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Management Accounting

March 2007

Time: 3 Hours
Marks: 100
NB:
  1. Questions No. 1 is compulsory and carries 20 marks.
  2. Attempt any five questions, each carrying 16 marks from remaining questions.
  3. Working notes should form part of your answer.
  4. Proper presentation and neatness is essential.
  • Q.1 Amruta Enterprises (having Installed capacity of 2, 00,000 units p.a.) produced 1,00,000 units in the financial year2006-2007. The cost - structure in 2006 - 2007 was as under: 20
  • (a) Raw Materials 40%
    (b) Wages 15%
    (c) Factory Overheads 10%
    (d) Administrative and Selling Overheads 15%
    Total cost

    80%

    20%
    (e) Profit 100
     

    The selling price, which was Rs. 500 per unit in 2006-2007, is estimated to be fixed as at Rs. 600 per unit forthe year 2007-2008; and production and sale expected to increase by 40,000 units. It is, further, anticipated that raw materials cost per unit would increase by 10% due to price rise, whereas wage rate per unit would decrease by 20% due to automation, 56% of all the overheads are fixed and balance are variable.

  • As a Management Accountant you are required to prepare:-
  • (a) Cost statement for the year 2007-2008 and
  • (b) Statement showing estimated working capital required for the year 2007-2008 after considering the following additional information:
  • (a) Raw materials stock equivalent to two and half month’s consumption would be stored.
  • (b) Production time is one month. Raw materials are introduced at the beginning of the process, whereas wages and factory overheads accrue evenly during the production period.
  • (c) Two months stock of finished goods (valued at factory cost) would be carried in stock.
  • (d) 20% of raw materials would be imported from China and advance payment of two months would be made there against. 15% of indigenous raw materials requirement would be procured locally against immediate cash payment. Suppliers of balance of indigenous raw materials, allow a credit of one month.
  • (e) 50% of customers would enjoy a credit of one month, whereas balance 50% of customers would accept a bill of exchange payable after three months. These bills of exchange are immediately hypothecated with the bank against which overdraft facility would be available equal to 70% of amount of bills of exchange.
  • (f) Time - lag in payment of wages would be one month and for all overheads, it would be half month.
  • (g) The company would carry cash balance of Rs. 40,000 in its currency chest. Debtors are to be estimated at selling price.
  • (h) The activities are spread evenly throughout the year. Degree of completion of work-in-progress is 50%.
  • Q 2. The Mismanagement Ltd. always finds that it is hard pressed for funds. In spite of borrowing funds at a high rate from Banks, they are not able to make payments to suppliers in time. The financial position of the company as reflected from the Balance Sheet for the last two years is as under: 16
  • 2005 2006
    Rs. Lakhs Rs. Lakhs Rs. Lakhs Rs. Lakhs
    Share Capital
    (Rs. 10 each fully paid) 10.00 10.00
    Profit and Loss A/c 1.65 11.65 0.45 10.45
    Bank Overdraft 1.55 5.95
    Sundry Creditors 1.00 6.00
    14.20 22.40
    Land and Buildings 3.00 5.00
    Plant and Machinery 5.00 6.00
    Less: Depreciation 1.20 3.80 1.80 4.20
    Motor Cars 1.00 1.30
    Less: Depreciation 0.40 0.60 0.60 0.70
    Stock 2.20 7.20
    Debtors 4.60 5.30
    14.20 22.40
       
  • The following further information is available:
  • (a) Dividend was paid in 2006 at the rate of 10%.
  • (b) The company sold a motor car during 2006 for Rs. 8,000. This was purchased for Rs. 10,000 and its written down value in the books on 1-1-2006 was Rs. 5,000.
  • Prepare cash flow statement as per AS-3 by indirect method.
  • Q 3. From the following particulars prepare a statement of sources and application of funds for the year ended 31-3-2006of M/s. Rimzim Ltd: 16
  • (a) Rimzim Ltd. issued 1,000 shares of Rs. 120 each and all shares are subscribed and fully paid up.
  • (b) The company has redeemed preference shares for Rs. 1,00,000 at 10% premium. Premium was adjusted against securities premium.
  • (c) Investments are sold for Rs. 50,000 (resulting in profit of Rs. 10,000).
  • (d) Sale of machinery during the year Rs. 30,000 (resulting in loss of 5,000).
  • (e) Purchase of Fixed assets Rs. 1,20,000.
  • (f) Dividend paid Rs. 40,000 and income tax paid Rs. 35,000.
  • (g) Working capital of the company was Rs. 1,20,000 on 1-4-2005 and Rs. 1,80,000 on 31-3-2006.
  • (i) Depreciation provided for the year was Rs. 50,000 and preliminary expenses written off was Rs. 10,000.
  • Q 4. Following balances from the books of Account CHETAN Ltd. for the year ended 31-12-2006 you are required to prepare vertical income statement and vertical Balance sheet: 16
  • Particulars Amount
    Rs.
    Particulars Amount
    Rs.
    Advertising 25,000 Sales Return 10,000
    Interest Received 6,000 Bills Payable 43,000
    Sales 12,00,000 10% Pref. Share Capital 1,50,000
    Equity Share Capital 9,00,000 Debenture Interest 24,000
    Salaries 1,80,000 Wages 1,85,000
    Furniture and Fixture 2,00,000 Cash and Bank Balance 80,000
    Outstanding Expenses 25,000 Debtors 2,00,000
    P/L A/c (Credit. Balance) 1,30,000 Opening Stock 50,000
    Bad Debts 5,000 General Reserve 75,000
    Purchases 6,00,000 Creditors 1,00,000
    Machinery 7,50,000 8% Debenture 4,00,000
    Preliminary Expenses 10,000
    Income Tax 10,000
    Land and Building 7,00,000
     
