Q.1 State True or False in the answer column.
Give brief reason for your selection at the space provided
below the question: (15)
(Answer)
i |
Direct profit centre is a centre
which involved in promotional activities. |
|
ii |
A process whereby all stock items are physically
counted and then valued is called Periodic stock taking. |
|
iii |
Activity based costing (ABC) is a system
whereby resources are assigned to activities and the activities
to costs based on consumption estimates. |
|
iv |
Transport costs is a term refers to cost
of a transport organization such a Daewoo Express. |
|
v |
Operation planning under budgeting covers
a planning for a period of longer than one year. |
|
vi |
Zero Base Budgeting can not be successfully
used in service industries and non-profit organizations. |
|
vii |
The difference between actual output and
the budgeted output is known as margin of safety. |
|
viii |
Responsibility accounting is a system whereby
costs flow up the organizational lines and is accumulated and
reported at the various levels of responsibility. |
|
ix |
Venture capital firms invest in new enterprises
that might not be able to obtain funds in the usual capital markets
due to the riskiness of new products. |
|
x |
The floating rate usually stated as pre-determined
rate applicable in all pre-determined future years. |
|
xi |
The future value calculation depends upon
the interest rate and the time period the amount is outstanding.
|
|
xii |
For pricing a business loan, the price leadership
model is denoted as:
Loan interest rate = Base or prime rate + default risk + inflation
adjustment |
|
xiii |
If a bank lends Rs. 50,000 for one year on
10% interest rate using discount rate method, the effective interest
rate charged by the bank is equal to 13.5%. |
|
xiv |
Yield to maturity on a bond is calculated
by using a trial and error method. |
|
xv |
A banker's most popular interest rate hedging
strategy is called interest sensitive GAP management. |
|
Q.2 Please write the alphabate of selected
choice in the answer column: (10)
(Answer)
i |
The average collection period for
a firm measures the number of days
A. After a typical credit sale is made until
the firm receives the payment.
B. For a typical check to “clear” through the banking
system.
C. Beyond the end of credit period before a typical customer payment
is received.
D. Before a typical account becomes delinquent.
E. After the account is defaulted. |
|
ii |
When managing cash and short term investments,
a corporate treasurer is primarily concerned with.
A. Maximizing rate of return.
B. Minimizing taxes.
C. Investing in Treasury bonds since they have no default risk.
D. Liquidity and safety.
E. All of the above.
|
|
iii |
The most direct way to prepare a cash budget
for a manufacturing firm is to include.
A. Projected sales, credit terms and net income.
B. Projected net income, depreciation and goodwill amortization.
C. Projected purchases, percentages of purchases paid and net
income.
D. Projected sales and purchases, percentages of collections and
term of payments.
E. Projected sales, sales returns and net income.
|
|
iv |
If two companies i.e. company X and company
Y are alive in all aspects except that company X employs most
debt financing and less equity financing than company Y does,
which of the following statement is true.
A. Company X has more net earnings variability
than company Y.
B. Company X has more operating earnings variability than company
Y.
C. Company X has less operating earnings variability than company
Y.
D. Company X has less financial leverage than company Y.
E. Company X has less debt equity ratio than company Y. |
|
v |
An example of secured short-term financing
is:
A. Commercial paper. B.
A warehouse receipt.
C. A revolving credit agreement. D.
Trade credit.
E. None of the above. |
|
vi |
The term prime costs refers to:
A. Manufacturing costs incurred to produce units of output.
B. All costs associated with manufacturing other than direct labor
and raw material costs.
C. Costs that are predetermined and should be attained.
D. The sum of direct labor cost and all the factory overhead.
E. The sum of raw material costs and direct labor costs.
|
|
vii |
Which of the following is not an example
of a normally issued financial statement?
A. statement of financial position B.
statement of results of operations
C. statement of performance evaluation D. statement
of retained earnings
E. None of the above |
|
viii |
Which type of cost is not recorded in the
accounting records.
