1. (a) How does an accountant follow the principle “anticipate no profit, provide for all losses” ? On which accounting concept
is this based ? Explain it and discuss its significance.
(b) Distinguish between Financial Accounting and Management Accounting. What is the most important role of a Management
Accountant in a business organisation ? Discuss.
2. (a) Distinguish between revenue expenditure and Capital expenditure. How are they treated while preparing the final accounts ? If by mistake the accountant of a firm treats a capital expenditure as revenue expenditure, how will it affect the final accounts of the’ firm ? Give an example.
(b) Why is depreciation charged ? Explain the two methods of charging depreciation. In which method the value of the asset is
reduced to zero earlier ? Which one is more rational ? Explain why ?
3. “Financial Leverage is one of the important considerations in planning the capital structure of a company.” Explain this statement giving an example. Briefly describe the other factors which are also considered while planning the Capital structure.
4. Distinguish between :
(a) Profit maximisation and Wealth maximisation goals.
(b) Accounting Rate of Return and Internal Rate of Return.
(c) Operating Cash flows and Financial cash flows.
(d) Direct Labour Rate Variance and Direct Labour Efficiency Variance.
5. Explain fully the following statements :
(a) “Break – even Analysis is not without limitations”.
(b) “Lenders prefer high interest coverage ratio but a low debt-equity ratio”.
(c) “Weighted average cost of capital would always be higher, if market value weights are used.”
(d) Zero – based budgeting is a better alternative to traditional method of budgeting.
6. (a) “Sales Budget forms the basis on which all other budgets are built .” Explain. What factors are taken into consideration
while preparing the sales budget ? Discuss.
(b) What is Rolling Budget ? How does it differ from flexible Budget ? What purposes do these budgets serve ? Explain.
7. India Cables Ltd. is manufacturing a special type of cable used by electricity undeAakings the company is currently working at 80% capacity level. Data on annual sales and costs are as follows:
Sales Rs. 1,200 lakhs
Direct materials Rs. 560 lakhs
Direct Labour Rs. 22
10 lakhs
Factory overheads Rs. 180 lakhs
(80%fixed)
Sales Rs. 1,200 lakhs
Direct materials Rs. 560 lakhs
Direct Labour Rs. 22
10 lakhs
Factory overheads Rs. 180 lakhs
(80%fixed)
The company has just received an export order
which requires utilisation of 40% of the plant
capacity. The order can not be split and has to be
executed in one lot as quickly as possible. The
price offered is 10% lower than the current
domestic price. Further, it will be necessary to
spend 10% more on variable selling distribution
and administration expenses because of the
special type of export packing required. The
company is considering the following options.
(a) reject the export order and carry on with
the domestic sales.
(b) accept the export order and allow the
domestic sales to fall to the extent required.
(c) Create additional plant capacity by
installing new machinery which will result
in increase of fixed costs by Rs. 20 lakhs per
annum.
Evaluate each of these options and suggest
the best course of action for the company,
assuming that the export order will continue
in future years also.
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