Question Bank Afm

QUESTION BANK ACCOUNTING AND FINANCIAL MANAGEMENT Second Semester MCA – Master of Computer Applications University of Madras Prepared by: N Rakesh, Chennai Unit I – Financial Accounting 1. What is the double entry system of bookkeeping? Explain the principles giving suitable examples 2. Explain a) Going Concern concept b) Dual Aspect Concept c) Cost Concept. 3. From the following details, Calculate the operating ratio and gross profit ratio. Cost of goods sold Rs. 1,50,000 Operating expenses Rs. 50,000 Sales Rs. 3,50,000 Sales Returns Rs. 30,000 4. Prepare Trading account for year ending 31-3-2005 Stock on 1.4.04 15000 Purchases Carriage inwards 1600 Sales Carriage outwards 900 Stock (31.3.2005) Return Inwards 2200 Return Outwards Freightinwards 900 Wages

87000 142000 17000 1500 9700

5. Define Management accounting. Differentiate it from financial accounting. 6. From the following trial Balance, prepare trading and Profit & Loss account for the year ended 30-03-2005 and a balance sheet as on that date: Name of Account Drawings Insurance General Expenses Debtors Creditors Furniture Plant & Machinery Building Stock (1-04-2004) Carriage Inwards Carriage Outwards

Debit 6000 600 3000 14500

Credit

6800 7500 20000 45000 6000 2400 3200 -1-

Salary Freight Wages Return Inwards Return outwards Purchases Sales Cash at bank Capital

15000 4000 7600 800 700 42000 99000 3900 Total

181500

75000 181500

Adjustments: 1) Closing Stock was valued at Rs.10500 2) Prepaid insurance amounted to Rs.200 3) Outstanding expenses: Salaries Rs.600, Advertisement Rs.1000 4) Depreciation: Building – 5%, Plant & Machinery- 15%, Furniture – 20%. 5) Provide interest on capital at 4%. Unit II – Ratio Analysis 1. What does Ratio Analysis mean. 2. How would you calculate Debt collection period 3. What do you mean by debt-equity ratio 4. Calculate the debtor’s turnover ratio from the following figures. Cash Sales 2,00,000 Total Sales 10,00,000 Bills receivable on 1.1.95 75,000 Bills receivable on 31.12.95 1,25,000 Debtors on 1.1.95 1,00,000 Debtors on 31.12.95 1,50,000 5. What is the information furnished by a Balance Sheet. Outline a model balance sheet. 6. Explain any two turnover ratios and their significance. 7. Explain the Return on Investment ratios and how they are calculated. 8. Explain the following turnover ratios and the way they are calculated. i. Debtors Turnover ratio ii. Creditors Turnover ratio iii. Stock turnover ratio -2-

9. Calculate the following ratios from the given balance sheet. a) Current Ratio b) Liquid Ratio c) Stock turnover Ratio d) Debtors turnover Ratio and debt collection period Additional information: Sales (all Credit) 750000 Gross profit is 20% of sales Closing stock is Rs. 10000 more than opening stock. Balance Sheet Share Capital 7,00,000 Land and Buildings Reserves 50,000 Plant & Machinery Surplus 70,000 Stock Bank Overdraft 35,000 Debtors Creditors 1,00,000 Bills Receivable Bills payable 50,000 Cash in Bank Cash in Hand 10,05,000

3,50,000 2,00,000 1,55,000 70,000 10,000 1,80,000 40,000

10,05,000

10. Calculate Gross Profit Ratio Opening Stock 25,000 Purchases 80,000 Closing Stock 35,000 Purchases Returns 2,000 Sales 105,000 Sales Returns 5,000 11. Compute the Operating Ratio Total Sales Rs.2,65,000 Sales Returns 15,000 Gross Profit Ratio 30% Administrative Expenses 15,000 Selling and Distribution Expenses 10,000 12. Following is the Balance Sheet of the firm Liabilities Rs. Assets Rs. Share Capital 30,000 Fixed Assets 16,500 Reserves 3,500 Cash 1,000 Creditors 8,000 Debtors 6,000 Bills Payable 2,000 Bills Receivable 2,000 Stock 17,500 Prepaid Expenses 500 Total 43,500 Total 43,500 -3-