A. Irrelevant cost
B. Opportunity cost
C. Sunk cost
D. Non controllable cost
E. None of the above |
|
ix |
Of the following items, the one item that
would not be considered in evaluating the adequacy of the budgeted
annual operating income of a company is:
A. return on assets. B.
long-range profit objectives.
C. industry average for earnings on sale. D.
earnings per share.
E. internal rate of return. |
|
x |
Silver Company utilizes both strategic planning
and operational budgeting. Which one of the following items would
normally be considered in a strategic plan?
A. Setting a target for a 12 percent return on sale.
B. Maintaining the image of the company as the industry leader.
C. Setting a market price per share of stock outstanding.
D. Distributing monthly reports for departmental variance analysis.
E. Tightening credit terms for customers to 2/10, n/30. |
|
Q.3 Following are the Balance
Sheets and Profit & Loss accounts of two competitor companies:
| BALANCE SHEET |
ABC Ltd |
XYZ Ltd |
(Rs. in thousands) |
| ASSETS |
|
|
| Cash and marketable securities |
68,332 |
142,558 |
| Trade debtors |
39,550 |
75,680 |
| Stock in trade |
195,588 |
40,995 |
| Net long term assets |
12,350 |
22,450 |
| Total assets |
315,820 |
281,683 |
| |
|
|
| LIABILITIES |
|
|
| Short term bank loan |
55,320 |
20,500 |
| Creditors |
56,660 |
23,520 |
| Accrued liabilities |
34,680 |
18,440 |
| Long term debt |
22,230 |
44,590 |
| Total liabilities |
168,890 |
107,050 |
| |
|
|
| SHAREHOLDERS’ EQUITY |
|
|
| Share Capital |
92,000 |
95,000 |
| Retained earnings |
54,930 |
79,633 |
| |
146,930 |
174,633 |
| Total Liabilities & Equity |
315,820 |
281,683 |
| |
|
|
| PROFIT & LOSS ACCOUNT |
|
|
| Sales |
700,800 |
750,400 |
| Cost of goods sold |
563,333 |
623,980 |
| Gross Profit |
137,467 |
126,420 |
| Selling and administrative expenses |
51,908 |
61,798 |
| Depreciation |
6,300 |
6,680 |
| Miscellaneous expenses |
8,244 |
14,770 |
| Profit before interest & taxes |
71,015 |
43,172 |
| Interest on shot term loan |
5,532 |
2,050 |
| Interest on long term loan |
2,680 |
4,019 |
| Profit before taxes |
62,803 |
37,103 |
| Taxation |
22,140 |
13,080 |
| Profit after taxes |
40,663 |
24,023 |
Tax rate applicable on the companies is 35%.
Required:
Calculate the relevant ratios of the two companies.
(i) As a supplier, which company you would like to extend credit to?
(03)
(ii) As a credit manager, to which company you would be willing to
grant a short-term facility? (03)
(iii) As a banker, to which company you would be most likely to extend
long term loan? (04)
Q.4 Credit department of First Exim Bank Limited launched Working
Capital Financing Plan about two years back. Under the plan customers
are allowed revolving credit ceiling ranging from Rs.500,000 to Rs.1,000,000.
Customers can draw up to the limit of their credit ceiling. Mark-up
is charged at the rate of 4 paisas per day per Rs.100. customers can
continue to avail full credit ceiling for the first three years and
thereafter credit ceiling will stand reduced by each month by 1/24th
of the original credit ceiling sanctioned. At present, 4000 customers
with average sanctioned credit ceiling of Rs.600,000 per customer are
availing the Working Capital Financing Plan.
