MANAGEMENT ACCOUNTING

Question Bank

MANAGEMENT ACCOUNTING

UNIT - I Introduction to Management Accounting

Part A

1) What is management accounting?

2) Define Management accounting?
3) List Out the functions of Management accounting?
4) What are the characteristics of Management accounting?
5) What is the Scope of Management accounting?
6) State the Nature of Management accounting?
7) What are the objectives of Management accounting?
8) What are the Advantages of Management accountings?
9) State the importance of Management accounting?

Part B

1. Define Management accounting. State six functions of Management

 accounting?

2. Discuss the nature and scope of Management Accounting?

3. Define Management accounting. What are its objectives?

4. Explain managerial uses of Management accounting.

5. What are the differences between Management accounting and financial accounting?

6. Distinguish between Management accounting and Cost accounting.

7. Explain tools of Management accounting?

Part C

1. What are the Advantages and Limitations of Management accounting?

2. Briefly explain the tools and techniques of Management accounting?
3. What are the functions and Duties of Management accountant?

UNIT – II Financial Analysis – Ratios

Section-A

1. What are financial statements?

2. What is financial statement analysis?
3. What is vertical analysis?
4. Explain the horizontal Analysis
5. What is comparative financial statement?
6. What is common size statement?
7. Explain the meaning of ROI.
8. Explain the debt equity ratio.
9. Sakthi Ltd submit the following data recording sales and cost
Particulars Rs.
Sales 1,00,000
Sales returns 20,000
Cost of sales 50,000
Find out Gross profit ratio.
 10. Find out earnings per share (EPS) Rs.
Net profit after tax 2,00,000
10% preference share capital 4,00,000
Equity share capital (Rs.100 each) 10,00,000.

11. Calculate average collection period for the followings: Rs.

Credit sales for the year 30,000
Debtors 2,500
Bills receivable 3,000

Section –B

1. Describe the different types of financial statement analysis?

2. Explain the different tools and techniques used in financial statement analysis.
3. What are the uses of Ratio of analysis?
4. State and explain how Accounting ratios are classified.
5. From the following information find out
(a) Current Assets
(b) Current liabilities
(c) Value of inventory
(i) Current ratio = 3.5
(ii) Liquid ratio = 2.5
(iii) Working capital = Rs. 1,00,000.

6. Calculate stock turnover ratio from the following trading Account :

Trading Account

Rs. Rs.
Opening stock 40,000 Sales 2,00,000
Purchases 1,00,000 Closing stock 20,000
Freight 10,000
Gross profit 70,000

2,20,000 2,20,000

7. From the following information calculate average collection period

Total sales 2,00,000
Cash sales 40,000
Sales return 14,000
Debtors (31.12.2006) 18,000
Creditors (31.12.2006) 20,000
Provision for bad debts (31.12.2006) 2,000
Bills receivable (31.12.2006) 4,000
 8. The following figures are taken from the balance sheet of X Ltd as on 31.December
Stock 25,000
Debtors 10,000
Cash at bank 5,000
Creditors 8,000
Bills receivable 2,000
Provision for tax 5,000
Bank O/D 5,000
Calculate Current ratio and Quick ratio.

9. The balance sheet of R Ltd as on 31.12.2006 is as follows

Balance sheet
Liabilities Rs. Assets Rs.
Equity capital 2,00,000 Fixed assets 3,60,000
9% preference share Stock 50,000
capital 1,00,000 Debtors 1,10,000
8% Debentures 1,00,000 Bank 6,000
P/L A/c 40,000 B/R 4,000
Creditors 90,000

5,30,000 5,30,000

Find out:
(a) Debt equity ratio b) Current ratio and c) Liquid ratio.

Section-C

1. What do you mean by financial statements? What are their objectives?

2. From the data given below compute :
(a) Working capital
(b) Net capital employed
(c) Current ratio
(d) Acid test ratio
(e) Debt equity ratio
(f) Fixed asset ratio
Mano Ltd as on 31.12.1999

Liabilities Rs. Assets Rs.

Equity share capital 25,000 Fixed assets 30,000
Preference share capital 5,000 Current assets:
Reserves and surplus 4,000 Stores 6,000
Debentures 8,000 Sundry debtors 1,000
Bank loan 4,000 Cash 500
Sundry creditors 1,000 Bank 2,500
 Proposed dividend 1,000 Preliminary expenses 8,000
Provision for taxation 2,000 Brokerage on shares 2,000

50,000 50,000

3. Debtors velocity 3 months

Creditor’s velocity 2 months
Stock velocity 8 times
Bills payable Rs.4,000
Bills receivable Rs.10,000
Total sales Rs. 2,40,000

The closing stock is Rs.2,000 more than the opening stock. Gross profit on the
above sales is Rs. 40,000. There are no cash sales and cash purchases and accounting
year consist of 360 working days. Find out
(a) Sundry debtors
(b) Sundry creditors
(c) Closing stock

4. The following are the details relating to trading activities of of A Ltd

Stock velocity 8 months
Debtor’s velocity 3 months
Creditor’s velocity 2 months
Gross profit ratio 25%

