MONEY AND FINANCIAL SYSTEM

LONG QUESTIONS

1. What do you understand by Money? Throw light on its importance.

?

2. What do you understand by financial syste?discuss the components of financial system in Economic Devlopment?

?

3. What are the main diffects of Indian Money Marke?give suggestion to remove them?

?

4. Give a specimen of balance sheet of Indian Banking Company?

5. Give the definition of bank? Explain the function and importance of Moden Banks.

?

6. Discuss the establishment, financial resources and management function of I.F.C.I?

,

7. Write the short note.

i. Unit trust of India

ii. National industrial development corporation

iii. State financial corporation

iv. LIC

v. Write role U.T.I. in industrial finance.

8. Write a short essay on credit control policy of Reserve Bank of India. Discuss the instrument of credit control?

SHORT QUESTIONS

1. Define Money and discuss its primary functions?

2. What is Menetory policy? Explain its objectives.

?

3. Explain selective credit control method of credit control?

4. Money is the measurement of value. Explain

" ".

5. Write the kinds of finance?

6. What do you understand by Unit Banking System? State its characteristics.

?

7. What do you understand by pubic finance?

8. What do you understand by credit creation?

?

9. What do you understand by public finance?

?

10. What do you understand by public debts?

11. What is the difference between fess and tax?

?

12. What do you mean by Regional Rural Bank?

?

AUDITING

LONG QUESTINS

1. Account is a necessity while auditing is luxury for a business enterprisedo you agree? Give reason for your opinion.

" "

2. What are the advantages to different trading institutions from Audit?

3. Describe the various classes of audits and write in brief their relative advantages.

4. Explain briefly the principles, processes and techniques of auditing.

,

5. What is an audit programmes? Discuss its advantages and disadvantages?

?

6. What is routine checking? what are its objects? Discuss the advantages and disadvantage of routine checking.

? ?

7. What do you understand by the term Vouching? explain its objects and importance.

?

8. What is the objects of verification of assets? How will you verify the following assets-

?

I. Goodwill

II. Patents

III. Copyright

IV. Investment

V. Motor lorries

VI. Leasehold property

VII. Trade Mark

VIII. Patterns and Drawings

IX. Furnitures,Fixtures and Fittings

X. Plant and Machinery

XI. Live stock

XII. Loose Tools

9. How an auditor is appointed? What are the expected qualification? Can be he removed?

? ? ?

10. An auditor is a watchdog not a bloodhound. In the light of the above statement discuss the duties and liabilities of an auditor.

, "

11. What do you understand by Auditors Report? What is its contents? What is its importance to shareholders?

? ? ?

12. What do you mean by Management Audit. Also Explain the need objective& importance of management Audit.

? ,

SHORT QUESTIONS

1. What do you understand by the term Audit? Describe its objects?

?

2. What is meant by continuous audit and to what class of business is it specially applicable? State briefly the advantages and disadvantages of such an audit.

?

3. What is Periodical Audit? Explain its advantages and disadvantages?

?

4. What do you understand by internal Audit. Explain its characteristics?

?

5. Distinguish among internal check, internal audit and internal control?

,

6. What is the difference between clean audit report and qualified audit report? Draft an imaginary clean report?

?

7. What is qualified report? Give a specimen of a qualified report?

? ?

8. Explain the meaning of investigation. Distinguish investigation from audit?

9. What is the difference between Cost Audit and financial Audit? Explain

?

10. What do you mean by Tax Audit. Explain the rules related to the appointment and removal of Tax Auditor.

?

INFORMATION TECHNOLOGY

LONG QUESTIONS

1. What do you understand by information technology? How is information technology helpfui in our daily lives?

? ?

2. Clarify binary number system. Discuss the procedure of coversion of decimal number to binary number and binary number number to decimal number, also give examples.

3. What do you understand by CPU? What is its importance in computer?

?

4. What do you understand by input device? Explain each of the input device.

?

5. What is primary and secondary memory explain each memory device. How is memory measured?

?

6. What do you understand by operating system? Explain its different features and components.

7. Describe the work performed under accounting packages tally.

8. What is internet. Describe the facility recives from the internet

?

9. Describe the internet structure the internet has spared to the wholw world yet how is it?

?

SHORT QUESTIONS

1. Explain the steps involved in data processing.

2. What do you understand by Decimal number system.

3. What do you understand by K-Map.

. ?

4. What do you understand by coputer? Describe the characterstics of computer.

5. What is an OSDI model?

? ?

6. How is data entered or edited into MS-Excel? Explain about the technique of formatting data in MS-Excel?

7. How will you print a worksheet.

8. What is meant by database? What are its objectives?

?

9. Write a short note on Tally9.

10. Describe the necessary equipment used in EDI.

11. Write an essay on E-Commerce.

-

12. What do you understand by Gufar

?

13. What is word wide wave? Describe its advantages.

? ?

CORPORATE ACCOUNTING

LONG QUESTIONS

1. What is the meaning of forfeiture of shares? Can forfeted shares be reissued at discount? If so to what extent?

?

2. State the varios methods of redemption of depentures. State the various journal entries under the method of Debenture Sinking fund.

3. Define good will. Is it real of fictitious? Describe the factors on which it is based and discuss the various methods which can be used in valuation of good will.

