UNIT 1

Answer the following questions(2 Marks)

1.Define Accounting
According to AICPA (American Institute of Certified Public Accountants) it is defined as the
the art of recording, classifying and summarizing in a significant manner and in terms of
money, transactions and events which are in part at least of a financial character and interpreting
the result thereof.
2. What is mean by accounting?
Accounting is the process of identifying, measuring and communicating economic information to
permit informed judgments and decisions by users of information are classified into two
categories as i) Accounting concepts ii) Accounting conventions.
3. What is meant by the journal entry?
Journal is the book of Original Entry or First Entry which is used for recording of all business
transaction in chronological order. Then it is posted to ledger. This process is known as
Entering. In other words record of the each transaction is called as Journal Entry. The
process of recording in the journal is called as Journalizing.
4. What is Ledgering?
A Ledger Account may be defined as a Summary statement of all transactions relating to a
person, asset, expense or income which has taken place during a given period of time and
showing their net effect.
5. What is meant by trial balance?
The fundamental principles of double entry system of accounting is that for every debit, there
must be a corresponding and equal credit. Therefore, when all the accounts of a concern are thus
balanced in the ledger at the end of the period, a statement is prepared to show the list of debit
balances on one side and credit balances on the other side. This list so prepared is called as Trial
Balance. Accordingly the total of the debit side of trial balance must be equal to that of its credit
side.

6. Write a note on Gross profit

Gross profit is the resultant of an excess of the credit side total over the total of debit side. It
means that the gross profit is the excess of incomes in the credit side over the expenses in the
debit side.
Gross Profit = [INCOMES (CREDIT)> EXPENSES(DEBIT)]
7. What is Gross loss?
Gross Loss is the outcome of an excess of the debit side total over the total of credit side. It
means that the gross loss is the excess of expenses in the debit side over the incomes in the credit
side.
Gross Loss = [EXPENSES (DEBIT)> INCOMES(CREDIT)]
8.What is profit and loss account?
Trading account reveals Gross Profit or Gross Loss. Gross Profit is transferred to credit
side of Profit and Loss A/c. Gross Loss is transferred to debit side of the Profit Loss Account.
Thus Profit and Loss A/c is commenced. This Profit & Loss A/c reveals Net Profit or Net loss at
a given time of accounting year.
9.Define balance sheet.
The Word 'Balance Sheet' is defined as "a Statement which sets out the Assets and
Liabilities of a business firm and which serves to ascertain the financial position of the same on
any particular date.
10.List out the techniques or tools of financial analysis.

Comparitive financial statement analysis

Common size statement analysis

Trend analysis

Ratio analysis

Fund flow statement

Cash flow statement.

11.What is meant by ratio?

The ratio illustrates the relationship between the two related variables
12.What is meant by the accounting ratio?
The accounting ratios are computed on the basis available accounting information extracted from
the financial statements which are not in a position to reveal the status of the enterprise.
13.What is current liability?
Current liabilities are nothing but short term financial resources or payable in short span of time
within a year.
14.What are the objectives of ratio analysis?
Measuring the profitability
Judging operational efficiency of business
Assessing the solvency of business
Measuring short and long-term financial position of company
Facilitating comparative analysis of performance

15.List out current assets.

Marketable Securities
Inventory
Debtors
Bill Receivable
Pre paid expenses
Outstanding Incomes
Cash at Bank
Cash in Hand

16.Mention few quick assets

Marketable Securities
Debtors
Bill Receivable

Cash at Bank
Cash in Hand

17.What are all the current liability?

Trade creditors
Bank overdraft
Bills Payable
Provision for taxation
Outstanding expenses
Pre received incomes

18.What is current ratio?

This ratio is obtained by dividing the 'Total Current Assets' of a company by its 'Total Current
Liabilities'. The ratio is regarded as a test of liquidity for a company. It expresses the 'working
capital' relationship of current assets available to meet the company's current obligations.
Current Ratio = Total Current Assets/ Total Current Liabilities
19.What is debt-equity ratio?
Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds
and the internal equities or shareholders funds. It is also known as external internal equity ratio.
It is determined to ascertain soundness of the long term financial policies of the company.
[Debt Equity Ratio = External Equities / Internal Equities]
20.What is gross profit ratio?
Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It
expresses the relationship between gross profit and sales.
[Gross Profit Ratio = (Gross profit / Net sales) 100]

21.What is net profit ratio?

