MS – 04 Accounting and Finance for Managers July – December 2016

1. Take an organization of your choice & find out how the Accounting Reports are prepared by them and how these reports are useful for managers while making decisions relating to the activities of a Business.

Ans : Accounting reports are …are derived from the… of a specific purpose …. equivalent to the financial statements….

….. evaluate business processes and company strategy…

Owners and managers require financial ….continued operations… management’s annual report to the stockholders.

2. Prepare the Cash Flow Statement for XYZ Ltd. for the year 2015-16 and analyze its cash flow position.

Balance Sheet Of XYZ on 31st March

Liabilities & Equity 2016

(Rs. in Lakhs)


(Rs. in lakhs)

Equity share capital 1100 1000
Reserves and surplus 400 200
P&L balance 270 250
L.T borrowing 600 500
Current liabilities 270 200
Provision of taxation 240 150
Proposed dividends 110 100
Total 2990 2400
Gross fixed assets 1500 1200
Less : Accumulated Dep. 780 600
Net Fixed Assets 720 600
Long Term Investments 500 400
Inventories 380 200
Debtors 240 160
Cash and Bank Balance 100 60
Loans & Advances 1050 980
Total 2990 2400

P & L Accounts for the year 2006 – 07 (as on 31st March 2016)

Income Rs in Lakhs
Sales 2520
Other Income  304
Stock Adjustment  36
Total  2860
Expenditure  1430
Raw Material Consumed  280
Manufacturing Expenses  160
Selling & Distribution Expenses  130
Depreciation  180
Interest  110
Total  2290
 Profit Before Tax (PBT)  570
 Provision For Taxes  240
 Profit After Tax (PAT)  330
 P & L At The Beginning Of The Year  250
 Profit Available For Appropriation  580
Transfer To Reserves 200
Proposed Dividends (incl. div. tax) 100
Balance Profit Carried To B/S 270

The following additional information has been provided regarding the firm:

(i) Current liabilities denote amount that is payable to suppliers.

(ii) Raw materials constitute 80% of the inventory balance of the firm.

(iii)Loans and advance include income tax paid Rs. 240 lakh (previous year Rs. 150 lakh)

(iv) During 2015-16 10 lakh of equity shares of Rs. 10 each were issued at par. Long-term loans raised during the year amounted to Rs. 160 lakh.

(v) The interest shown in the P&L account has actually been paid for in cash and other income is realized in cash.

3. With the help of a suitable illustration, explain how the costs and volume influence profit of a business.

Ans : … profit planning, company first declares… ensuring year. Thereafter sales … profit planning in the….

The report to the management should contain… current year is commended.

4. A Company is considering to replace an existing machine for which two suppliers have given quotation. Supplier A has proposed a machine costing Rs. 180 lakh that uses the existing boiler while supplier B has quoted for the machine Rs. 110 lakh but that requires modification in the existing energy supply system costing Rs. 30 lakh. The machines have a life of 10 years and can be sold for 5% and 10% of the original cost respectively for Suppliers A and B. The additional working capital requirement expressed as % of revenue are 20% and 25% respectively because of larger requirement of fuel for the machine from

Supplier B. The details are condensed below :

Supplier A Supplier B
Price Of Machine 180 135
Annual Cash Flows
Revenue 200 205
Operating Cost 150 155
Working Capital (% Of Revenue) 20% 25%
Salvage Value % Of Cost 20% 5%

The firm charges depreciation on SLM basis with zero book value and has a tax rate of 35% for all kinds of income. The cost of capital for the firm is 12%

Which of the suppliers should the company prefer?
(a) as per NPV rule
(b) as per IRR rule.

5. How would you judge the efficiency of the management of working capital in a business enterprise? Explain with the help of hypothetical data.

Ans : Analysts and investors look at a… financial health… on a day to day basis…. accounts receivable and inventory…. and the collection ratio…

A number of ratios … effectively working capital is …. greater are profits … is not effectively used…

Speak Your Mind