JUNE 2009 EXAMINATION

DFM01 ACCOUNTING & FINANCE FOR MANAGERS Time : Three Hours Maximum Marks: 100

NOTE: The paper is divided into two sections. Section A and Section B. There are seven questions in Section A. Students are required to attempt four questions from Section A and Section B is compulsory. Each question carries 20 marks. The Present Value Table is provided along with the question paper. SECTION A 1. a) What does the term GAAP mean? Identify the institutes that influence Indian GAAP. b) What is a suspense account? When it is opened, and how it is cleared? (10+10) 2. How are the cash flows classified in the statement of cash flows? Give some examples for each category? (20) 3. Discuss the importance of ratio analysis for inter-firm and intra-firm comparisons, including circumstances responsible for its limitations, if any. (20) 0 A company is producing an identical product in two factories. The following are the details in respect of both the factories: (20)

Factory A Factory B ______________________________________________________________________________ Selling price per unit Rs 50 Rs 50 Variable cost per unit 40 35 Fixed cost 2, 00,000 3, 00,000 Depreciation included in above 40,000 30,000 Sales (units) 30,000 20,000 Production capacity (units) 40,000 30,000 You are required to determine: 1. 2. 3. 4. The break even point (BEP) for each factory, individually. Which factory is more profitable? The cash BEP for each factory individually. The BEP for company as whole, assuming the present product mix.

5. The effect on profits and the BEP if the product is changed to 2:3 and total demand remains constant. 5. Discuss in brief about the different kinds of financial markets and the various types of financial instruments available in these markets. (20) 6. A company is considering two mutually exclusive investment proposals for its expansion programme. Proposal A requires an initial investment of Rs 7,50,000 and yearly operating cost of Rs 50,000. Proposal B requires an initial investment of Rs 5,00,000 and yearly operating cost of Rs 1,00,000. The life of the equipment used in both the investment proposals will be 12 years with no salvage value; depreciation is on straight line basis for tax purposes. The anticipated increase in revenues is Rs 1,50,000 per year in both the investment proposals. The tax rate is 35 percent and cost of capital is 15 percent. Which investment proposal should be undertaken by the company? (20) 7. What do you think, are the determinants of dividend policy of corporate enterprises? (20)

SECTION B 8. CASE STUDY Gopal Music corner provides audio copies of popular film songs and is owned by Gopal. During April, the firms accounting records were maintained by a chartered accountant. On April 30, the records showed a balance of Rs 21,140 in the capital account. Gopal felt the CAs fees were too high. So he decided to maintain the firms accounting records himself. He has prepared the following statements at the end of May. He is horrified that the business has fared very badly, and wants you to review the statements. Gopal Music Corner Profit and Loss Account for the month ended May 31, 2007 Revenues Investment by owner Unearned service revenue Total Revenues Expenses Salaries expenses Electricity Expenses Advertisement expense Rent expense Drawings Total Expenses Rs 3,000 600 _________ Rs 5,600 410 130 300 4,000 ________

Rs 3,600

Rs 10,440

Net profit

(6,840)

Gopal Music Corner Balance sheet as on May 31, 2007 Liabilities and owners equity Creditors Rs 2,510 Service revenue earned 12,660 Owners equity Gopal Capital 14,300 ________ 29,470 Assets Recording equipment Supplies Debtors Cash Rs 25,500 2,190 1,210 570 ____________ 29,470

QUESTIONS: 1. 2. Prepare revised financial statements. Comment on the working of the business in May. (20) ****************