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage.
22.What is fund flow analysis?
The changes in the financial position of a business enterprise between beginning and ending
financial statement dates. It is a statement showing sources and uses of funds.
23.What are the steps involved in fund flow analysis?

Schedule of changes in Working Capital

Funds from operation

Funds Flow statement

24. What is cash flow statement?

Cash flow statement is a statement which indicates source of cash inflows and transactions of
cash outflow of a firm during an accounting period. The activities/transactions which generate
cash inflows are known as sources of cash and activities which cause cash outflows are known as
uses of cash.
25. Define fund flow statement.
According to Antony the fund flow statement describes the sources from which addition funds
were derived and the uses to which these sources where put.

Answer the following questions(16 Marks)

1.Prepare the final accounts for Ram traders on March 1966

DEBIT
Capital
Purchases

CREDIT
40500

45000

Purchase returns

3000

Sales

72000

Sales returns

2000

Stock on 1st jan 1994

15000

Cash in hand

2200

Salaries

3050

Rent

1250

Commission received

700

Discount earned

300

Wages

1500

Carriage inwards

500

Creditors

6000

Debtors

9000

Machinery

3000

Furniture

10000

Land & building

30000
122500

Stock on 31st dec 2003 21000

122500

2.Prepare the final accounts for John traders on 31st Dec 2006
Sales

65000

Sales return

500

Opening Stock

8000

Purchases

29000

Purchases return

300

Direct wages

5000

Direct expenses

5000

Carriage inwards

4000

Capital at the beginning

30000

Drawings

5000

Debtors

10000

Creditors

12000

Discount allowed

100

Discount received

500

Salaries

3000

Interest paid

400

Furniture

3000

Buildings

20000

Plant & machinery

20000

Cash in hand

1000

Bills payable

6200

Existing bad & doubtful debts

500

Bad debts

300

Closing stock

8000

Additional Information
1.
2.
3.
4.
5.

Outstanding salaries Rs.500

Interest on capital at 10% P.A
Depreciation on plant & machinery at 10% and buildings at 5% P.A
Prepaid of Interest Rs.100
Provision for bad and doubtful debts at 10% on debtors

4.From the following information calculate current ratio , liquid ratio, absolute liquidity ratio
Cash in hand

10000

Cash in bank

15000

Debtors

75000

Stock

60000

Bills payable

25000

Bills receivable

30000

Creditors

40000

Outstanding expenses

20000

Prepaid expenses

10000

Dividend payable

15000

Land & building

200000

Good will

100000

5. Explain in detail about accounting concepts and conventions

6. From the following balance sheet of Fazil private limited as on 31st march 2004 & 2005
prepare Schedule of changes , funds from operations & Fund flow statement
Asset

2004

2005

Liability

2004

2005

Good will

1,15,000

90,000

Equity share

3,00,000

4,00,000

Land& building

2,00,000

1,70,000

10%preference shares

1,50,000

1,00,000

Plant

80,000

2,00,000

G. reserves

40,000

70,000

Debtors

1,60,000

2,00,000

P & L a/c

30,000

48,000

Stock

77,000

1,09,000

Creditors

55,000

83,000

BillsReceivable

20,000

30,000

Bills payable

20,000

16,000

Cash in hand

15,000

10,000

Provision for taxation

40,000

50,000

Cash at bank

10,000

8000

Proposed dividend

42,000

50,000

6,77,000

8,17,000

6,77,000

8,17,000

Additional information
Depreciation of Rs.10,000 & 20,000 have been charged on Plant , Land & Building in 2005, An
interim dividend of Rs.20,000 have been paid in 2005 ,Income tax of Rs.35,000 has been paid in
2006
7. From the following balance sheet of Dev private limited as on 31st march 2004 & 2005
prepare cash from operations & Cash flow statement
Liability
Redemable
shares

2004
preference

2005

Asset

2004

2005

1000

Fixed assets

4100

4000

Equity Shares

4000

4000

(-) Depreciation

1100

1500

Total capital

4000

5000

Book value

3000

2500

General Reserves

200

200

Debtors

2000

2400

Profit & loss account

100

120

Stock

3000

3500

Debentures

600

700

Prepaid expenses

30

50

Creditors

1200

1100

cash

120

350

Provision for taxation

300

420

Proposed dividend

500

580

Bank overdraft

1250

680

8150

8800

8150

8800

UNIT II

Answer the following questions(2 Marks)

1.What is cost accounting?

