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Ms-4 Dec 2007

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MS-4   Dec, 2007


l. (a) What dq you understand by Accounting Standards ? How do they differ from Accounting Concepts ? Why should the accounting practices be standardised ?

(b) Why are the fixed assets shown at their book value rather than their market value, even if the latter has appreciated significantly ? Give reasons.

2. (a) How would Explain the you compute the cost of goods sold ? Explain two methods of inventory valuation

(b) What is depreciation and what is the rationale behind making a provision for depreciation in the process of matchlng income and expenses ?

3. What do you understand by Zero Base Budgeting ? How does a Zero Base Budget differ from a Flexible Budget ? Discuss the steps involved in Zero Base Budgeting.

4. Distinguish between :

(a) Accounting Rate of Return and Internal Rate of Return

(b) Profitability Index and Profitability Ratios

(c) Bonus Shares and Rights Shares

(d) Earnings yield and Dividend yield

5. A manufacturing company produces and sells products P; Q and R. It has an available machine hour capacity of one lakh hours, interchangeable among the 'three products. Presently the company produces and sells 20,000 units of P and 15,000 units each of Q and R. The unit Selling Price of the three products P, Q and R is Rs. 25, Rs. 32 and Rs. 42 respectively. With this price structure and the aforesaid sales-mix, the company is incurring loss. The total expenditure exclusive of fixed charjes (presently Rs. 5 per unit) is Rs. 13.75 lakhs. The'unit cost ratio amongst the three products P, Q and R is 4 : 6 : 7.

Since the company desires to improve its profitability without changing its cost and price structures, it has been considering-the following three mixes so as to be

Within its total available capacity :

Products                 Mix1                         Mix 2                                   Mix 3

     P                        25000                         20000                                  30000

     Q                       15000                         12000                                    5000

     R                        10000                          1 8000                               15000

You are required to compute the quantum of loss now incurred and advise the most profitable mix which could be considered by the company.

6. Comment upon the following statements giving appropriate reasons :

(a) Higher net profit margin higher rate of return on investments

(b) EBIT-EPS analysis is an the capital structure. need not necessarily lead to

investment. important tool for designing the capital structure

(c) Cost of retained earnings is lower than the cost of equity.

(d) Many reasons account for direct material variances

  1. "The conventional break-even analysis       is based on       a number of assumptions." Explain and       illustrate the concept of break-even analysis       and justify the above statement.

8. The following three years information is available ior XYZ Ltd. for


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