MS 4 IGNOU MBA Assignments Jan – Jun 2017

1. “ Accountancy is an Information System” do you agree? Substantiate your answer with reasons. How does an Accountant help in planning and controlling a large commercial organisation? Explain.

2. Prepare Cash Budget for April-Oct. 2017 from the information relating to Shah Agencies, a trading concern:-

Balance Sheet as on 31  March, 2017

Liabilities Rs Assets   Rs
Proprietors Capital 1,00,000 Cash   20,500
Outstanding Liabilities 17,000 Stock   50,500
    Sundry debtors   26,000
    Furniture 25,000  
    Dep 5,000 20,000
  1,17,000     1,17,000

Sales and salaries for different months are expected to be as under:

Months Sales Salaries
April 80,000 3,000
May 52,000 2,500
June 50,000 35,000
July 75,000 4,000
August 90,000 4,000
Sepetmebr 35,000 3,000
October 25,000 3,000

The other expenses per month are: Rent Rs. 1,000, Depreciation Rs. 1,000, Misc. Expenses Rs. 500 and Commission 1% of sales.

Of the sales, 80% is on credit and 20% for cash. 70% of the credit sales are collected in one month and the balance in two months. Debtors on March 31, 2017 represent Rs. 6,000 in respect of sales of February and Rs. 20,000 in respect of sales of March. There are no debt losses. Gross profit on sales on an average is 30%. Purchases equal to the next month’s sales are made every month and they are paid during the month in which they are made. The firm maintains a minimum cash balance of Rs. 10,000. Cash deficiencies are made up bank loans which are repaid at the earliest available opportunity and cash in excess of Rs. 15,000 is invested in securities (Interest on bank loans and securities is to be ignored). Outstanding liabilities remain unchanged.

3. Taking a suitable example and explain how the semi-variable costs will be segregated into fixed and variable using the Scattergraph Method.

4. Aditi Ltd. is considering the selection of one a pair of mutually exclusive investment projects. Both would involve purchase of machinery with a life of 5 years.

Project 1 would generate annual cash flows (receipts less payments) of Rs. 2,00,000; the machinery would cost Rs. 5,56,000 and have a scrap value of Rs. 56,000.

Project 2 would generate annual cash flows of Rs.5,00,000; the machinery would cost Rs.16,16,000 and have a scrap value of Rs. 4,31,000.

Company use the straight line method for providing depreciation. Its cost of capital is 15% per annum. Assume that annual cash flows arise on the anniversaries of the initial outlay, that there will be no price changes over the project lives and that acceptance of one of the projects will not alter the required amount of working capital.

You are required to:

(a) Calculate for each project:

(i) the accounting rate or return (ratio, over project life, of average accounting profit to average book value of investment) to nearest 1%.
(ii) the net present value
(iii) the internal rate or return (D.C.F. yield) to nearest 1%, and
(iv) the pay back period to one decimal place, and

(b) State which project you would select for acceptance, if either, giving reasons for your choice of criterion to guide the decision. Ignore taxation.

5. “ Dividend can be paid only out of profits”. Explain this statement and also discuss your role as a Finance Management in matters of dividend policy?


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