4. Point out various methods of valuation of shares and disccuss the factors that affect the value of shares.

SHORT QUESTIONS

1. What are the main aims of Amalgamation?

2. Prepare the vertical from of Balance Sheet of a company.

3. Differentiate between internal reconstruction and external remonstration.

4. What is employee stock option plan?

5. Enumerate the methods of determining purchase consideration.

6. What is bonus shares.

7. What do you understand by calss-in-advance and calls-in-arrases.

8. What are the kinds of debentures.

9. Distinguish between a share and a debenture.

10. What are the method to find out purchase consideration. Explain with examples.

?

11. What are the conditions of amalgamation in th nature of merger,according to AS-14.

- ?

Numerical question

Writer - Dr. Rajkumar and Dr. D.K Verma

Issue forfeiture& reissue of shares

1. R. ltd. Issued 20000 equity shares of Rs. 10 each at a premium of Rs. 2 per sharepayble as follws:

Rs. 3 on applicationRs. 5 on allotment ( including premium)

Rs. 2 on first call Rs.2 second call

A shareholder did not pay allotment and first call moneyon his 1000 shares. Hence these shares wereforferted after call. Other amounts were duly recived. Give journal entries in the books of company.

2. Madhav Ltd. Offered to public subscription 12000 shares of Rs. 100 each at a primiumof Rs. 10 per share. Payment was to be made as follows:

On application Rs. 25

On allotment RS. 50 ( including premium)

On call Rs. 35

Applications were recived for 14000 shares. The board of directors rejected applications for 2000 shares and their application money was refunded. All moneys were duly recived expect th call money on 200 shares which were forfeited and later on these shares were reissued at apr. pass journa entries in the books of company .

3. Agra traders Ltd. Invited application for 100000 shares of Rs. 10 each at a premium of Rs. 1 payble as follows:

RS. 5 on application Rs. 3.50 on allotment ( including premium) and 2.50 on call. Application for 150000 shares were recived of which the applications for 25000 shares were rejected and their money refunded. Allotment was made proata to the remaing applicants, excess application money being applied toward the amount due on allotment.

Sohan was allotted 200 shares, but failed to apy the amounts dueon allotment and call. His shares were forfeited and subsequently reissued to yogesh at Rs. Per shares.

Give journal Entries in the book of company.

4. (a) jay cee ltd. Acquired a building for Rs. 900000 and issued equity shares of 10 each to the vendor at a premium of 20%.

(b) govind Ltd. Acquired patent rights from Dr. Rawat for Rs. 300000and issued to them 500 9% preference shares of Rs. 100 each at per and for the balance issued 20000 equily shares of Rs. 10 each.

( c ) sahai ltd. Acquired machinery for rs. 2,40,000 and issued 25000 shares of Rs. Each to the vendor in full payment.

REDEMPTION OF PREFERENCE SHARES

1. MADHAV Ltd. Has issued 8000 10% redeemable preference shares of Rs. 100 each Rs. 80 per share paid and redeemable at a premium of Rs. 20. The balance of general reserve is Rs. 8,00,000 and suplus of profit & loss is Rs. 2,00,000 show journal Entries in the book of the company.

2. Raju Ltd. Has issued 50000 6% redeemable preference shares of RS. 10 each Rs. * per share paid and redeemable at a premium of Rs. 1 in order to redeem these shares the company issued for cash 5000 equity shares of Rs. 100 each at a premium of RS. 10 per shares. Show journal Entries in the books of the company.

3. X Ltd. Had 5000 redeemable preference shares of Rs. 100 each. These are to be redeemed at Rs. 110 per share. The company issued 30000 equity shares of Rs. 10 be redeemed at Rs.110 per share. The company issued 30000 equity shares of Rs. 10 each at a premium of 10% balance is taken from surlus of profit & loss statement which had a balance of Rs. 3,60,000 preference shares were redeemed. Give journal Entries in the books of the company.

ISSUE AND REDEMPTION OF DEBENTURES

1. ARUN Ltd. Made the following issues of debentures:

(a) 5000 8% debentures of RS. 100 each for cash at Rs. 96.

(b) 1250 9% debentures of Rs. 100 each to a creditor who supplied machinery costing Rs. 1,20,000

(c) 10000 9% debentures of Rs. 100 each to bank as security for a loan of Rs. 8,00,000.

Give journal entries and show the balance sheet.

2. Give general entries in the following cases:

(a) Issued 1000 8%debentures of Rs. 100 each at par redeemable at par.

(b) Issued 500 9% debentures of Rs. 100 each at 10% premium redeemable at par.

(c) Issued 100 7% debentures of Rs. 100 each at 5% discount redeemableat par.

(d) Issued 200 8% debentures of 100 Rs each at 5% discount redeemable at 10 % premium.

(e) Issued 500 7% debentures of Rs. 100 each at par redeemable at 5% premium redeemable at 10% premium.

(f) Issued 500 7% debentures of Rs. 100 each at par redeemable at 5% premium.

3. On 1st april 2011 Y ltd. Issued 2000 11% debentures of Rs. 100 each at 6%discount. These debentures are redeemed in installment of Rs. 50,000 every year. Open the discount of debentures account for four years in the books of Y Ltd.

Example No. 13,20, 24,

VALUATION OF GOODWILL - EXAMPLE NO. 6, 14

VALUATION O SHARES - EXAMPLE NO. 6,7,11,13,21

AMALGAMATION OF COMPANIES - EXAMPLE NO. 6,13,16

INTERNAL RECONSTRUCTION - EXAMPLE NO.. 2,3,4,6,

ACCOUNTS OF HOLDING COMPANIES - EXAMPLE NO. 7,8,10,

MANAGEMENT ACCOUNTING

LONG QUESTIONS

1. What is financial statement? Explain nature, function and uses of financial statement.

? , ?