Since the introduction of the plan, it is consistently
incurring loss. The President of the bank feels that the plan should
be suspended and funds diverted to other lines of financing. However,
the Senior Vice President/Incharge is of the opinion that the plan would
start making profit shortly if further customers are added by increasing
expenditure on advertising. It is expected that 400 customers per month
would be added while 2% customers of the last month’s balance
will be closing their accounts. Experience has shown that at any time
only about 60% of the total rupee amount of credit ceiling approved
remains in use by the customers. The cost of the funds to the bank is
12% per annum. At present, bank is incurring the following expenses
in managing the scheme per annum excluding the cost of the funds:
Variable
Rs
13,824,000
Fixed
Rs
34,080,000
Total
Rs
47,904,000
The Senior Vice President plans to incur Rs.400,000
on advertising per month in addition to the above expenses. It may be
assumed that there are 30 days in each month.
Required:
(a) Determine marginal income contribution per account per month. (04)
(b) Determine Break Even Point expressed both in terms of “Mark-up
Income” per month and “Number of Customers”.
(04)
(c) Determine the number of months by which “Working Capital
Financing Plan” will start making profit. (07)
Q.5 Following figures are extracted from the financial accounts
of Ibrahim Spinning Ltd for the year ended
30th June 2006.
| |
|
(Rs. ‘000’) |
| Sales (120,000 Units) |
|
14,000 |
| Dividend Receipts |
|
100 |
| Profit on Bank Deposits |
|
20 |
Closing Stock:
- Finished (40,000 units)
- Work-in-process |
240
160 |
400
|
| Direct Material consumption |
|
500 |
| Wages |
|
200 |
| Manufacturing Overheads |
|
760 |
| Administrative Overheads |
|
500 |
| Selling & Distribution Overheads |
|
960 |
| Bad Debts |
|
40 |
| Professional Charges |
|
10 |
| Amortization of Preliminary Expenses |
|
20 |
The cost accounts indicate:
1. Direct Material Consumption Rs.560,000.
2. Factory Overheads Recovery on Direct Material & Wages (Prime
Cost) @ 20%
3. Administrative Overheads @ Rs.6 per unit of production.
4. Selling & Distribution Overheads @ Rs.8 per unit of production.
Required:
(a) Costing Profit & Loss Account (04)
(b) Financial Profit & Loss Account (04)
( c) Reconciliation Statement for Financial & Costing Profit &Loss
Accounts (02)
Q.6 Orion Corporation would like to prepare
a cash budget for the six months beginning January 1, 2007. Shown below
are the company's historical collection pattern and the budgeted cash
and credit sales for the Period:
65 percent collected in month of sale
20 percent collected in the first month after sale
10 percent collected in the second month after sale
4 percent collected in the third moth
after sale
1 percent uncollectible
| |
Cash Sales (Rs) |
Credit Sales (Rs) |
| January |
30,000 |
160,000 |
| February |
50,000 |
185,000 |
| March |
41,000 |
190,000 |
| April |
65,000 |
170,000 |
| May |
32,000 |
200,000 |
| June |
55,000 |
180,000 |
Required:
Prepare the cash collection
forecast for Orion Corporation for the first six months of 2007. (10)
Q.7 Lotia Manufacturing Company employees
a process cost system for its manufacturing operations. All direct materials
are added at the beginning of the process and conversion costs are added
proportionately. Lotia Co.'s production quantity schedule for November
2005 is produced below:
| Work-in-process, Nov 1 |
Units |
| (60% complete as to conversion costs) |
1,000 |
| Units started in during November |
5,000 |
| Total units accounted for |
6,000 |
| Units completed and transferred out from beginning
inventory |
1,000 |
| Units started and completed during November |
3,000 |
| WIP on Nov 30 (50% complete as to conversion) |
2,000 |
| Total units accounted for |
6,000 |