Cost accounting is that branch of the accounting information system, which records, measures
and reports information about costs. The primary purpose of cost accounting is cost
ascertainment and its use in decision-making and performance evaluation. It is also useful in
planning and controlling.

2.What are the classification of cost?

i. By nature or Element or Analytical segmentation
ii. By functions
iii. Direct and Indirect cost
iv. By variability
v. By controllability
vi. By normality
vii. By time

3.Define marginal costing

According to ICMA, London "Marginal cost is the amount at any given volume of output, by
which aggregate costs are charged, if the volume of output is increased or decreased by one
unit."

4.What is breakeven point?

Break Even Point is the point at which the Total Cost is equivalent to Total Revenue. At the
breakeven point the business neither earns profit nor incurs a loss. It means that the firm's cost is
recovered at the minimum level of production.

5.What is p/v ratio?

PV ratio is Profit Volume ratio which establishes the relationship in between the profit and

volume of sales. It is a ratio normally expressed in terms of contribution towards volume of

sales. It is expressed in terms of percentage.
p/v ratio = contribution /sales x100
6.What is variance?
It is the difference between actual cost and standard cost during accounting period. It refers to
variation of actual result with planned result
7.What are the forms of variances?
Adverse/negative/unfavorable variance
Positive/favorable variance
8.What are the types of variance?

Material variances

Labor variances

Overhead variances

Sales variances

Margin variances

9.What is material cost variance?

Material cost variance represents the difference between the actual material value and standard
material value for a given output.
MCV = (SP x SQ) - ( AP x AQ)
10.What is material price variance?
Material price variance captures that part of cost variance which is due to the difference in price
per unit of materials. The formula for the measurement of material price variance (MPV) will be:
MPV = (SP - AP) x AQ.
11.What is material usage variance?
Material usage variance is that part of cost variance which is due to the difference in the
utilization of material quantity. The formula for the measurement of material usage variance
(MUV) will be:
MUV = (SQ - AQ) x SP
12.What is labour cost variance?
Labor cost variance represents the difference between the actual labor cost paid and standard
labor cost for a given output.

LCV = (SR x SH) - ( AR x AH)

13. What is standard costing?
standard costing is a control method involving the preparation of detailed cost and sales budgets.
Such budgets are then compared with the actual results for a specific account period and any
significant variances between the actual and the budgeted results are investigated. Unexpected
trends are corrected if they are not acceptable or they cannot be accommodated.

Answer the following questions(16 Marks)

1.Prepare a cost sheet from the following data to find out the Profit & cost per unit
Particulars
Raw materials consumed

Rs.
1,60,000

Direct wages

80,000

Factory overheads

16,000

Selling overheads

12,000

Units produced

4,000

Units sold

3600

Selling price

100 per unit

Office overheads (10% 0f Factory cost)

2.The following information relates gun manufacturing company for the three months ending
31st march 2004
Particulars

Rs.

Direct material consume

18000

Direct labor paid

12000

Direct expenses

4000

Factory overheads

6000

Administrative overheads

4500

Selling & distribution overheads

2500

Additional information
1000 units of gun are produced during the period & all the units produced or sold at rupees 55
per unit.
Prepare a cost sheet showing prime cost, factory cost, cost of production, cost of sales, profit or
loss
3. The sales turnover and profit during 2 years are as follows
Year

Sales

Profit

2000

1,50,000

20000

2001

1,70,000

25000

Calculate
P/ V ratio ,Break even point ,Sales required to earn a profit of Rs.40,000 ,The profit made when
sales are Rs. 2,50,000 ,Margin of safety @ a profit of Rs.50,000
4. Standard material required to produce 100 units is 120kgs, the standard price of 0.50 Paise per
kg is fixed and 2,40,000 units where produced during the period. Actual materials purchased
where 3, 00,000 kgs at a cost of Rs.1,65,000. Calculate material cost variance, material price
variance, material usage variance
5. From the following information calculate material yield variance
Materials

Standard
Quantity(units)

Standard
Price(Per unit)

80

Actual
Quantity(units)
60

Actual Price
(Per unit)
4.50

70

150

90

8.00

150

Standard loss 10% & actual yield 125 units.