2. What is fund flow statement? State its importance. How is it prepared.

?

3. What is cash flow statement? Explain fully the technique of preparing cash flow statement.

?

4. What do you mean by Break-Even analysis? Discuss its assumption limitation.

?

5. Define management accounting and discuss its nature an scope.

SHORT QUESTIONS

1. Discuss the characteristic ideal financial statement.

2. Give a specimen of vertical form of balance sheet.

3. Explain the importance of analysis and interpretation of financial statements.

4. What is comparative financial statement?

5. Distinguish between funds flow statement and balance sheet.

6. Distinguish between cash flow statement and funds flow statement and cash budget.

7. What is Break-Even chart and margin of safety?

8. Distinguish between budget, budgeting and budgetary control.

9. Write the short note following Budget:

:

I. Flexible Budget

II. Cash Budget

III. Master Budget

IV. Production Budget

10. What is zero-base Budgeting.

11. Distinguish between statement cast and Estimated cast.

12. Distingisg between financial accounting and management accounting.

13. Explain the important techniques of management accounting.

NUMERICALS

RATIO ANALYSIS

EXAMPLE NUMBER 3,6,7

QUESTION NUMBER 7,24,26,36

Following is the profit & loss statement of X Ltd. For the year ended 31st December 2015.

STATEMENT OF PROFIT AND LOSS OF X LTD. FOR THE YEAR ENDED 31ST DECEMBER 2015

Particulars

Note No.

Amount

Amount

Revenue from operation (sales)

Less: Returns

Net Revenue from operation (net Sales)

Add: Other income

Non-operating income

Total Revenue

Less: Expenceses

Cost of goods sold:

Opening stock 1,90,000

Add: Purchase 6,25,000

Carriage 10,000

Wages 15,000

Factory Rent 20,000

13,00,000

50,000

12,80,000

9,50,000

12,50,000

30,000

6,35,000

20,00,000

75,000

25,000

15,000

8,60,000

2,25,000

Less: closing stock

Administration Expensese

Selling & distribution Expenses

Financial Expenses

Other Non-operating expenses

Net profit during the year

Calculate the following Ratio with the help of above information

I. Gross profit ratio( )

II. Operating ratio( )

III. Expenses ratio( )

IV. Operating net profit ratio( )

V. Net profit ratio( )

The balance sheet of vibhav Ltd. As at 31st march 2015 was follows.

.

VIBHAV LTD.

(Balance sheet as at 31st march 2015)

Particulars

Note No.

Amount

1. Equity and liabilities:

I. Shareholders Funds

a) Share capital

b) Reserve & surplus

Surplus

II. Non-current liabilities

8% Debentures

III. Current liabilities

Trade payables

Creditors 40,000

Bills payble 35,000

Other current liabilities

Total (1+2+3)

2. Assets:

I. Non- current Assets

Fixed Assets

a) Tangible assets

Plant and machinery

b) Intangible assets

goodwill

II. Current assets

Inventory (stock)

Trade receivables (debtors)

Cash & cash Equivalents cash

Miscellaneous current assets

Total (1+2)

30,00,000

50,000

11,50,000

75,000

25,000

6.00,000

3,00,000

1,50,000

50,000

40,000

35,000

25,000

6,00,000

Sales of the year 5,00,000

Cost of sale 3,40,000

You are required to calculate the following ratios.

A. Current ratio

B. Liqqued ratio

C. Inventory turnover

D. Average collection period

E. Proprietors liabilities ratio

3. Prepare on of financial statements with the help of given ratio

From the following information make out a statement of proprietors fund with as many details as possible.

Current ratio (2.5)

Liquid ratio (1.5)

Proprietary ratio (fixed asstes proprietary fund) ( / )(0.75)

Working capital Rs. 60,000

Reserve and surplus Rs. 40,000

Bank overdraft Rs. 10,000

There are no long term loan and fictitious assets

FUND FLOW STATEMENT

EXAMPLE- 6,11

QUESTION- 16,17,18, LONG- 1,20,26,27

The balance sheet of I.T.R company as at December 31,2014 and 2015 are as under:

. . .

Particulars

Notes

31.12.15

311.12.14

I. Equity and liabilities:

1. Shareholders funds:

a) Share capital

b) Reserve and surplus:

Statement of profit and loss

General reserve

2. Non-current liabilities:

3. Current liabilities

Sundry creditors

Bills payble

Outstanding expenses

Total (1+2+3)

II. Assets:

1. Non-current assets

Buildings( Tangible Assets)

Plant and machinery(Tangible Assets)

2. Current Assts:

Stock

Debtors

Cash

Total (1+2)

3,50,000

80,000

35,000

-

-

95,000

25,000

2,500

2,50,000

50,000

25,000

-

-

76,500

20,000

3,500

III.

5,87,500

4,25,000

IV.

60,000

40,000

37,500

80,000

10,000

40,000

2,50,000

50,000

75,000

10,000

V.

5,87,500

4,25,000

VI.

Additional informations:

Rs. 25,000 depreciate has been charged on plant & machinery during the year 2015.

,

A machinery was sold for rs.4,000 during the year 2015. It had cost Rs. 6,000 and deprecation Rs.3,500 had been provided on it.

, , ,

Prepare finds flow statement. (RU2012-17,BUNDELKHAND2011)

From the following balance sheets prepare sources and application of fund statement and working capital changes statement.