1. Using FIFO method, the equivalent unit for direct materials for November
are: (03)
A) 5,000 units B)
6,000 units
C) 4,400 units D)
3,800 units
2. Using FIFO method, the equivalent units for conversion costs for
November are: (02)
A) 3,400 units B)
3,800 units
C) 4,000 units D)
4,400 units
E) some other number
3. Using the weighted average method, the equivalent units for direct
materials for November are (03)
A) 3,400 units B)
4,400 units
C) 5,000 units D)
6,000 units
E) some other number
4. Using the weighted average method, the equivalent units for conversion
costs for November are (02)
A) 3,400 units B)
3,800 units
C) 5,000 units D)
4,400 units E)
some other number
Q.8
Reliance Corporation
Balance Sheets
| |
Dec 31 2004 |
Dec 31 2003 |
Assets
Current assets |
|
|
| Cash and cash equivalents |
482,000 |
318,000 |
| Accounts receivable (net) |
246,500 |
189,000 |
| Inventory |
471,000 |
483,000 |
| Prepaid expenses |
54,000 |
21,000 |
| Total current assets |
1,253,500 |
1,011,000 |
| Long term- stock investment Property, plant, and equipment |
250,000 |
400,000 |
| Building |
1,800,000 |
1,200,000 |
| Accumulated depreciation |
(522,000) |
(472,500) |
| Equipment |
1,011,000 |
774,000 |
| Accumulated depreciation |
(400,500) |
(348,000) |
| Land |
350,000 |
350,000 |
| Total PP&E |
2,238,500 |
1,503,500 |
| Total assets |
3,742,000 |
2,914,500 |
Liabilities and Stockholders' Equity
Current liabilities |
|
|
| Accounts payable |
450,000 |
478,500 |
| Accrued expenses |
31,500 |
24,000 |
| Total current liabilities |
481,500 |
502,500 |
| Long-term liabilities |
|
|
| Notes payable, due January 2, 2006 |
250,000 |
0 |
| Bonds payable, due July1, 2010 |
900,000 |
750,000 |
| Total long-term liabilities |
1,150,000 |
750,000 |
| Stockholders equity |
|
|
| Common stock, %5 par value |
975,000 |
825,000 |
| Paid in capital in excess of par value |
448,500 |
339,000 |
| Retained earnings |
687,000 |
498,000 |
| Total stockholders' equity |
2,110,500 |
1,662,000 |
| Total liabilities & stockholders' equity |
3,742,000 |
2,914,500 |
Reliance Corporation entered into the following transactions that are
relevant to cash flow:
1. A new wing was added to building at a cost of Rs. 600,000 cash.
2. New equipment was purchased at a cost of Rs. 337,000; cash of Rs.
87,000 and a note payable
of Rs. 250,000 that is due January 2, 2006 was given
in exchange.
3. Equipment with a book value of Rs. 100,000 was sold for Rs. 92,000
cash.
4. Long term stock investment were old for Rs. 274,000 cash
5. Bonds payable of Rs. 150,000 were issued for cash at par.
6. An additional 30,000 shares of Rs. 5 par value common stock were
issued for Rs. 259,500.
7. Cash dividends of Rs. 174,000 were paid.
Reliance Corporation
Income Statement
For the Year Ending on December 31, 2004
| Net sales |
|
6,930,000 |
| Cost of goods sold |
|
3,660,000 |
| Gross profit |
|
3,270,000 |
| Operating expenses other than depreciation |
2,625,000 |
|
| Depreciation expense |
102,000 |
|
| Total operating expenses |
|
2,727,000 |
| Operating income |
|
543,000 |
| Other revenues and expenses |
|
|
| Dividend and interest revenue |
36,000 |
|
| Gain on sale of investment |
124,000 |
|
| Interest expense |
(92,000) |
|
| Loss on sale of equipment |
(8,000) |
|
| Net other revenue and expenses |
|
60,000 |
| Net income before income tax |
|
603,000 |
| Income tax expense |
|
240,000 |
| Net income before income tax |
|
363,000 |
| Retained earnings, January 1 |
|
498,000 |
| Total |
|
861,000 |
| Less: Cash dividends |
|
174,000 |
| Retained earnings, December 31 |
|
687,000 |
Required:
A. Prepare a cash flow statement for the year
ended December 31, 2005 for Westside using direct
method of presenting
cash flow from operating activities. (15)
B. Discuss whether or not the liquidity position
of Reliance Corporation has improved at the end of
Year 2004 (05)
|