MS004 Accounting And Finance For Managers IGNOU exam question paper

MS-004: Accounting And Finance For Managers last 3 yrs paper

June, 2021

1. Define Accounting. Discuss the scope of accounting and the information needs of various users of Accounting Information.

2. Discuss the classification of items appearing in the balance sheet.

3. You are required to compute all material and labour variances for February 2021, for XYZ Ltd. The information available from the cost records of the company for February 2021 is as follows:

Standard rates and prices are:

4. What do you understand by Zero Base Budgeting? Explain the steps involved in the process of zero base budgeting. What are the advantages of zero base budgeting?

5. Discuss the factors that are taken into consideration by a company while making decision on the dividends to be declared.

6. Distinguish between the following:

• • Net working capital and Gross working capital
  • Profit maximisation and Wealth maximisation
  • Profit maximisation and Wealth maximisation
  • Fixed Budget and Flexible Budget

7. The information available for Firm A, Firm B, Firm C and Firm D is a follows:

You are required to calculate the EBIT, the EPS, the operating leverage and the financial leverage.

8. Write short notes on any four of the following

• • Money measurement concept
  • Cost Accounting
  • Accounts Recievable
  • Payback Period
  • Break-Even Analysis

February, 2021

• 1. (a) Explain the Continuity concept and the Consistency concept and their significance in accounting. How does inconsistency open the doors for manipulation of reported income and assets? Explain.

     (b) Explain the terms ‘Net worth’, ‘Contingent liabilities’, ‘Opportunity cost’, ‘Intangible assets’, and ‘Term loans’ as used in accounting.

• 1. ‘‘In managing cash, the Finance Manager faces the problem of compromising the conflicting goals of Liquidity and Profitability.’’ Comment on this statement. What strategy should the Finance Manager develop to solve this problem? Explain.
  2. ‘‘Zero-based budgeting provides a solution for overcoming the limitations of traditional budget.’’ Explain this statement and describe the procedure to be adopted for preparing a zero-based budget. Also explain its advantages.

• 1. Explain the following statements:

     (a) ‘‘There is no explicit cost of retained earnings, yet, these funds are not free of cost.’’

     (b) Matching approach of financing working capital is most desirable.

     (c) Shortening the cash cycle affects the working capital requirement.

     (d) A very high Current Ratio is not desirable.

• 1. XYZ Company is considering replacement of its existing machine by a new machine which is expected to cost< 1,60,000. The new machine will have a life of 5 years and will yield cash revenues of< 2,50,000 and incur annual cash expenses of< 1,30,000. The estimate salvage of the new machine is nil.

     The existing machine has a book value of< 40,000 and can be sold for< 20,000 today. It is good for the next 5 years and is estimated to generate cash revenue of< 2,00,000 and to involve annual cash expenses of< 1,40,000. Its salvage value after 5 years is zero. The corporate tax rate is 40%. Depreciation rate is 25% on Written Down Value method. Company’s opportunity cost of capital is 20%. Advise the company whether it should replace the machine or not. Ignore taxes on profit/loss on sale of machinery. Present Value Discount Factors for first 5 years @ 20% are 0·8333, 0·6944, 0·5787, 0·4823, 0·4019.

• 1. What do you understand by Break-Even Analysis? Discuss the assumptions underlying Break-Even Analysis. How do they make Break-Even Analysis unrealistic? Prepare a Break-Even Chart assuming relevant figures.

  2. (a) What are Bonus Shares? Why are they issued? How do they differ from Rights Shares? What is the effect on the price of the company’s shares after these shares are issued by the company? Discuss, giving reasons.

     (b) What do you understand by Funds Flow Statement? How does it differ from a Balance Sheet? How do you calculate ‘‘Funds from Business Operations’’? Explain.

• 1. Write notes on the following:

     (a) Overhead Cost Variance

     (b) Rolling Budget

     (c) FIFO and LIFO Methods of Inventory Valuation

     (d) Debt-Equity Ratio

June, 2020

• 1. (a) Explain the money measurement concept and the accrual concept. What are the limitations of the former concept? Explain.

     (b) Explain the difference between the following:

          (i) Operating Profit and Net Profit

      

          (ii) Revenue Receipts and Capital Receipts

• 1. What do you understand by Operating and Financial Leverages? Explain how is financial leverage one of the important considerations in planning the capital structure of a company? Explain with an example.

• 1. What do you understand by Budgetary Control? Discuss its significance in a modern business organisation and explain the steps for installing an effective system of budgetary control in an organisation.

• 1. Explain the following statements:

     (a) “Dividend, investment and financing decisions are inter-dependent.”

     (b) “Fixed costs are variable per unit and variable costs are fixed per unit.”

     (c) “Lower the break-even point, better it is.”

     (d) “Depreciation acts as a tax shield.”

• 1. A company is considering a proposal for production of a new product. The company expects to sell 100000 units of the new product each year at a selling price of Z 5 per unit. Variable costs will be ! 2 per unit. Regardless of the level of production, the company will incur cash cost of Z 50,000 per year if the project is undertaken. The machine for making of the product will cost Z 5,00,000 and can be sold for 60,000 at the end of its life of 5 years.

     Additional working capital required will be 50,000. Overhead cost allowed to the near product will be Z 24,000 per year. The tax rate is 30% and the cost of capital for the company is 15%. The company charges depreciation at 25% of the written down value. Should the company buy the new machine? Explain with conclusions. Discount factor for the first 5 years @ 15% are 0.87, 0.756, 0.658, 0.572 and 0.497 respectively.

• 1. (a) Explain briefly the technique of marginal costing. In what ways do you consider this technique useful in Management Accounting?

     (b) What do you understand by Direct Labour Cost Variance? Distinguish between direct labour rate variance and direct labour efficiency variance.

• 1. What is a Funds Flow Statement? Why is it prepared? How does it differ from a Balance Sheet? Explain the items which are usually shown in this statement. Distinguish between funds from operations and the net profit of the firm.

• 1. XYZ Ltd., a profit earning company with accumulated reserves; intends to expand its capacity by financing it partly by the issue of new equity capital. It has paid dividend regularly during the past years. During the year 2018 it suffered loss due to prolonged industrial unrest. The directors of the company differ on the question of distribution of dividend for the year 2018. Some of them want to skip dividend in view of the loss sustained by the company and also to undertake the expansion programme. As financial adviser, what advice would you give to Board of Director? Give reasons of your answer after considering both viewpoints.

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