PARTICULARS

NOTES

31.12.15

31.12.14

I. Equity and liabilities

1. Shareholders funds:

a) Share capital

b) Reserve and surplus:

Statement of profit and loss

Preliminary Expenses

2. Non-current liabilities

Debentures

3. Current liabilities:

Overdraft

Sundry creditors

Outstanding Expenses

Proposes Dividend

Total (1+2+3)

II. Assets:

1. Non-current assets:

Plant

Goodwill

2. Current assets:

Stock

Debtors

Cash

Total (1+2+)

10,00,000

2,500

2,5000

25,000

10,500

30,000

3,500

6,000

____________________

1,97,500

96,000

25,000

35,000

32,000

9,000

1,97,500

50,000

15,000

4,000

-

5,000

20,000

5,000

5,0000

_______________

96,000

18,000

15,000

40,000

15,000

8,000

96,000

A business was purchased during the year by issue of rs.25,000 shares and Rs. 25,000 debentures. Depreciation Rs. 6,000 has been provided in the year. A machine has been sold for Rs. 1500 its W.D.V being Rs.1,000. The business purchased had the following assets and liabilities.

, , , . ,

From the following data prepare a found flow statement and the schedule of changes in working capital.

PARTICULARS

NOTES

31.12.15

31.12.14

I. Equity and liabilities

1. Shareholders funds:

a)Share capital

b)Reserve and surplus:

General reserve

Statement of profit and loss

2. Non-current liabilities

Bank loan

3. Current liabilities

Trade,payble (creditors)

Provision for taxes

Total (1+2+3)

II. Assets:

1. non-current assets

a) fixed assets

land and building(tangible Assets)

plant (tangible assets)

goodwill (intangible assets)

2. current assets:

inventory stock

trade receivable (debtors)

Cash & cash Equivalents

Cash in hand

Cash in bank

Total (1+2)

1,25,000

30,000

15,300

-

67,600

17,500

2,55,400

95,000

84,500

2,500

37,000

32,100

300

4,000

2,55,400

1,00,000

25,000

15,250

35,000

75,000

15,000

2,65,250

1,00,000

75,000

-

50,000

40,000

250

2,65,250

dividend of Rs. 11,000 was distribututed in the year 2015

,

depreciation changed on plant Rs. 7,000

,

Provision for income tax Rs. 16500 was made during the year 2015.

,

CASH FLOW STAEMENT

EXAMPLE -

QUESTION -5,8 long- 16

From the following balance sheets of Hari Ltd. And the additional informations given make out a cash flow statement.

PARTICULARS

NOTES

31.12.15

31.12.14

I. Equity and liabilities:

1. Shareholders fund:

a) Share capital

Equity share capital

10% redeemable preference share

b) Reserve and suplus :

Statement of profit and loss

General reserve

2. Current liabilities:

Trade payable:

Creditors

Bills payables

Short-term provisions:

Provision for taxation

Proposed dividend

Total (1+2)

II. Assets:

1. Non current assets:

a) Fixed assets

Land and building

Plant

Goodwill

2. Current assets:

Inventory (stock)

Trade receivables

Debtors

Bills receivables

Debtors

Bills receivable

Cash and cash equivalents:

Cash in hand

Cash at bank

Total (1+2)

4,00,000

1,00,000

48,000

70,000

83,000

16,000

50,000

50,000

8,17,000

1,70,000

2,00,000

90,000

1,09,000

2,00,000

10,000

8,000

8,17,000

3,00,000

1,15,000

30,000

40,000

55,000

20,000

40,000

42,000

6,77,000

2,00,000

80,000

1,15,000

77,000

1,60,000

15,000

10,000

6,77,000

Additional information

Depreciation of Rs. 10,000 and RS. 20,000 have been charged on plant account & land and building account respectively in 2014-15.

- , ,

An interim dividend of Rs.20,000 has paid in 2014-15.

- ,

Income tax Rs. 35,000 was paid during the year 2014-15.

- ,

Treatment of deferred tax liabilities in cash flow statement

From the following balance sheets of X Ltd. you are require to prepare a cash flow statement.

.

PARTICULARS

NOTES

31.12.15

31.12.14

I. Equity and liabilities:

1. Shareholders funds:

Share capital

Reserve & surplus

2. Non-current liabilities:

Deferred tax liabillty (net)

3. Current liabilities:

Trade payables

Provision for taxation

Total (1+2+3)

II. Assets:

1. Non-current assets:

Fixed assets:

Machinery

goodwill

Other non-current assets:

Underwriting commission

2. Current Assets:

Inventory

Trade receivable

Cash and equivalents

Prepaid expenses

Total (1+2)

3,00,000

27,000

1,92,000

67,500

8,22,000

3,00,000

49,500

15,000

3,22,500

75,000

37,000

22,500

8,22,000

3,00,000

15,000

2,17,500

52,500

7,35,000

2,25,000

60,000

30,000

2,70,000

90,000

30,000

30,0000

7,35,000

Additional information

Machinery whose original cast was Rs. 75,000 was sold for Rs.15,000 during the year account depreciation on this machinery was Rs. 39,000.

, , , ,

Depreciation on machinery charged during the year Rs. 30,000

,

Dividend paid during the year @ 10% in equity share capital.

%

The balance sheet of arnav Ltd. As on 31st march 2014 and 2915 are as follows:

BALANCE SHEET

Equity & liabilities

31.3.14

RS.