6. What is standard costing? State the advantages & disadvantages of standard costing
7. The following data is taken out from the book of a manufacturing concern, budgeted labor
composition for producing 100 articles
20 men @ Rs.1.25 per hour for 25hours
30women @Rs.1.10 per hour for 30 hours
Actual labor composition for producing 100 articles
25 men @ Rs.1.50 per hour for 24hours
25 women @Rs.1.20 per hour for 25 hour
Calculate
Labor cost variance, ,Labor rate of variance , Labor efficiency variance , Labor

mix variance

UNIT III
Answer the following questions(2 Marks)
1. What is budget?
Budget is an estimate prepared for definite future period either in terms of financial or non
financial terms. Budget is prepared for any course of action or business or state or Nation, as a
whole. The budget is usually expressed in terms of total volume.
2. Define Budgetary Control
According to ICMA, England, a budgetary control is " the establishment of budgets relating to
the responsibilities of executives to the requirements of a policy and the continuous comparison
of actual with budgeted results, either to secure by individual action the objectives of that policy
or to provide a basis for its revision.
3. List out types of Budget
Various types of budgets are

Sales Budget

Production Budget

Purchase Budget

Expenditure Budgets

Cash Budget

Master Budget

Zero Base Budget

Flexible Budget

4. What is sales budget?

Sales budget is a functional budget. The product wise as well as regional break up of sales
estimates are incorporated in the sales budget. The sales budget begins with the previous year
actual and incorporates the likely changes

5. What is production budget?

The production budget is prepared based on the sales estimate incorporated in the sales budget.
The adjustments with respect to the opening and closing stock positions that are policy decisions
of the business are then made to prepare the production budget.
6. What is purchase budget?
The purchase budget is another functional budget that estimates the purchase requirement of
materials utilized in the production process. The purchase budget is based on the production
budget and the standard material consumption requirement for the production estimates.
7. What is expenditure budget?
Expenditure budgets may be drafted as fixed / flexible budgets. A fixed budget is one which is
prepared keeping in mind one level of activity. It is defined as one which is designed to remain
unchanged irrespective of the level of activity attained.
8. What is cash budget?
A cash budget consolidates all the cash inflows and outflows for the business. The cash budget is
also a functional budget. The cash budget helps the business to plan the project purchases as well
as to provide for the loan requirements. The cash budgets also help in defining the repayment
plans for short and long term loans of the business.

9. What is Fixed Budget?

It is a budget known as constant budget, never registers the changes in the preparation of a
budget, being prepared for irrespective level of output or production. This budget is Mainly
meant for the fixed overheads of the firm which are constant in volume irrespective level of
production. The ultimate utility of the budget is to control the cost as a cost controlling measure,
but the fixed budget is meaningless in having comparison with the actual performance.

10. What are items include in cash budget?

Cash budget is composed of four major sections.

Receipts

Disbursements

Cash excess or deficiency

Financing

11. What is master budget?

The master budget is the summary of various functional budgets. It is prepared by integrating
various budget into one consolidated budget so as to represent the budgeted profit & loss a/c and
the budgeted balance sheet as at the end of the budget period.

12. What is zero based budgeting?

The Zero base budgeting considers the current year as a new year for the preparation of the
budget but the yester period is not considered for consideration. The future activities are
forecasted through the zero base budgeting in accordance with the future activities.

13. What are the steps involved in zero based budgeting?

The very first step is to prepare the Zero Base Budgeting is to enlist the
objectives.

The extent of application should be decided in the next phase of the ZBB.

The next important stage is to prioritize the activities.

The Most important step involved in the process of ABB is cost benefit analysis.

The final step is to select, approve the decision packages and finalise the budget.

14. What are the benefits of zero based budgeting

It acts as guide for the management to allocate the resources more

accurately

depends upon the priority for an effective implementation.

It enhances capability of the managers who prepares the budget for future
action.

It paves way for optimum utilization of resources available.

