BBA407 – Management Accounting

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Bachelor of Business Administration - BBA Semester 4    

BBA407 – Management Accounting

Assignment Set 1

Q1. What are the factors that affect the policy of dividend of a company?

(Factors that affect the dividend policy of a company)

Answer. The formulation of dividend policy depends on whether there should be a stable pattern of dividends over the years or whether the company should treat each dividend independently. We shall briefly discuss the factors that affect the dividend policy of a company.

• Legal considerations – The provisions of the Companies Act, 1956, must be kept in mind since they provide a major dimension to the dividend decision. Section 205 of the Companies Act prescribes the quantum of distributable profits. The important provisions in this respect are:

Ø  A company can pay only cash dividends (with the exception of bonus shares).

Ø  Dividends can be paid only out of profits earned during the financial year after providing for depreciation and after transferring to reserves such percentage of profits as prescribed by law.

Q2. Budgetary control is a system of planning and controlling costs. It is a process of continuous comparison of actual performance and cost with the budget. Explain the steps in detail.

(Steps included in the budgetary control system)

Answer. Steps in Budgetary Control: In the previous section, we studied about the objectives of budgetary control. In this section, we will learn about the steps involved in budgetary control. The various steps included in the budgetary control system are:

1. Determination of organisational objectives – Budget is a tool for implementing the organisational objectives and policies. Hence, it is essential to determine organisational objectives before starting to prepare budgets.

Q3. The following is the balance sheet of Star Enterprise.

Share capital: Equity share of Rs.10 each	1,00,000	Fixed assets	1,00,000
Reserve fund	10,000	Stock	40,000
7% debentures	30,000	Debtors	30,000
Overdraft	30,000	Cash	20,000
Creditors	20,000
	1,90,000		1,90,000

Calculate:

1. Current assets ratio

2. Liquid ratio

3. Solvency ratio

4. Debt-equity ratio

Answer. 1. Liquid ratio

Assignment Set 2

Q.1 Explain the Concept of Working Capital Cycle and Optimum Working Capital.

Answer. Working Capital Cycle -           

The working capital cycle refers to the length of time between payment of cash by the firm for material, etc. entering into the production process/stock and the inflow of cash from debtors. Suppose a company has a certain amount of cash, it will need raw materials. Some raw material will be available on credit but cash will be paid out for part of the raw material required immediately. Then, the company has to pay for labour costs and incur factory

Q2. A Company belongs to a risk class of which appropriate capitalisation rate is 10%. It currently has 150000 shares selling at Rs 100 each. The firm is contemplating the declaration of a dividend of Rs 8 per share at the end of current fiscal year, which has just begun. Answer the following questions based on Modigliani and Miller Model.

i) What will be the price of the shares at the end of the year if a dividend is declared and not declared respectively?   

ii) Assuming that the firm pay dividend has net income of Rs 20, 00,000 and makes new investment of Rs 40, 00,000 how many shares must be issued.   

Answer.

Q3.

Particulars	Amount
Sales	1,50,000
Total Costs	85,000
Fixed Costs	20,000
Variable Costs	65,000
Net Profit	65,000

From the above details find out:

a. Profit Volume Ratio

b. B.E.P (Sales)

c. Margin of Safety

Answer. a) Profit Volume Ratio

b) B.E.P (Sales)

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