31.315

RS.

Assets

31.3.14 RS.

31.3.15

RS.

Shareholders funds:

Equity share capital

Retain earning

Non-current

Liabilities

60% debentures

Current liabilities

Trade payable

1,00,000

70,250

50,000

28,000

2,48,250

1,60,000

8,53,00

48,000

2,93,300

Non-current assets

Fixed assets

Accumulated dep.

Current assets

Cash

Trade receivables

Inventory

Prepaid expenses

1,52,000

(60,000)

28,100

30,800

93,400

3,950

2,48,250

2,00,000

(40,000)

20,000

21,100

89,200

3,000

2,93,300

Net profit Rs. 27,050 ( , )

Depreciation charge Rs. 10,000 ( , )

Diviended decleared and paid during the year Rs. 12,000

,

An additional to the building was made during the year at a cost of rs. 78,000 and fully depreciate equipment casting Rs30,000 was discarded no salvages being reakised.

, , ,

Treatment of deferred tax liability

From the following balance sheets of X Ltd. You are required to prepare a cash flow statement:

.

PARTICULARS

I. Equity and liabilities :

1. Shareholders funds:

Equity share capital

Reserve and surplus

2. Non current liabilities

Deferred tax liability (net)

3. Current liabilities

Trade payables

Provision for taxation

II. Assets:

1. Non current assets:

Fixed assets

Machiner

Goodwill

Other non current assets:

Underwriting commission

2. Current assets:

Inventory

Trade recivables

Cash & cash equivalents

Prepaid expenses

NOTES

31.3.15

5,00,000

3,92,500

45,000

3,20,000

1,12,500

13,70,000

5,00,000

82,500

25,000

5,37,500

1,25,000

62,500

37,500

13,70,000

31.3.14

5,00,000

2,50,000

25,000

3,62,500

87,500

12,25,000

3,75,000

1,00,000

50,000

4,50,000

1,50,000

50,000

50,000

12,25,000

Additional informations

Machinery whose original cast was Rs.1,25,000 was sold for Rs.25,000 during the year. Accumulated detraction on this machinery was Rs.65,000.

,, ,

,

Depreciation on machinery charged during the year Rs. 50,000.

,

Diviended paod during the year @ 10% on equity share capita.

%

Cost-volume profit relationship or break-even analysis

Example number - 1,6

Question number -

The following are the cost and sales data of a manufacturer selling three products X,Y,Z.

-----

Selling price per unit

(Rs.)

Variable cast per unit

% of rupee sale volume

X

4

3

20

Y

5

4

40

Z

8

6

40

(capacity of manufacture) Rs. 15,00,000 totalsales volume annual fixed cost Rs. 2,30,000

Find out.

Break even point in rupees

Profit or loss at 80% of capacity %

The relationship between sales and cost in a company is as follow

:

Sales Total cost

Rupees Rupees

50,000 40,000

90,000 60,000

Calculate the following:

Break even point of the business

Profit at an estimated sales of Rs.1,00,000

,,

Tractors Ltd. Have an installed capacity of 5,000 tractors per annum. They are presently operating at about 35 percent of installed capacity for the coming year they have budgeted as follows:

, %

Production /sales

Cost: 4,000 unit Rs. (corores)

Direct materials 8.00

Direct wages 0.60

Factory expenses 0.80

Administrative expenses 0.20

Selling expenses 0.20

Profit 1.00

Factory expenses as well as selling expenses are variable to the extent of rs. 20 %.

%

Calculate the break even capacity utisation percentage.

The price structure of a cycle made by the cycle co. Ltd. is as follows:

Per cycle Rs.

Material 60

Labour 20

Variable overheads 20

_______

100

_______

Fixed overheads 50

Profit 50

______

Selling price

200

_______

This is based on the manufacture of one Lakh cycles per annum

The company expects that due to competition they will have to reduce selling price but they want to keep the total profit intact. What level of production will have to be reached i.e how many cycles will have to be made to get the same amount of profit if:

:

a) The selling price reduce by 10%

%

b) The selling price is reduce by 20%

%

BUDGETARY CONTROL

Example number -

Question number -short 1,9

from the following informations prepare a cash budget for the quarter ending to 30 june 2004.

Amount in rupees

Particulars

Actuals Budgeted

Jan.

Rs.

Feb Rs.

March Rs.

April

Rs.

May Rs.

June Rs.

sales

purchase

wages

Expenses

80,000

45,000

20,000

5,000

80,000

40,000

18,000

6,000

75,000

42,000

22,000

6,000

90,000

50,000

24,000

7,000

85,000

45,000

20,000

6,000

80,000

35,000

18,000

5,000

You are further informed that:

:

10% of the purchase and 20% of the sales are for cash.

% %

The average collection period of company is month and the credit purchase are paid off regularly after one month

/

Wages are paid half monthly and the rent of Rs. 500 included in expenses is paid monthly.

Cash and bank balance as on april 1 was rs. 12,000 and the company want to keep it on the end of every month below this figure but not less than Rs. 11000 the excess cash being put in fixed deposite in multiples of one thousand.

, ( ) ,

From the data prepare a cash budget for six monthly ending 30th june.

:

Month

Sales

Purchase

Wages

Manufactureing expenses

Office expences

Selling expenses

2003

November

December

january-04

February

March

April

May

June

Rs.