Compute the current ratio and the liquid ratio. 13. With the following ratios and further information given below, prepare a Trading, Profit and Loss account and Balance Sheet Gross Profit ratio 25% Net profit ratio 20% Stock turnover ratio 10 Net profit/Capital 1/5 Capital to Total Liabilities 1/2 Fixed Assets/Capital 5/4 Fixed Assets/Total Current Assets 5/7 Fixed Assets Rs.10,00,000 Closing Stock Rs.1,00,000 Unit III – Marginal Costing 1. Define Variable cost 2. What is Breakeven Point 3. From the following figures calculate a) P/V Ratio b) Breakeven Point and c) Sales to earn a profit of Rs.120,000 Sales 4,00,000 Variable Cost 3,75,000 Fixed Cost 1,80,000 4. From the following particulars find out the Breakeven Point Variable Cost per unit Rs.15 Fixed Expenses Rs.54,000 Selling price per unit Rs.20 What will be the revised breakeven point if the selling price is increased by 25%. 5. Given below are information for two consecutive periods

Period I Period II a) b) c) d) e)

Sales 1,20,000 1,40,000

Profit 12,000 14,000

Compute the P/V Ratio and the Breakeven Point Calculate the profit/loss when sales are Rs.2,00,000 Calculate the profit/loss when sales falls down to Rs.60,000 Calculate the sales required to earn a profit of Rs.25,000 What is the margin of safety in the first and second periods.

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6. How can breakeven point be determined by breakeven chart. Explain with an illustration.

7. Fixed Cost Rs.40,000 Breakeven Point Rs.100,000 Calculate (a) P/V Ratio (b) Profit when sales is Rs.200,000 and (c) Required Sales to achieve a profit of Rs.100,000 8. What is meant by break-even analysis? Explain the practical significance of break-even analysis. 9. From the following information in two consecutive years

Year Sales

Profit

2005 120,000 2006 140,000

9,000 13,000

Calculate the following a) b) c) d) e)

Profit/Volume Ratio Breakeven Point for sales Profit when sales are Rs.100,000 Sales required to earn a profit of Rs.20,000 Margin of Safety in 2006

Unit IV – Budgetary Control 1. What is a budget 2. Differentiate between fixed and flexible budget. 3. What are the different types of functional budgets. 4. What do you mean by Budgetary Control. Explain the objectives of Budgetary control. 5. What is a flexible budget.Under what circumstances would you recommend flexible budgeting. 6. What is Zero base budgeting 7. Prepare a Production Budget for the three month period Jan to Mar from the following information Product Estimated Sales Stock on Jan 1 Stock on Mar 31

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A

50,000

6000

7000

B

40,000

7000

4000

C

50,000

5000

8000

8. For a company producing 720 units, Prepare a flexible budget for production at 900 units and 1200 units. Materials Rs.120 per unit Labours Rs.40 per unit Variable Expenses – Rs.10 per unit Factory Overheads – Rs.80 per unit (60% variable) Administrative Overheads – Rs.50 per unit (40% variable) 9. Summarized below are the income and expenditure forecasts for the months of March to July 2003 Month Sales Purchases Wages March 60,000 36,000 9000 April 62,000 38,000 8000 May 64,000 33,000 10000 June 58,000 39,000 8500 July 56,000 39,000 9500 Prepare cash budget for 3 months starting on 1st May 2003 keeping in view the following information: i. Cash balance as on 1st May 2003 was Rs.18000 ii. Period of credit allowed by suppliers are two months iii. Period of credit allowed to customers one month Unit V – Capital Budgeting 1. What do you mean by the time value of money. 2. Explain the process of capital budgeting 3. What are the factors to be noted in appraising a project 4. Explain the process of discounting and how it is useful for capital budgeting. 5. Calculate the payback period for a project requiring an investment of Rs.300,000 and generating the following cash inflows: Rs.50,000, Rs.80,000, Rs.80,000, Rs.100,000, Rs.100,000, Rs.120,000 6. Explain the Net Present Value Method and how to accept or reject projects using this method. -6-

7. A company is thinking of purchasing a machine. Two machines A and B are available, each costing Rs.10,00,000. In comparing the profitability of the machines, a discount rate of 10% is to be used. Cash inflows are

Year Machine A Machine B 1 300,000 100,000 2 400,000 300,000 3 500,000 400,000 4 300,000 600,000 5 200,000 500,000 Indicate which of the machine would be more profitable, using the Net Present Value Method and Accounting rate of Return method. 8. A company is contemplating to purchase a machine. Two machines A and B are available, each costing Rs 10,00,000. In comparing the profitability of the machines a discounted rate of 10% is to be used. Earnings after taxation are expected to be as under: Year Machine Machine A B 1 2 3 4 5

3,00,000 3,00,000 5,00,000 3,50,000 2,00,000

1,50,000 2,50,000 2,50,000 2,00,000 3,00,000

Indicate which of the machine would be more profitable, using the following methods of ranking investment proposals: a) Net present value method b) Profitability Index method 9. A Company has an investment opportunity costing Rs.50,000 with the following expected net cash flow Year Cash Inflow (Rs.) 1 15,000 2 20,000 3 30,000 4 25,000 5 30,000 Calculate the Internal Rate of Return

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