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What
,earnings ? How is the value of a firm ascertained with the help of its earnings ? Explain with an example.
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Dr.
Capital Drawings Opening Stock Purchases Freight on Purchases Wages (11 months upto
Cr.
8,00,000 60,000 75,000 15,95,000 25,000 66,000 23,10,000 1,40,000 12,000 18,000 30,000 3,00,000 1,00,000 15,000 2,50,000 15,000 8,000 3,00,000 5,00,000 40,000 45,000 12,000 24,000 1,50,000 34,45,000 34,45,000
28-2-2006)
Sales Salaries Postage & Telephones Printing and Station ery Miscellaneous expenses Creditors Investments Discount received Debtors Bad Debts Provision for Bad Debts Building Machi nery Furniture Commission on Sales Interest on Investments Insurance (year upto 31 .7 .2006) Bank Balance
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Adiustmenfs : (i) tii) ': , ' ClosingStock Rs. 2,25,000. Machinery worth Rs. 45,000 purchased on 1.10.2005 was shown as purchases. Freight paid on the nrachinery was Rs. 5,000 which is included in the ,Freighton Purchases.
(iii) Commissionis payableat 2Voon Sales. (iv) Investmentswere sold at l0o/o profit but the entire sale proceedshave been taken as Sales. (v) write off Bad Debts Rs. 10,000 and create .a Provision for Doubtful Debts at lVo of Debtors.
(vi) Depreciate Building by 2o/op.a. and Machinery and Fumiture @ I0o/op.a Prepare Trading and Profit and Loss A/c for the year ending 31tt March 2006 and a BalanceSheet as on that date . 3. Distinguish between Operating Leverage and Financial Leverage.What will be the effect of small change in Sales on Net Income, Refurn on Equity and Eamings Per Share if both these leveragesare considerable Explain. ? (a) What is Production Budget ? What factors are taken into consideration while preparing a Production Budget ? Why are separate budgets prepared for each of the elementsof production costs ? Explain. (b) What is a Rolling Budget ? Why is it prepared ? Explain the procedureof its preparation.
? r,J
4.
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Rs. 2'50 per unit 1'00 per unit 0'50 per unit 1'00 per unit Total 5'00 per unit
-r-t
Accept the export order and cut back domestic sales as necessary.
(b)
Remove
the
capacity
constraint
by
installing
balancing equipment and also by working overtime to meet both domestic and export demand. This will increase fixed overheads by Rs. 15,000 annually and additional cost for overtime work will amount to Rs. 40,000 for the year.
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(c)
Appoint
a sub-contraitor to manutacfure the additional requirement and meet the domestic and export requirements in full by supplying raw materials, payrng a conversioncharge @ Rs. 2 Wr
unit and appointing a supervisor at a salary of Rs. 3,000 per month for checkingthe quality of the prodtrct 6nd controlling operations at the manufacturingunit
6l
Refusethe order.
You are required to prepare a statement of costs and profits under each of the options and glye your recommendation to the company giving the reasons for the same.
6.
Aditya Company's equity shares are being traded in the market at Rs. 54 per share with a price-eamingratio of 9. The company's payout is 72a/o.It has 1,00,000 equity shares of Rs. 10 each and no preference shares. Book value Wr share is Rs. 42. You are required to calculate : (i)
(ii) (iii) (iv)
Earnings Per Share Net Income Dividend Yield, and Return on Equity
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7.
Comment on the following statements : (a) The greater the variability of cash flows, the higher should be the minimum cash balance. (b) As there is no explicit cost of retained earnings, these funds are free of cost. (c) Divideod, Investment and Financing decisions are inter-dependent. (d) Profitability Index is more relevant in the evaluation and ranking of projects than Internal Rate of Return.
8.
Write short notes on the following : (a) (b) (c) (d) Performance Budget Amortisation of Intangible Assets Accounting Standards Funds from Business Operations
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10,000