25,000

30,000

20,000

25,000

30,000

35,000

40,000

45,000

Rs

10,000

15,000

10,000

15,000

17,500

20,000

22,500

25,000

Rs

2,500

2,800

2,000

2,200

2,400

2,600

2,800

3,000

Rs

1,100

1,200

1,250

1,150

1,300

1,350

1,450

1,500

Rs

1,000

975

1,060

1,04

1,105

1,120

1,180

1,185

Rs

600

650

550

650

750

800

825

875

Additional information available were as follows:

A sales commission of sale 5% on sale and due two months after sales is payble in addition to the above selling expenses.

%

A machine coasting Rs. 10,000 will be purchased in the month of January on cash payment basis.

,

A building coasting Rs. 80,000 will be purchased in January payble in two equal half yearly instalments. The first instalment is to be paid in febuary.

,

A divinded of Rs. 5000 is payable in april.

,

Period of credit allowed by creditors is 2 onth. The firm also sells goods to its customers o 2 month credit basis.

Log in payment of wages 1/8 month.

/

Log in payment of other expenses one month.

Cash balance on January 1,2004 was expected to be 37,500.

,

A company produces a standerd product. The estimated cast per unit are as follows-

Raw materials rs. 5 direct labour Rs.3 varible overheads Rs.2 the semi variable cost are: indirect materials Rs. 525 indirect labour Rs. 340 maintence and repairs Rs. 280.

Thae variable cost per unit included in semi variable are indirect materials Rs.0.05 indirect labour Rs. 0.08 maintence and repair re. 0.16

The fixed costs are: factory Rs. 1,800 administration Rs. 3,200 selling and distribution Rs. 3,000.

The above costs are for 50% normal capacity producing 500 unit. The selling price is Rs 32 per unit prepare flexible budget for 60% 80% and 100% normal capacities with the help of above .

.

. . . , , , % % % %

The budgeted expense for production of 5,000 units in a factory are furhished below:

, :

Per unit

Materials 35

Labour 15

Variable overheads 10

Fixed overheads (Rs. 40,000) 08

Variable expenses (Direct) 05

Selling expenses (20% fixed) 08

Administration expenses (Rs. 20,000) 04

Distribution expenses (30% fixed) 05

_____

90

______

Prepare a budget for production of (a) 4,000 units (b) 3,000 units. Assume that administration expenses are rigid for all levels of production.

( ) , ( ) ,

ELEMENTS IF FINANCIAL MANAGEMENT

LONG QUESTIONS

1. What do you understand by capital structure of a corporation? Discuss the basic qualities a sound capital structure possess

2. What do you mean by Leverage? Explain the financial leverage operating leverage and combined leverage with suitable examples. (Meerut 1996-98)

3. What do you understand by dividend? Explain the types of dividend. Discuss the factor influencing the dividend policy.(Meerut 1999 PVT 2002)

4. Explain the concept and determinants of working capital

5. What do you mean by capital budgeting. Discuss the purpose of such budgeting from the points of view of an industrial concern.

SHORT QUESTONS

1. What are the chief characteristic of a sound financial plan?

2. Are there some limitations of Financial planning?

3. Distinguish between over capitalization and under capitalization.

4. What is meant by Cost of Capital? Explain how it is calculated. (Agra 1985-96)

5. What do you mean by Weighted average cost of capital?

6. Describe the Gordons Model and Walter Model regarding dividend policy.

7. Explain the different sources of working capital.

8. How operating cycle period is calculated?

9. Explain the objectives of cash management.

10. Explain the objectives of receivables management and cash management.

11. What is A,B,C Analysis.

12. What do you mean by V.E.D analysis technique and E.O.Q.

13. Distinguish between ordering cost and carrying cost.

14. Discuss the Pay-Back period method and net present value method of capital Budgeting.

15. What is internal rate of return method.

NUMERICALS

CAPITA L STRUCTURE

Short questions

Firm X and Y are identical in all respects except that firm Yos leavered. The following data are related to them.

Firm X Firm Y

Assets owned 4,00,000 4,00,000

Debt Capital - 2,00,000

(10% Debenture)

Equity capital (Rs. 100 each) 4,00,000 2,00,000

Rate of return before tax on assets 25% 25%

Comment upon the policy of trading on equity followed bh firm Y.

The capital structures of X Ltd. And Y Ltd. Are as under:

X LTD. Y LTD.

Equity share capital 4,00,000 1,50,000

6% pref. Share Capital 1,80,000 2,50,000

8% debenture 1,20,000 1,50,000

Reserve 80,000 30,000

Profit and Loss Appropriation 1,20,000 20,000

Comment upon the capital gearing of the two companies.

LEVERAGE

(a) if operating leverage is 2 and sales increase by 50%,then by what percentage of EBT will increase?

(b) if opetaring leverage is 3 and firm wants to double its EBIT how much rise in sales would be needed on a percentage basis?

A company has the following capital structure:

Equity Share Capital Rs. 4,00,000

8.75% preference share capital Rs. 4,00,000

6% Debentures Rs. 5,00,000

The present EBIT is Rs. 2,00,000. Calculate the financial leverage assuming that company is in 50% tax bracket.

a) If financial leverage is 1.5 and EBIT increase by 10% then what percentage of EBT will increase?

b) If financial leverageis 2 and EPS increase by 10%the what percentageof EBIT will increase?

COST OF CAPITAL

A mit Ltd. Is willing to issue 2,000, 8% Debentures os Rs. 100 each and for which the company will have to incur following expense:

Underwriting commission 2% Brokerage 1% printing and other expenses Rs. 4,000.