It is a technique of utilitarian of the resources with reference to the activity

involved

It is dome shaped only towards the achievement of organizational goals.

15 .What is computerized accounting

Computerized accounting uses software programs designed from traditional manual accounting
systems. Computerized accounting involves the use of computers, spreadsheets and programs
designed to record and report financial information electronically

Answer the following questions(16 Marks)

1.Ram brothers sells 2 products R&S which are manufactured in one plant during the year 1989
it plans to sell the following quantities of each product
Particulars 1st quarter

2nd quarter

3rd quarter

4th quarter

Product A

90000

250000

300000

80000

Product B

80000

75000

60000

90000

Additional Information
1. Each of these products in sold on seasonal basis. Ram brothers plans to sell product R
throughout the year at a price of Rs.10 per unit and product S at a price of Rs.20 per unit.
A study of past experience reveals that ram brothers has lost 3% of its billed revenue each
year because of returns (constituting 2% of loss revenue) and allowances of bad debts 1%
loss. Prepare sales budget.
2.Prepare a production budget for 3 months based on the following information

Products

Estimated stock on 1st Jan

Estimated sales

Desired closing stock

2000

10000

3000

3000

15000

5000

4000

13000

3000

3000

12000

2000

3. A company is manufacturing 2 products X & Y, number of units to be produced the 1 st &

months is given below
Months

Production to be sold in Production to be sold

units X
in units Y

January

10000

28000

February

12000

28000

March

16000

24000

April

20000

20000

May

24000

16000

June

24000

16000

July

20000

18000

Additional Information
1. There will be no working progress at the end of any month
2. Finished the units = half the sale for the next month will be stock at the end of each
month (including December of previous year)
Budgeted production & production coast for the year end 31st dec as follows
Particulars

Production in units

220000

240000

Direct material per unit

12.50

19

Direct wages

4.50

Factory overhead

660000

960000

Prepare for 6 month ending a production budget & summarize cost of production budget.

4.A glass manufacturing company requires you to calculate and present the master budget for the
next year from the following information
Sales
Toughened glass 3,00,000 , Bent toughened glass 5,00,000, Direct material cost 60% of
sales, Direct wages 240 workers @ rs.150 per month
Factory overheads
Works manager rs.500 per month, Foreman rs.400 per month ,Stores and spares 2 % of
sales, Depreciation on machinery rs.12600,Light & power rs.5000, Repairs &
maintenance rs.8000 ,Others 10% of direct wages(sundries),administration ,selling
expenses rs.14000 per year.

5. For the production of 10000 electrical automatic irons the following are budgeted expenses
Particulars

Per unit value

Direct material

60

Direct labor

30

Variable overhead production

25

Fixed overheads(1,50,000)

15

Variable expenses(direct)

Selling expenses(10% fixed)

Administrative
production)

15

expenses(rs.50000

rigid

for

all

levels

of

Distribution expenses (20% fixed)

5
5

Total cost of sales per unit

160

Prepare the flexible budget for the production of 6000,7000, 8000 irons showing distinctly
marginal cost and total cost.
6.The cost of an article at a capacity level of 5000 units is given under A below. For a variation
of 25% in capacity of above or below this level, the individual expenses vary as indicated under
B below
Particulars

Material cost

25000

100% varying

Labor cost

15000

100% varying

Power

1250

80% varying

Repair & maintenance

2000

75% varying

Stores

1000

100% varying

Inspection

500

20% varying

Depreciation

10000

100% varying

Administrative
overheads

5000

25% varying

Selling overheads

3000

25% varying

Additional Information
Cost by unit Rs.12.5
Find the unit cost of the product at production levels 4000 & 5000 units

7. From the following data forecast the cash position at the end of the april-may 2003
Month

Sales

Purchases

Wages

Miscellaneous expenses

February

60000

42000

5000

3500

March

65000

50000

6000

4000

April

40000

52000

4000

3000

May

58000

53000

5000

6000

June

44000

40000

4000

3000

Additional Information

Sales 10% realized in the month of sales, balance is equally given in 2 subsequent months

