MS-04 - Accounting and Finance for Managers

 

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Management Programme

 

MS-04: Accounting and Finance for Managers

 

Q1. Accounting is closely associated with control". Explain the statement and discuss the role of accounting feedback in the process of control. What do you understand by Internal Audit? How do the functions of an internal auditor differ from that of External Auditor?

Ans. Internal audit refers to the department located within a business that monitors the efficacy of its processes and controls. The internal audit function is especially necessary in larger organizations with high levels of process complexity, where it is easier for process failures and control breaches to occur.

An external audit is an examination that is conducted by an independent accountant. This type of audit is most commonly intended to result in a certification of the financial statements of an entity. This certification is required by certain investors and lenders, and for all publicly-held businesses.

 

Q2. You are required to prepare a Schedule of Changes in Working Capital and a Statement showing Sources and Application of Funds for XYZ Ltd. The following is the condensed Balance sheet of XYZ Ltd. at the beginning and at the end of the year 2021

Particulars	As at 1-1-2021		As at 31-12-2021
Assets
Cash and bank balances	50,000		40,000
Sundry debtors	77,000		73,000
Short-term investments	1,10,000		84,000
Prepaid expenses	1,000		2,000
Stock-in-trade	92,000		1,06,000
Freehold land and sheds	1,00,000		1,00,000
Plant and machinery	72,000		80,000
5,02,000		4,85,000
Liabilities and Capital
Sundry creditors	1,03,000		96,000
Outstanding expenses	13,000		22,000
5% Debentures	90,000		70,000
Depreciation fund	40,000		44,000
Reserve for contingencies	60,000		50,000
Profit and loss account	16,000		23,000
Share capital	1,80,000		1,80,000
5,02,000		4,85,000

 

Additional information available is:

(a) Dividend was paid @ 10%.

(b) During the year and old machinery costing Rs. 12,000 was sold for Rs. 4,000, on which accumulated depreciation was Rs. 6,000 and a new machinery of Rs. 20,000 was purchased. The factory sheds are fully depreciated.

(c) 5% Debentures of face value of Rs. 100 each worth Rs. 20,000 were redeemed by purchase from the open market at Rs. 96 each.

(d) Rs. 10,000 was debited to the contingency reserve for settlement of previous tax liability.

(e) Investment worth Rs. 26,000 were sold at book value.

Ans.

 

Q3. Explain the technique of Marginal Costing and Absorption Costing. Taking a suitable example prepare a Profit and Loss Account according to Marginal Costing and Absorption Costing.

Ans.

 

Q4. A firm has sales of Rs. 75, 00,000 variable cost of Rs. 42, 00,000 and fixed cost of Rs. 6,00,000. It has a debt of Rs. 45, 00,000 at 9% and equity of Rs. 55, 00,000.

(i) What is the firm’s ROI?

(ii) Does it have favourable financial leverage?

(iii) If the firm belongs to an industry whose asset turnover is 3, does it have high or low asset leverage?

(iv) What are the operating, financial and combined leverages of the firm?

(v) If the sales drop to Rs. 50.00.000, what will be the new EBIT?

(vi) At what level the EBT of the firm will be equal to zero?

Ans.

 

Q5. Discuss the concept of Working Capital. As a financial manager which factors would you take into consideration while estimating working capital needs of your firm.

Ans.

 

 

 

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