Find out the cost of debt capital.

LONG QUESTIONS

CAPITA STRUCTURE

The capita structure of Abhinav Ltd. On 31st March,2005 wa:

Rs.

8% Debentures 12,00,000

9% Bank Loans(Long-term) 2,00,000

10% Preference Shares of Rs.10 14,00,000

19,000 Equity shares of Rs.100 19,00,000

Reserve & Surplus 13,00,00

____________

60,00,000

______________

The present earning before interest and tax are Rs. ,00,000. It is hoped that this company will maintain the same rate of return of return. The company needs Rs.10,00,000 for an expansion programme. For this following financing alternative are avialble :

Issue of 9% debentures at par

Issue of 105 preference shares at par,

Issue of equity shares at a premium of s.25.

Which alternative is the best for the Company? Assume tax rate 50%,

A company needs Rs. 10,00,000 for the installmention of a new factory. The new factory is expected to yield an annual earning before intrest and taxes (EBIT) of Rs. 1,60,000. The current market price per share is Rs. 5,00,000. It is considering the possibility of issuing equity shares and raising debt of rs.1,00,000 or Rs. 4,00,000or Rs. 6,00,000. Funds can be brrowed at the intrest rates indicates below:

Upto Rs. 1,00,000 at 8%

Over Rs. 1,00,000 to Rs. 5,00,000 at 12% and

Over Rs. 5,00,000 at 18%

Assume a tax rate of 50%. Determine the earning per share (EPS) and suggest the best alternative.

The existing capital structure of X Y Z Ltd. Is as under:

Rs.

Equity shares of Rs. 100 each 40,00,000

Retaind earnings 10,00,000

9% preference shares 25,00,000

7% Debentures 25,00,000

The existing rate of return on the companys capital is 12% and the incomes-tax rate is 50%

The company reqyires a sum of Rs. 25,00,000 to finance its expansion programme for which it is consideraing the following alternatives:

Issue of 20,000 equity shares at a premium of Rs. 25 per share.

Issue of 10% preference shares at per.

Issue of 8% debentures.

It is estimated that the P/E ratio in the cases of equity, preference and debenture financing would be 20,17 an 16 respectively. Which of the above alternatives would yo consider to be the best?

LEVERAGE

The following data relates to a company:

Rs.

Sales 5,00,000

Less: variable Expenses 3,60,000

__________

Contribution (C) 1,40,000

Less: Fixed Operating Expenses 1,00,000

__________

EBIT 40,000

Less: Interest 5,000

_____________

Taxable Income (EBT) 35,000

_______________

1. Using the concept of operating leverage,by what percentage will EBIT increase if there is a 20% increase in sales.

2. Using the concept of financial leverage,by what percentage will taxble income increase if EBIT increase by 10%.

3. Using the concept of combined leverage,by what percentage will taxable income increase if sale increases by 6%.

From the following, prepare income statement of firms A,B anC Briefly comment ob each firms performance.(C.a final,nov1997)

Firm A Firm B Firm C

Financial Leverage 3:1 4:1 2:1

Interest Rs. 200 Rs. 300 Rs. 1,000

Operating Leverage 4:1 5:1 3:1

Variable Cost(% on sales) 66.67% 75% 50%

Income-tax Rate 45% 45% 45%

COST OF CAPITAL

Flex foods Ltd.is thinking of raising fund by the issue of new equity share capital. The current market price of the companys share is Rs. 32. The company is expected to pay a dividend of Rs. 6.00 in next year. The issue expenses are Rs. 2 on each share . the company has paid dividend in past years as follows:

Year : 2000 2001 2002 2003 2004

DPS(Rs.) 4.00 4.20 4.41 4.63 4.86

Calculate the cost of new issue. (B.R.A. AGRA 998)

Following is the capital structure of Shiva Ltd.:

(Source) (Amount(Rs.) (Cost of Capital)

Debentures 5,00,000 12%

Preference Shares 8,00,000 8%

Equity Shares 12,00,000 15%

Retained Earnings 5,00,000 15%

Compute Weighted Average Cost of Capital.

The capital structure of Rohit Ltd. Is as under:

(Rs.)

3,000 12% Debentures of Rs. 100 each 3,00,000

2,000 10% Preference shares of Rs. 100 each 2,00,000

4,000 Equity Shares of Rs. 100 each 4,00,000

Retaines earnings 1,00,000

The earning per share of the company in the pas many years have been Rs. 15. The shares of the company are sold in the market at book value. The company tax rate is 50%. The company are sold in the market at book value. The company tax rate is 50%. The shareholders tax liability may be assumed as 25%. Find out the Weighted Average Cost of Capital. (MEERUT, M.COM 2003)

Rahu Ketu Ltd.has obtain capital from the following sources,the specific costs are also noted down against them:

Sources Book Value Market Value Cost of Capital

Debentures 20,00,000 19,00,000 5%

Preference Shares 5,00,000 5,50,000 8%

Equity Shares 30,00,000 60,00,000 13%

Retained Earnings 10,00,000 - 9%

You are required to calculate weighted average cost of capital using-(1) Book Value Weight

(2) Marke Value Weight.

MANAGEMENT OF WORKING CAPITAL

The following projections have been presented for consideration before the management of the company for the year 2004:

(a) Annual Expenses:

Wages rs. 52,000,stores and materials rs ,600 office salaries rs.12480 rent rs.2,000 other Expenses Rs.9,,600

(b) Averages amount of stock to be maintained: Rs.