Purchases are paid in a month following the month of supply

Wages 10% paid in the arrears following the month

Miscellaneous expenses paid in the month of arrears

Rent rs.500 per month paid quarterly in advance view in April

Income tax 1st installment of advance tax rs.15000 due on or before 15th June

Income from investment rs.3000 received quarterly in April and July

Cash in hand rs.3000 on 1st April 2003

8.What is zero based budgeting. what are the steps and benefits in zero based budgeting
9.Explain in detail about computerized accounting

UNIT IV

Answer the following questions(2 Marks)

1. What is meaning of Financial Management?
Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying
general management principles to financial resources of the enterprise.
2. What is capital budgeting?
It is the process of making investment decision in capital expenditures. Capital expenditure
defined as an expenditure the benefits of which are expected to be received more than one year.It
is incurred in one point of time and the benefits are received in different point of time in future.
3. What are the Methods of capital budgeting / evaluation of investment proposals?
(A) Traditional methods or Non-Discounted method
(i) pay-back period method or pay out or pay off method
(ii) Improvement of traditional approach to pay back period method
(iii) Rate of return method or accounting method

(B) Time-adjusted method or discounted methods

(i) Net Present Value method
(ii) Internal Rate of Return method
(iii)Profitability Index method

4. What is Pay-back period ?

This method represent the period in which total investment in permanent asset pays back itself. It
measure the period of time for the original cost of a project to be recovered from the additional
earning of a project itself.
5. What is Rate of Return ?
This method takes in to account the earnings expected from the investment over their whole life.
It is known as accounting rate of return.
6. What is Net present value?
The net present values of all inflows and outflows of cash occurring during the entire life of the
project is determined separately for each year by discounting these flow by firms cost of capital
or predetermined rate.
7. What is Cost of capital?
The cost of capital of a firm is the minimum rate of return expected by its investors. The capital
used may be debt, preference shares, retained earnings and equity shares.
8. What is Computation of cost of capital?
A. Computation of cost of specific source of finance
B. Computation of cost of weighted average cost of capital

9. What is Cost of preference capital ?

A fixed rate of dividend is payable on preference shares. Dividend is payable at the discretion of
the board of directors and there is no legal binding to pay dividend. In case dividend are not paid,
it will affect the fund raising capacity of the firm. Hence dividends are paid regularly except
when there is no profit

Issued at par

Issued at premium or discount

10. What is Cost of equity share capital ?

The cost of equity is the maximum rate of return that the company must earn on equity financed
position of its investments in order to leave or unchanged the market price of its stock.

11. What is Cost of retained earnings?

The retained earnings do not involve any cost because a firm is not required to pay dividend on
retained earnings. But shareholder expect return on retained earnings.
The cost of retained earnings may be considered as the rate of return which the existing
shareholders can obtain by investing the after-tax dividend in alternative opportunity of equal
qualities.
12. List out types of risk.
The risk can be further classified into six different categories
Interest rate risk
Inflation risk
Financial risk
Market risk
Business risk and
Liquidity risk
13. What is weighted average cost of capital?
The weighted average cost of capital (WACC) is the rate that a company is expected to pay on
average to all its security holders to finance its assets.

Answer the following questions(16 Marks)

1.Define Financial Management. State the objectives and functions of financial management
2. Determine the pay-back period for a project which requires a cash outlay of Rs. 10,000 and
generates a cash inflow of Rs.2,000 , Rs.4,000 , Rs.3,000 and Rs.2,000 in the first, second, third
and fourth year respectively
ii) A project cost Rs.5, 00,000 and yields annually a profit of Rs.80, 000 after
depreciation @12% p.a but tax of 50%. Calculate payback period.
iii) For each of the following projects compute(i) pay-back period method (ii) post-back
profitability and (iii) post-back profitability index
(a) Initial outlay

Rs.50, 000

Annual cash inflow (After tax but before depreciation) Rs.10, 000
Estimated life

8 years

3.A project requires an investment of Rs. 5, 00,000 and has a scrap value of Rs.20, 000 after 5
years. It is expected to yield profit after depreciation and taxes during the five years amounting
to Rs.40,000 , Rs.60,000 , Rs.70,000 , Rs.50,000 , Rs.20,000. Calculate Average rate of return,
Return per unit of Investment, Return on average Investment, and Average return on average
Investment.
4. What is cost of capital. state the factors determining cost of capital
5. Explain in detail about Risk-Return Relationship

6. Explain in detail about Time Value of Money Concepts

7. What is Capital Budgeting. State different appraisal methods

8.Calculate the average rate of return for project A&B from the following
Project A

Project B

Investment

Rs.20,000

Rs.30,000

Expected life(no salvage value)

4 years

5 years

Project net income(after Interest,

Dep & Taxes)
years
Project A(Rs.)

