Management Programme

M
ASSIGNMENT
SECOND SEMESTER
2010

MS-04: Accounting and Finance for Managers

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School of Management Studies

INDIRA GANDHI NATIONAL OPEN UNIVERSITY
MAIDAN GARHI, NEW DELHI – 110 068
 MS- 04: Accounting and Finance for Managers

ASSIGNMENT

Course Code : MS-04

Course Title : Accounting and Finance for
Managers
Assignment Code : 01/TMA/SEM-II/2010
Coverage : All Blocks

Attempt All the Questions.

Ques.1 Explain the following accounting concept

1. Concept of conservatism
2. Cost Concept
3. Periodicity Concept
4. Money Measurement Concept

Ques.2: The following is the Trial Balance of a trader as at 31st December, 2001:

Debit Balances Rs. Credit Balances Rs.

Stock (1-1-2001) 46,800 Neeru’s capital account 1,08,090
Sales returns 8,600 Sales 2,89,600
Purchases 2,43,100 Purchases returns 5,800
Freight and carriage 18,600 Sundry creditors 14,800
Rate, Rent etc. 5,700 Bank loan at 6% 20,000
Salaries and wages 9,300 Income from investments 250
Sundry debtors 24,000 Discounts 4,190
Bank Interest 900
Printing and 14,600
advertisement 8,000
Cash at Bank 5,000
Investments 1,800
Furniture and fittings 7,540
Discounts 3,910
General expense 700
Audit Fees 600
Insurance 2,330
Travelling expenses 870
Postage and telegrams 380
Cash in hand 30,000
Deposit with Pran 10,000
Drawing Account 4,42,730 4,42,730
Adjustments:
(i) Stock at the end was Rs. 78,600
(ii) Included amongst the debtors is Rs. 3,000 due from Zeenat and included
amongst the creditors is Rs. 1,000 due to her.
(iii) The effect of advertising not yet expired, a quarter of the amount ‘Printing and
Advertising’ is to be carried forward to the next year.
(iv) Reserve 2 per cent for discount on Debtors and create a bad debts reserve at 5
percent.
(v) A depreciation of 10% p.a. is to be written off Furniture and fittings.
(vi) Wages owing on 31st December, 2001 is Rs. 300, salaries owing Rs. 500 and
carriage owing Rs. 100.
(vii) Prepaid insurance is Rs. 80.
(viii) Furniture which stood at Rs. 600 in books Ist January, 2001 was disposed of at
Rs. 290 on June, in part exchange for new furniture costing Rs. 520. A net
invoice at Rs. 230 was passed through the purchase-day book.
(ix) Purchase Invoice amounting to Rs. 400 had been omitted from the books.
(x) A Neon-sign costing Rs. 100 is included in Advertising.
(xi) Two dishonored cheques for Rs. 200 and Rs. 300 respectively has not been
entered in the cast book. The first for Rs. 200 is known to be bad. In the case
of a second cheque for Rs. 300, it is expected that 75% of it would be realized.
(xii) Private purchase amounting to Rs. 600 had been included in the Purchase Day
Book.
(xiii) Charge full year’s interest on Deposit with Pran at 7% p.a.
(xiv) Provide for interest on Bank loan for the amount due.
Prepare Final Accounts.

Q.3 : From the following Balance Sheets of Sriramco, prepare

(a) Statement of Changes in Working Capital, and (b) Funds Flow Statement: Balance
Sheet of Sriramco as on 31st December…
2000. 2001
Assets Rs. Rs.
Goodwill 90,000 80,000
Land and Buildings 2,80,000 2,00,000
Plant 1,00,000 2,00,000
Investments 30,000 40,000
Book Debts 1,80,000 2,10,000
Stock 80,000 1,20,000
Cash in hand and at Bank 40,000 45,000
Preliminary Expenses 20,000 10,000
8,20,000 9,05,000

Liabilities
Share Capital
Equity Share Capital 4,00,000 5,00,000
 10% Red. Pref. Share Capital 2,00,000 1,00,000
Capital Reserve - 30,000
General Reserve 60,000 80,000
P. and L. Account 30,000 45,000
Proposed Dividend 60,000 60,000
Sundry Creditors 30,000 45,000
Provision for Taxation 40,000 45,000
8,20,000 9,05,000

The following additional information is also available

(a) A machine has been sold for Rs. 40,000 whose written down value was Rs. 36,000.
Depreciation of Rs. 15,000 has been charged on plant in 2001;
(b) A piece of land had been sold out in 2001 and the profit on the sale has been credited
to
capital reserve;
(c) An interim dividend of Rs. 30,000 has been paid in 2001;
(d) Income tax paid during 2001 amounts to Rs. 45,000;
(e) Preference Shares were redeemed at 5% premium.

Ques. 4 : The capital structure of Bombay Refrigeration Company Ltd. Consists of an

equity share capital of Rs. 3, 00,000 (share of Rs. 10 par value) and Rs.
3,00,000 10% debentures. Sales increased by 20% from 30,000 to 36,000
units, the selling price is Rs. 10 per unit. Variable cost Rs.6 Per unit and fixed
costs amount to Rs. 50,000 The company’s tax rate is 50%.

You are required to compute the degree of operating leverage, degree of financial
leverage and degree of combined leverage.

Ques. 5: The following details relates to the two machines X and Y:

Machine X Machine Y
Cost Rs. 56,125 Rs.56,125
Estimated Life 5 years 5 years
Estimated salvage value Rs. 3,000 Rs. 3,000
Working Capital required in the beginning Rs.10,000 Rs. 20,000

Annual income after tax and depreciation:

Year Rs. Rs.

I 3,275 11,375
II 5,375 9,375
III 7,375 7,375
IV 9,375 5,375
V 11,375 3,375
Overhauling charges at the end of third year Rs. 25,000 on machine X. Depreciation has
been charged at straight line method. Discount rate is 10%? P.V.F. at 10% for five years
are 0.909, 0.826, 0.751, 0.683 and 0.621. Suggest which project should be accepted.

Ques. 6: Discuss the concept of working capital what shall be the repercussions if the
firm has
a) Shortage of working capital
b) Excess of working capital

Ques 7: What is dividend and why is dividend decision important?