FINANCIAL MANAGEMENT XIBMS University MBA Solved assignments latest

 

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Xaviers Institute of Business Management Studies

 

                                            

FINANCIAL MANAGEMENT

 

 

Max. Marks: 80

 

 

 

 

SECTION – A

Note: Attempt any five questions. All questions carry equal marks.

 

 

Question. 1. (A) what do you understand by Accounting Standards? How do they differ from Accounting Concepts? Why should the accounting practices be standardized?

 

Answer: Accounting Standards are the guidelines and principles that are established to standardize accounting policies and practices. They provide a common framework for the preparation and presentation of financial statements to ensure consistency, transparency, and comparability across different organizations and industries.

 

 

 

 

Question. (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.

 

Answer: Fixed assets are shown at their book value rather than their market value because the primary objective of financial reporting is to provide relevant and reliable information to the users of financial statements. The book value of a fixed asset is the cost of the asset less accumulated depreciation. It is the value of the asset as recorded in the accounting records.

 

The book value of a fixed asset is considered to be more reliable than its market value because the latter can be volatile and

 

 

 

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

 

Answer:  The cost of goods sold (COGS) is the cost of the goods that a business has sold during a specific period. It is an important expense that is subtracted from the revenue to determine the gross profit of the business. The COGS can be computed using different methods of inventory valuation. Two commonly used methods are:

 

 

 

 

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

 

Answer: Depreciation is a non-cash expense that reflects the reduction in the value of a fixed asset over time due to wear and tear, obsolescence, or other factors. It is an accounting method that allocates the cost of a fixed asset over its useful life.

 

The rationale behind making a provision

 

 

 

Question. 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.

 

Answer : Zero Base Budgeting (ZBB) is a budgeting process that starts from scratch every budget cycle, instead of using the previous budget cycle as a baseline. This approach requires every budget item to be justified based on its need and priority, regardless of whether it was included in the previous budget or not. In other words, all expenses are evaluated as if the budget for each

 

 

 

Question. 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

 

 

Question. 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 charges (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	Mix I	Mix II	Mix III
P	25,000	20,000	30,000
Q	15,000	12,000	5,000
R	10,000	18,000	15,000

 

 

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

 

 

Question. 6. '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.

 

Answer : Break-even analysis is a financial tool used to determine the point at which a company's revenue from sales is equal to its total costs, resulting in zero profit or loss. The concept of break-even analysis is to determine the minimum level of sales volume required to cover all of the company's costs, including fixed and variable costs.

 

The conventional break-even analysis is based

 

 

 

Question. 7. The following information is available for XYZ Ltd. for three years.

 

	Year 1	Year 2	Year 3
Gross Profit Ratio	36%	33 1/2%	30%
Stock turnover	20 times	25 times	14 times
Average Stock	Rs. 38,400	Rs. 36,000	Rs. 70,000
Average debtors	Rs.87,500	Rs.7,68,750	Rs.2,00,000
Income tax rate	50%	50%	50%
Net Profit ratio	6%	7%	12%
Maximum credit period allowed to customers	60 days	60 days	30 days

 

Prepare a statement of profits in comparative form for all the three years, and evaluate the position of the company regarding profitability and liquidity.

 

Answer: o prepare a statement of profits in comparative form, we need to gather the relevant information from the given data:

 

Year 1:

 

Gross Profit = 36% of Sales

Stock Turnover = 20 times

Average Stock = Rs. 38,400

Average Debtors = Rs. 87,500

Income

 

 

Question. 8. What do you understand by Budgetary Control? Discuss its objectives and explain the steps that are taken for installing an effective system of budgetary control in an organization.

 

 

Question. 9. Distinguish between:

(a) Gross Margin and Return on Investment

(b) Financial Risk and Business Risk

(c) Profit Maximization and Wealth Maximization Criteria

(d) Internal Rate of Return method and Net Present Value method

 

 

 

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