  • Closing Stock on 31-12-2006 is Rs. 1,50 000.
  • Q. 5 Financial Position 16
  •  
    Liabilities 2005
    Rs.
    2006
    Rs.
    Equity Share Capital 2,00,000 2,50,000
    10% Pref. Share Capital 2,00,000 1,50,000
    Reserve Fund 80,000 1,00,000
    Profit and Loss Account 1,00,000 1,50,000
    12% Debentures 2,00,000 3,00,000
    Creditors 1,00,000 1,20,000
    Bank Overdraft 50,000 20,000
    Assets
    Building 3,00,000 3,20,000
    Machinery 1,50,000 1,80,000
    Furniture 40,000 35,000
    Investment 1,00,000 1,50,000
    Stock 1,50,000 2,00,000
    Debtors 1,00,000 1,20,000
    Bank Balance 90,000 85,000

    From the above information of Santhan Ltd. as at 31st March, 2005 and 2006 you are required to comment with the help of comparative statement, after rearranging in suitable form for analysis.

  •  
  • Q.6 Following is the Profit and Loss A/c and Balance Sheet of Adhiraj Ltd. 16
  •  
    Profit and Loss A/c for the Year ended 31st December, 2006
    Particulars Rs. Particulars Rs.
    To Opening Stock 20,000 By Sales 4,50,000
    To Purchases 2,00,000 By Closing Stock 80,000
    To Wages 50,000
    To Factory Expenses 70,000
    To G. P. c/d 1,90,000
    5,30,000 5,30,000
    To Administrative Expenses 60,000 By Gross Profit b/d 1,90,000
    To Selling Expenses 40,000 By Interest Received 5,000
    To Interest on Loan 5,000
    To Debenture Interest 8,000
    To Net Profit 82,000
    1,95,000 1,95,000
    To Tax Provision 20,000 By Net Profit 82,000
    To Proposed Dividend 20,000
    To Balance Profit 42,000
    82,000 82,000
     
    Balance Sheet as on 31st December, 2006
    Liabilities Amount
    Rs.
    Assets Amount
    Rs.
    Equity Share Capital (Rs. 10) 2,00,000 Land and Building 1,75,000
    9% Preference Share Capital 1,50,000 Machinery 1,50,000
    8% Debenture 1,00,000 Furniture 1,00,000
    Reserve 50,000 Goodwill 50,000
    P/L A/c 30,000 Patents 50,000
    Short Term Loan 1,00,000 Vehicles 1,40,000
    (Repaid within one year) Investment 50,000
    Bank Overdraft 75,000 Stock 80,000
    Sundry Creditors 1,40,000 Debtors 90,000
    Bills Payable 30,000 Bills Receivable 30,000
    Provision for Tax 20,000
    Proposed Divided 20.000
    9,15,000 9,15,000
     
  • Market price of equity share is Rs 7. Calculate the following ratios:
  • (a) Acid Test Ratio.
  • (b) Capital Gearing Ratio.
  • (c) Stock Turnover Ratio.
  • (d) Debtors Turnover Ratio.
  • (e) Creditors Turnover Ratio.
  • (f) Return on Capital Employed Ratio.
  • (g) Stock Working Capital Ratio.
  • (h) Operating Ratio.
  • Note: Vertical final accounts need not be prepared.
  • Q.7 The following information are available for a firm for the year ended 31-12-2006: 16  
  • (a) Gross Profit Ratio 25%
    (b) Net Profit Ratio 20%
    (c) Stock Turnover Ratio 10 times
    (d) Net Profit/Capital 1/5
    (e) Capital/Other Liabilities 1/2
    (f) Fixed Assets/Capital 5/4
    (g)Fixed Assets/Current Assets 5/7
    (h)Fixed Assets Rs. 5, 00,000
     
  • (i) Stock at the end Rs. 40,000 more than the stock, in the beginning.
  • Find Out:
  • (a) Cost of Goods Sold
  • (b) Gross Profit
  • (c) Net Profit
  • (d) Current Assets
  • (e) Capital
  • (f) Total Liabilities
  • (g) Closing Stock
  • (h) Total Assets
  • Q.8 Calculate trend percentage from the following information extracted from financial statements of Perfect Ltd. afterarranging in vertical form and give your comments: 16  
  • (RS. '000)
  • Particular 2003
    Rs.
    2004
    Rs.
    2005
    Rs.
    2006
    Rs.
    Sales 50,000 60,000 70,000 90,000
    Cost of Goods Sold 30,000 36,000 42,000 54,000
    Operating Expenses 10,00 11,000 12,000 13,000
    Income Tax 50% 50% 50% 50%
    Fixed Assets 10,000 ? 15,000 ?
    Net Worth ? 12,000 ? 16,000
    Working Capital 5,000 5,500 6,000 6,500
    Long Term Loans 5,000 6,000 7,000 8,000
     
  • Q.9(a) What is the impact of conversion of part of Debentures into equity shares on Debt-Equity Ratio which wasbefore conversion 1:1? (2)  
  • (b) State the impact of cash sales Rs. 40,000 (Cost Rs. 25,000) on Quick Ratio and Current Ratio. (2)
  • (c) What is the impact of making adjustment of Interest Accrued on Debentures on Return on Capital Employed?(2)
  • (d) Write short notes on any two: (10)
  • (i) MIS Report.
  • (ii) Manipulation of Accounts.
  • (iii) Uses of Ratio Analysis.
  • (iv) Flow of Funds.
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