Stock of finished Goods 1,000

Stock of stores and materials 1,600

(c) Expenses paid in advance : Quarterly

advance Rs. 1,600 p.a

(d) Annual sales: Rs

Home Market 62,400

Foreign Market 15,600

(e) Lag in payment of all expenses : Wages- 1 weeks, stores and Materials 1 months, office Salaries month, Rent-6 months; Other Expenses- 1 months.

(f) Credit period allowed to customers:

Home Market 6 Weeks

Foreign Market 1 weeks

Below are given the per unit selling price,costs and profit for Doaba Enterprises Limited:

Detail Per Unit

Rs.

Raw Material 160

Direct Labour 100

Overheads 140

________

Total cost 400

Profit 100

_____

Selling Price 500

______

The additional informations available are as follows:

The company sells goods to its customers on 2 month credit and purchases raw material from its suppliers on 1 month credit.

The average storage period is 1 month for raw material, month for work in progress and 11 onth for finished goods.

Time-lag in payment is month for wages and 1 month for overheads.

25% of the output is sold aginst cash.

On an average a sum of Rs. 50,000 is kept as cash.

The management of the company has made out plan to manufacture 36,000 units in the coming year.

Output and sales of the company are evenly sparead over throughout the year.

Assuming that 5% of the working capitais kept as additional fund for contingencies, you are required to work out an estimate of the total requirements for working capital by the company.

The following data have been taken from the financial records of seema Co. Ltd:

Raw material Rs. 40 per unit

Direct labour Rs. 20 per unit

Overhead expense Rs. 5,40,000 (total)

The following sdditional informations are also available:

1. The management of the company is planning to manufacture 1,00,000 units int the coming year. The selling price per unit will be 125. There is perfect harmony between output and sakes of the company which is maintained throughout the year.

1. The average storage period is 40 days for raw material and 30 days for finished goods.

1. The company seels goods to its customers on 30 days credit and purchases raw material on 0 days credit from its suppliers.

1. The duraction of the production cycle in the company is 20 days and needed raw material is issued to the production department at beginning of each production cycle.

1. 20% of the average working capital is kept as exetra cash for contingencies. Assume 360 working days in the operating period, work out an estimate of the total requirement of working capital for the company,using operating cycles method.

X & co. is desirious to purchase business and has causlated you at one point on while you are asked to advise them is the average amount of working capital while will be required in the first year working?

You are given the following estimated and are instructed to add 10% to your computed figure to allow for contingencies:

(figures for the year)

4. Average amount invested in stocks:

Stock to finished product 5,000

Stock of material & stores 8,000

4. Average credit given :

Inland sales 6 weeks credit 3,12,000

Export sales one and a half week credit 78,000

4. Lag in paument of wages & other expenses:

Wages one and a half weeks 2,26,000

Staores material etc. one and a half month 48,000

Rent royalty etc 6-months 10,000

Salaries half month 67,200

Miscellaneous Expenses 1 months

4. Advance payments:

Misc. Expenses (Paid Quarterly in advance) 8,000

4. Undrown profits 11,000

Set up calculation for the average amount of working capital required.

CAPITAL BUDGETING

X Ltd. Wants to purchase a machine. Following particulars are given which machine out of A and B is reasonable to purchase on the basis of pay-back period:

Machine A machine B

Cost of machine 6,00,000 10,00,000

Estimated life (in years) 10 10

Estimated savings in scarp per annum 40,000 60,000

Additional cost of supervision per annum 48,000 64,000

Additional cost of maintenance per annum 28,000 44,000

Cost of indirect materials per annum - -

Estimated savings in wages per annum - -

1. Wages per worker per annum 2,400 2,400

1. No. of workers no required 150 200

Using the method of pay back period suggest as which model should be purchased. Longer tax.

Mehata Co. Ltd. Is considering the purchase of a machine. Two machines X and Y are available each costing Rs. 50,000. Earning after taxation are expected to be as follows:

Year cash Flow

Machine X Machine Y

Rs. Rs.

1 15,000 5,000

2 20,000 15,000

3 25,000 20,000

4 15,000 30,000

5 10,000 20,000

Evaluate the both alternatives according to net present value method. A discount rate of 10% is to be used.

The engineering department of a company has suggested a change in operating methodsand has asked for a budget appropriation of Rs. 2,64,000 for the necessary equipment. Annual operating costs of the present and proposed methods are as follows:

Present (Rs.) Proposed(Rs.)

Labour 1,92,640 1,36,840

Supervision 15,280 15,280

Power 1,96,680 1,84,000

Waste 12,600 4,800

Repairs and Maintence 6,400 5,600

__________ ________

4,23,600 3,46,520

___________ _________

The estimated life of the new equipment is 10 years; no scarp recovery is expected. An income- tax rate of 50 percent will be assumed.

The project will be approved of the rate of return(discounted cash flow) exceeds 10 percent and if the pay back period does not exceed 6 years.

Should the appropriation requsted be approved? Support your answer.

Mehta company Ltd. Is considerering the purchase of machine. Two machines,X and Y, are available each costing Rs. 50,000 Earnings after taxation are expected to be as follows:

Year cash Flow

Machine X Machine Y

Rs. Rs.

1 15,000 5,000

2 20,000 15,000

3 25,000 20,000

4 15,000 30,000

5 10,000 20,000

Evaluate the both alternatives according to :

a) The pay-back period method;and

b) Present Value index method

A discount rate of 10% is to be used.