provide reserve for doubtful debts at 5% on the balance under sundry debtors. No reserve needs to be created for the deposits.

3. (a) What is a flexible budget ? How does it differ from a fixed budget and a rolling budget ? Erplain the utility of a flexible budget.

(b) Explain the three important control ratios to judge the actual performance with the budgeted Performance.

4. (a) "Return on investment is a primary ratio but it is not free from ambiguity." Discuss this statement and explain the various versions of ROI as used in practice.

(b) What is the role of financial manager with regard to dividends and dividend policy ?

5. From the following particulars relating to ABC Ltd., prepare a statement showing Changes in Working Capital along with Funds Flow Statement :

Particulars	31st December
Particulars	2004	2005
Current Assets	1,35,000	1,27,200
lnvestments	15,000	21,400
Land	9,000	9,000
Plant & Machinery	81,000	1,05,000
(Accumulated Depreciation)	(24,000)	(26,000)
Patents	16,200	12,600
Total Assets	2,32,200	2,49,200
Current Liabilities	24,600	34,800
12% Debentures	43,400	-
14% Debentures	-	39,000
Equity Share Capital	90,000	1,00,000
Reserves for future loans on investments	6,000	3,600
Retained earnings	68,200	71,800
Total Liabilities & Capital	2,32,000	2,49,200

Additional Information :

(i) A reconciliation of the balances in retained earnings is as follows :

	Rs.
Beginning Balance	68,200
Award received from settlement of patent infringement case	15,600
Dividends paid	(15,000)
Ending Balance	71,800

(ii) Net income of the current year 2005 includes a loss of Rs. 4,800 on the sale of a part of plant. The plant was of the value of Rs. 19,000 at the beginning of the yeat accumulated deprecation being Rs. 6,000.

(iii) Investments of Rs. 15,000 was sold during the year at a loss. The loss was charged to the reserve for future losses on investments and did not appear on the Income Statement.

(iv) During the current year 12% debentures were called for redemption. Most of them were refunded through the issuance of new 14% debentures and the rest were retired for cash.

(v) The equity shares were issued in exchange of machinery. The rest of the plant and machinery were purchased for cash.

6. The trading results of Ashoka Ltd. for the first year of business which ended on 31st March, 2004 are as follows :

		Rs.
Sales (at Rs. 40 per unit)		32,00,000
Less Materials	12,00,000
Labour	4,80,000
Variable overheads	2,40,000
Fixed overheads	5,00,000	24,20,000
Profit		7,80,000

During the year the factory has been working at 50% capacity. The marketing manager has estimated that the quantity sold could be doubled during 2004-05, if the selling price was reduced to Rs. 35 per unit. No change is anticipated in unit variable cost but certain administrative changes to cope with additional volume of work would increase fixed overhead by Rs. 40,000.

You are required to :

(a) Evaluate the marketing manager's proposal, and
(b) Assuming the selling price was reduced as proposed, unit variable cost remaining as in 2003 - 04 and fixed overhead increased by Rs. 40,000, calculate what quantity would need to be sold in 2004-05 in order to yield a profit Rs. 10,00,000.

7. (a) What do you understand by variance analysis ? Why are the variances computed?

(b) XYZ Ltd. which has opted standard costing, furnishes you the following information :

Standard
Material for 700 units of
finished products                   1000kg
Price of materials                  Re. 1 per kg
Actual
Output                              2,10,000 units
Opening Stock                          Nil
Purchases  3,00,000 per kg. for Rs. 2,70,000
Closing stock                           20,000 kg

You are required to calculate : (a) Direct Material Usage Variance
(b) Direct Material Price Variance

8. Write explanatory notes on the following:
(a) Trading on equity
(b) 'First in, First out' vs. 'Last in, First out'
(c) Cash cycle and Operating cycle
(d) Rights shares and Bonus shares