Management Accounting

October 2007

• Q.1 From the following Balance Sheets of Z. Ltd. prepare a Cash Flow Statement as per AS-3 for the year ended 31 December, 06 by indirect method. 20

Liabilities	2005 Rs.	2006 Rs.	Assets	2005 Rs.	2006 Rs.
Equity Share Capital	2,00,000	2,50,000	Fixed Assets	3,02,500	2,85,000
10% Pref. Share Capital	1,00,000	-	Debtors	60,000	70,000
5% Debentures (issued on 1-7-2006)	-	50,000	Stock	1,00,000	90,000
Capital Redemption Reserve	-	50,000	Bank	45,000	30,000
Profit and Loss A/c.	1,25,000	30,000	Preliminary Expenditure	30,000	20,000
Creditors	75,000	70,000
Bills Payable	37,500	45,000
	5,37,500	4,95,000		5,37,500	4,95,000

Additional Information:

1. Preference Shares were redeemed at 10% premium on 1-7-2006 with half yearly dividend.
2. Fixed assets were purchased for Rs. 97,500 on 1-10-2006.
3. Dividend of Rs. 20,000 on equity shares was paid.
4. Fixed Assets having original cost of Rs. 1,00,000 on which accumulated Depreciation was Rs. 30,000 was sold on 30-9-2006 at Rs. 40,000.
• Q 2. From the following figures, prepare an estimate of the working capital: 16

Production	30,000 units
Selling Price per unit	Rs. 10
Raw Material	60% of selling price
Direct wages	1/6th of raw material.
Overheads	Twice the Direct wages
Material in hand	2 months requirement
Production time	1 month
Finished goods in stores	3 month
Credit for material	2 month
Credit allowed to customers	3 month
Average cash balance	Rs. 40,000

 

Wages and overheads are paid in the beginning of next month. In production all the material are charged in the initial stage and wages and overheads accrue evenly.

• Q 3. Prepare a funds flow statement from the following details presented to you by Anand Chemical Ltd. 16
Balance Sheet as at 31st March

Liabilities	2006 Rs.	2007 Rs.	Assets	2006 Rs.	2007 Rs.
Share Capital	4,00,000	5,00,000	Land and Building	4,00,000	3,80,000
Reserves	1,00,000	1,20,000	Plant and Machinery	3,00,000	3,40,000
Profit and Loss A/c.	50,000	60,000	Goodwill	–	10,000
Bank Loan	1,40,000	–	Working Capital	50,000	20,000
Provision for Taxation	60,000	70,000
	7,50,000	7,50,000		7,50,000	7,50,000

• Other Details:
1. Company paid dividend at 11.5% on opening capital.
2. New shares were issued to a vendor for the business sold by him comprising stock Rs. 40,000 and Machinery Rs. 50,000.
3. Machinery purchased for cash Rs. 60,000.
4. Depreciation written off during the year: Building Rs. 20,000 and Machinery Rs. 35,000.
5. Old Machinery was sold during the year at a Profit of Rs. 5,000.
6. Income Tax paid during the year Rs. 54,000.
• Q 4. Following is the Balance Sheet of Abhijeet Ltd. as on 31st March, 2006. 16

Liabilities	Rs.	Assets	Rs.
Equity Share Capital	3,90,000	Cash in Hand	15,000
10% Preference Share Capital	2,00,000	Cash at Bank	90,000
9% Debenture	2,50,000	Preliminary Expenses	20,000
General Reserve	60,000	Goodwill	1,00,000
Capital Reserve	50,000	Building	3,00,000
11 % Bank Loan	1,00,000	Investment (Long-Term)	2,00,000
Creditors	1,25,000	Furniture	2,50,000
Bank Overdraft	1,35,000	Plant and Machinery	3,00,000
Provision for Tax	1,40,000	Debtors	1,50,000
Proposed Dividend	30,000	Prepaid Expenses	50,000
Profit and Loss A/c	1,40,000	Stock	2,00,000
Depreciation provision	80,000	Calls in arrears (Equity)	10,000
		Commission on Issue of Shares	15,000
	17,00,000		17,00,000

• Present the above Balance Sheet in vertical form and show the following:
1. Net worth.
2. Borrowed Fund.
3. Capital Employed.
4. Net Block.
5. Working Capital.
6. Fictitious Assets.
• Q 5. Rearrange above data of Petrol Ltd. In suitable form for analysis and calculate Trend Percentage and offer your comments. 16

Year	Fixed	Investments	Current	Preliminary	Total	Owner's	Term	Debenture	Total
	Assets		Assets	Expenses	Assets	Fund	Loan		Liabilities
2000	20	10	40	5	75	20	20	35	75
2001	22	9	30	4	65	20	20	25	65
2002	24	8	20	3	55	20	20	15	55
2003	26	7	30	2	65	40	20	5	65
2004	28	6	40	1	75	60	15	0	75

• Q 6. Following are the financial statements of two similar companies: 16
• Balance sheet as at 31st December, 2006

Liabilities	X Ltd. Rs.	Y Ltd. Rs.	Assets	X Ltd. Rs.	Y Ltd. Rs.
Share Capital			Land and Building	1,400	1,200
Equity Share of Rs. 10 each	4,000	4,000	Plant	4,100	3,200
Revenue Reserve	1,950	1,600	Stock	2,850	2,100
8% Debenture	1,000	1,000	Debtors	2,600	1,900
Trade Creditors	2,800	1,400	Investment (Long Term)	-	300
Other Creditors	250	200	Bank	100	300
Provision for Tax	900	700	Deposit	150	100
Proposed Dividend	300	200
	11,200	9,100		11,200	9,100

Income Statement for 2006

	X Ltd.	Y Ltd.		X Ltd.	Y Ltd.
Cost of Sales	10,800	9,000	Sales	15,000	12,000
Operating Expenses	2,900	2,000
Taxation	550	410
Net Profit after Tax	750	590
	15,000	12,000		15,000	12,000

On the basis of above information. You are required to compute separately the following ratio:

1. Capital Gearing Ratio.
2. Current Ratio.
3. Debtors Turnover Ratio.
4. Return on Proprietory Fund.
• Vertical final accounts need not be prepared.

• Q 7. From the following information find out missing figures and rewrite the Balance Sheet: 16

1. Current Ratio 2:1
2. Acid Test Ratio 5:3
3. Reserves and Surplus are 50% of Equity Share Capital.
4. Long Term Debts are 60% of Equity.
5. Stock Turnover Ratio 10 times.
6. Gross Profit Ratio on sales 20%.
7. Sales are Rs. 15,62,500 (25% Cash Sales and balance on credit)
8. Closing stock is Rs. 50,000 more than Opening Stock.
9. Accumulated Depreciation is 1/6 original Cost of Fixed Assets.

Balance Sheet as at 31st March, 2007

• Q.8 Complete the following common size Income Statement: 16  

• Q.9 (a)Working Capital is Rs. 90,000. Total Debt are Rs. 1,95,000. Long Term Debt are Rs. 1,50,000. Stock is Rs. 37,500. Prepaid Expenses are Rs. 7,500. Calculate Liquid Ratio. (3)
• (b) Find out Funds from operations from the following: 3  

• (c) Write short notes on any two: 10  

1. Trading on Equity.
2. Operating Cycle.
3. MIS Report.
4. Limitations of Ratio Analysis.