MS-4_

							              MANAGEMENT PROGRAMME
                   Term-End Examination
                       December, 2OO7


                            AND FINANCE
           MS-4@ : ACCOUNTING
                       FOR MANAGERS


Time: 3 hours                              Maximum Marks: 700
                                                 (Weightage70%)


Note :      Attempt any fiue questions. AII questionscarry
            equal marks.


l.   (a)    What do you understand Fundamental
                                 by             Accounting
            Concepts? Enumerate these concepts.Do you find
            any of these conceptsconflictingwith each other ?
            Answer giving suitableexamples.


     (b)    What do you understandby Internal Audit ? How
            does an internal auditor differ from an external
            auditor ?




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                                                                .
2.   (a)   Why is depreciationcharged while preparing the
           Profit and Loss Account ? Distinguishbetween any
           two methods of charging depreciation and show
           their effect on the net profit. Which method is
           more logical and why ?

     (b)   Distinguish between Current          Liabilities and
           Contingent Liabilities. Are they treated alike in the
           BalanceSheet ?


3.   What do you understand BudgetaryControl ? Discuss
                           by
     its objectives and explain the steps that are taken for
     installing an ellective system of budgetary control in an
     organisation.


4.   Distinguishbetween :

     (a)   Gross          Margin and Return on Investment

     (b)   Financial Risk and Business Risk

     (c)   Profit     Maximisation   and   Wealth   Maximisation
           Criteria

     (d)   Internal Rate of Return method and Net Present
           Value method




MS-4o
5 . While finalising the plans for the coming year, the
    executives of a company thought it advisable to have a
    look at the product-wise performance during the current
    year. The following information is furnished :

                                   Product Product Product
     Particulars                     A       B       C
                                    (Rs.)   (Rs.)   (Rs.)
     Unit Selling Price              80       60       36
     Direct Material                 28        24      t6
     Direct Labour                   20        T2      1,2
     Factory Overhead:
       Variable                       8        6       4
       Fixed                          8        6      r.28
     Cost of Production              64       48     33.28
     Selling, Distribution&
     General Administration
     Expenses:
       Variable                       4        2       2
       Fixed                          4        6      r.52
    Unit Cost                        72       56     36.80
    Unit Profit (Loss)                8        4     (0.80)
    SalesVolume (units)            10,00015,000 15,000
     Profit (Loss)                80,000 60,000 ( 1 2 , 0 0 0 )

        During the coming period, the seliing price and costs
    of the three products are expected to remain unchanged.
   There will be an increase in sales of Product A by 1000
   units and the increase in sales of Product C is expected


MS-4@                                                        P.T.O.
     to be 8000 units. The sales of Product B will remain
     unchanged. Sufficient additional capacity exists to enable
     the    increased demand to     be met     without   incurring
     additional fixed cost.


           Some executives contend that it will be unwise to go
     for additional production and sale of Product C since it is
     already losing Rs. 0.80 per unit. Their suggestion is that
     Product C should be eliminated altogether. Do you agree
     with this suggestion ? Substantiatewith necessary analysis
     and determine the product-wise and overall profits for the
     coming year.


6.   Comment       upon    the    following   statements    giving
     appropriate reasons :

     (a)    The earning capacity of a company is better judged
            by PBIT rather than PA T .

     (b)    Cost of debt is always cheaper as compared to other
            sources of funds.

     (c)    Operating cycle plays a decisive role in influencing
            the working captial needs.

     (d)    Lower the Break-even point, better it is.


7.   What do you understand by appropriate capital structure
     for a company ? What factors are usually taken into
     consideration while designing the capital structure of a
     company ? Explain.




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8.   Summarised Balance Sheet and Profit and Loss Account
     of a company is given below.      Determin e the following
     ratios and comment on the health of the company basing
     your arguments on the industry averages given in the
     brackets :



          InventoryTurnover             (10)
          Investment
                   Turnover             (1.5)
          SalesMargin                  (3.5%)
          Profit/AssetsEmployed        (4.0o/o)
          ProfitlNet worth             (11 '5%o)
          AverageRealization
                           Time        (45 days)
          Debt,/Equity                 (3.2)



                         Balance Sheet

                         Rs. crore                  Rs. crore

     Equity                96.8      Net Block         48'4

     SecuredLoans          17.6      Stocks           66.0

     Creditors             13.2      Debtors          22.0

     Overdraft             17.6      Bank balance      17.6

     Income Tax due          8.8

                          15 4 . 0                    154.0




MS-4@                                                         P.T.O.
                      Profit and Loss Account


Particulars                       Rs. crore   Particulars Rs. crore

Materials                           83.6      Sales        220.0

Manpower                            52.8

Energy                               8.0

Factory Expenses                    13.2

Depreciation                         4.8

Selling & Distribution Expenses     22.0

Administration                      18.0

Interest                             7.6

Profit                              16.0

                                  220.0                    220.0


         Assume Income Tax Rate at 50%o




 MS-4o                                                      1,OO0