Project
B(Rs.)

1.

2,000

3,000

2.

1,500

3,000

3.

1,500

2,000

4.

1,000

1,000

5.

1,000

Total

6,000

10,000

If the required rate of return is 12% which project should be undertaken?

9. No project is acceptable unless the yield is 10%. Cash inflows of a certain project along with
cash outflows are given below
year

Outflow(Rs)

Inflows(Rs)

1,50,000

1.

30,000

20,000

2.

30,000

3.

60,000

4.

80,000

5.

30,000

Calculate Net Present Value

UNIT V

Answer the following questions(2 Marks)

1.What is Capital structure?

It is relationship between various long term forms of financing such as debentures, preference
share capital and equity share capital.
2. What is optimum Capital structure?
It is defined as capital structure or combination of debt and equities that leads to maximum value
of the firm.
3.What are the forms of capital structure?

Equity share only

Equity and preference shares

Equity and debentures

Equity, debentures and preference shares

4.List out theories of capital structure.

Net income approach

Net operating income approach

Traditional approach

MM approach

5.What is dividend policy?

The term dividend refers to that part of profits of a company which is distributed by the company
among its shareholders. It is the reward of the shareholders for investments made by them in the
shares of the company. The investors are interested in earning maximum return to maximize
their wealth.
6.List out the determinants of dividend policy.

Legal restrictions

Magnitude and trend of earnings

Desire and type of shareholders

Nature of industry

Age of the company

Future financial requirement

Government economic policy

Taxation policy

7. What are the types of dividend policy?

Stable dividend policy

Regular dividend policy

Irregular dividend policy

No dividend policy

8. What is working capital management?

Working capital is required to carry out day to day expenses. Long term funds are required to
create production facilities through purchase of fixed assets such as plant and machinery, land,
building; furniture etc. funds are also needed for short-term purpose for the purchase of raw

material, payment of wages, and other day-to-day expenses etc. These funds are known as
working capital.

9.list out the concept of working capital

Balance sheet concept

Operating cycle or circular flow concept

10.Mention the kinds of working capital

On the basis of concept

On the basis of time

11.What are the different types of working capital policies?

Liquidity policy

Profitability policy

Matching or hedging approach/policy

12.What are the Factors determining working capital requirement?

Nature or characteristics of Business

Size of Business / Scale of Operation

Production Policy

Answer the following questions(16 Marks)

1.What is working capital. Explain the factors affecting working capital?
2. What is Capital Structure. Explain the factors determining the capital Structure?
3. What is dividend policy. Explain the types of dividend policy its advantages and
limitations?
4.Explain in detail about the concepts of Working Capital and Working Capital Policies
5.Cost Sheet of XYZ Company provides the following particulars:
Particulars

Rs.

Raw-materials

80

Direct labour

30

Overhead

60

Total cost

170

Profit

30

Selling price

200

The following future particulars are available :

Raw material in stock, on average one month , Materials are in process on an average
of half a month , finished goods in stock on an average of one month.
Credit allowed by suppliers in one month , credit allowed to debtors is two months,
average time- lag in payment is 1 weeks , overhead expenses is one month. One
fourth of the output is sold against cash. Cash in hand and at bank is expected to be
Rs.3,65,000.

i.

You are required to prepare a statement showing the working capital needed to
finance a level of activity of 1,04,000 units of production. You may assume
that production is carried on evenly throughout the year, and wages and
overheads accrue similarly(WIP At 50% completion stage)

ii.

X& Y who want to buy a business seek your advice about the average working capital
requirements in the first years trading, the following estimates are available and you
are asked to add 5% to allow contingencies
Average amount locked with stocks

RS.

Stock of finished goods & working progress

10000

Stocks of stores & materials

8000

Local sales 3 weeks credit

90000

Outside the state sales 5 weeks credit

320000

For purchases 5 weeks

110000

For outstanding wages 3 weeks

290000

Calculate the average amount of working capital requirement