MANAGEMENT PROGRAMME
Term-End Examination
June,2OO8
MS-4 : ACCOUNTING AND FINANCE FOR MANAGERS
Time : 3 hour Maximum Marks : 100 (Weishtage 70%)
Note : Attempt any five questions. All question carry equal marks. Use of calculators is allowed.
l. (a) What do you understand by the concept of conservatism ? Why is it also called the concept of prudence ? Why is it not applied as strongly today as it used to be in the Past ?
(b) What is a Balance Sheet ? How does a Funds Flow Statement differ from a Balance Sheet ? Enumerate the items which are usually shown in a Balance Sheet and a Funds Flow Statement .
2. (a) Why does depreciation need to be provided on fixed assets and what are the usual method of providing depreciation?
(b) Discuss the role of the Board of Directors in dividend decision.
3. What do you understand by Discounted Cash Flow Techniques of Capital Budgeting ? Briefly explain the Net Present Value Method and Internal Rate of Return Method. which of the two would you rank better and why ?
4. Distinguish between : (a) Financial Leverage and operating Leverage
(b) Cash Budget and Cash Flow Statement
(c) 'First in, First out and 'Last’, First out' systems of Inventory Valuation.
(d) Preference shares and Rights shares
5. A company manufactures a single product in its factory utilizing 600% of its capacity. The selling price and cost details are given below :
| Rs. | |
| Sales (6,000 units) | 5,40,000 |
| Direct materials | 96,000 |
| Direct labour | 1,20,000 |
| Direct expenses | 19,000 |
| Fixed overheads : | |
| Factory | 2,00,000 |
| Administration | 21,000 |
| Selling and Distribution | 25,000 |
The cost estimates of the new product are as follows :
| Cost elements | Rs. per unit |
| Direct materials | 16.00 |
| Direct labour | 15.00 |
| Direct expenses | 1.50 |
| Variable factory overheads | 2.00 |
| Variable selling and distribution overheads | 1.50 |
However, there will be an increase of working capital to the extent of Rs. 75,000, which would take the total cost
of the project to Rs. 8.75 lakh.
The company considers that 20o/o pre-tax and interest return on investment is the minimum acceptable to justify
any new investment.
You are required to
(a) Decide whether the new product be introduced.
(b) Make any further observation/recommendations about profitability of the company on the basis of the above data , after making assumption that the present investment is Rs. 8 lakh.
6- Explain fully the following statements : (a) "Lower the Break-even point, better it is.,,
(b) "Greater the variability of cash flows, higher should be the minimum cash balance .,,
(c) "Weighted average cost of capital would always be higher, if the market value weights are used".
(d) "Capitalisation of reserves is different from capital reserves".
7. ' Why do you understand by the term 'pay-out ratio' ? What factors are taken into consideration while determining
pay-out ratio ? should a company follow a fixed pay-out ratio policy ? Discuss fully.
8. From the ratios and other data given below for Bharat Auto Accessories Ltd. indicate your interpretation of the
company's financial position, operating efficiency and profitability.
| Year I | Year II | Year III | |
| Current Ratio | 265% | 278% | 302% |
| Acid Test Ratio | 115% | 110% | 99% |
| Working Capital Turnover (times) | 2.75 | 3.00 | 3.25 |
| Receivables Turnover | 9.83 | 8.41 | 7.20 |
| Average Collection Period (Days) | 37 | 43 | 50 |
| Inventory to Working Capital | 95% | 100% | 110% |
| Inventory Turnover (times) | 6.11 | 6.01 | 5.41 |
| Income per Equity Share | 5.10 | 4.05 | 2.50 |
| Net Income to Net Worth | 11.07% | 8.5% | 7.0% |
| Operating Expenses to Net Sales | 22% | 23% | 25% |
| Sales increase during the year | 10% | 16% | 23% |
| Cost of goods sold to Net Sales | 70% | 71% | 73% |
| Dividend per share | Rs. 3 | Rs. 3 | Rs. 3 |
| Fixed Assets to Net Worth | 16.4% | 18% | 22.7% |
| Net Profit on Net Sales | 7.03% | 5.09% | 2.0% |