Gross profit for the year Rs. 4,00,000; bills receivables Rs. 25,000 and Bills
payables Rs.10,000. Closing stock of the year is Rs. 10,000 more than the opening stock.
Find out;

(a) Sales
(b) Debtors
(c) Closing stock
(d) Creditors

5. The ratios relating to a company are given below ;

Gross profit 15% of sales
Stock velocity 6 months
Debtors velocity 3 months
Creditors velocity 3 months
Gross profit for the year ended Rs.60,000 . closing stock is equal to opening stock .Find
out (a) sales (b) closing stock (c) sundry debtors (d) sundry creditors.
 6. From the following details find out
(a) Current assets
(b) Current liabilities
(c) Liquid assets
(d) Stock
Current ratio 2.5; Liquid ratio 1.5; working capital Rs. 90,000.

7. Find out the following

(I) Current assets
(II) Current liabilities
(III) Stock
(IV) Fixed assets
(a) Current ratio 2.5
(b) Liquid ratio 1.5
(c) Fixed assets / proprietary funds : 0.75
(d) Working capital Rs. 60,000
(e) Reserve and surplus Rs.40,000
(f) Bank overdraft Rs.10,000
8. From the following information , prepare balance sheet
(a) Working capital Rs.75,000
(b) Reserve and surplus Rs.1,00,000
(c) Bank overdraft Rs. 60,000
(d) Current ratio 1.75
(e) Liquid ratio 1.15
(f) Fixed assets to proprietor’s fund 0.75
(g) Long term liabilities Nil
UNIT-III Fund Flow And Cash Flow Analysis

Section-A

1. What is working Capital?

2. Explain the meaning of `Current Assets’ and `Current liabilities.
3. What is `Funds from operation’?
4. What are the objectives of Funds Flow Statement?
5. What is the purpose of Funds flow analysis?
6. What is a `Cash Flow statement’?
7. What do you understand by `Cash from operation’?
8. Find out the provision for Income Tax made during the financial year 2003-04

Rs.
Balance of provision for Tax on 1-4-2003 2,65,000
Balance of provision for Tax on 31-3-2004 2,90,000
Tax paid during 2003-04 3,00,000

9. Proposed dividend during 2003 Rs. 80,000

 Proposed dividend during 2004 Rs.1,10,000
Dividend paid in 2004 Rs. 80,000
Prepare Proposed Dividend Account.

Section-B

1. What is `Funds Flow Statement’? Explain its various uses.

2. From the following Balance sheet of a company, prepare a statement showing the changes in
working capital.

Balance sheet as on 31.12.1999 and 31.12.2000

Liabilities 1999 2000 Assets 1999 2000

Rs. Rs. Rs. Rs.
Creditors 7,000 4,500 Cash 3,000 4,700
Capital 20,000 25,000 Debtors 12,000 11,500
P/L a/c 1,000 2,300 Land 5,000 6,600
Stock 8,000 9,000
28,000 31,800 28,000 31,800

3. Prepare a schedule of changes in working capital from the balance sheet data given below:

Balance sheet as on 31.12.1996 and 31.12.1997

Liabilities 31.12.96 31.12.97 Assets 31.12.96 31.12.97

Rs. Rs. Rs. Rs.
Share capital Machinery 70,000 1,00,000
Creditors 3,00,000 3,75,000 Stock 1,21,000 1,36,000
P/L A/c 1,06,000 70,000 Debtors 1,81,000 1,70,000
14,000 31,000 Cash 48,000 70,000
4,20,000 4,76,000 4,20,000 4,76,000

4. From the following details prepare a schedule of change in working capital.

Particulars 31.12.91 31.12.92

Rs. Rs.
Bank loan ( short period) 70,000 ---
Creditors 1,50,000 1,35,200
Bank --- 8,000
 Cash 500 600
Debtors 80,000 64,200
Stock 1,00,000 74,000
Share capital 2,00,000 2,50,000
General reserve 50,000 60,000
P/L a/c 30,500 30,600
Buildings 2,00,000 1,90,000

5. Calculate funds from operation from the following

Profit and loss Account

Particulars Rs. Assets Rs.

To Rent 10,000 By Gross Profit 9,86,000
To Salary 25,000
To Depreciation on furniture
To Discount on issue of shares 3,000
To Goodwill written off
To Preliminary expenses 10,000
To Net profit 5,000
6,000
9,27,000
9,86,000 9,86,000

6. Calculate funds from operation from the following Profit and Loss a/c

Profit and loss Account

Particulars Rs. Particular Rs.

To Expenses paid 1,00,000 By GP 2,00,000
To Depreciation 40,000 By Gain on sale of
To Loss on sales of building 15,500 machinery 20,000
To Discount 500
To Goodwill 12,000
To Net profit 52,000
2,20,000 2,20,000

7. Compute `Cash from operation’ from the following figure profit for the year 1996 in a sum of Rs.
10,000 after providing for depreciation of Rs. 2,000

Particulars 1995 1996

Rs. Rs.
 Sundry debtors 10,000 11,000
Provision for doubtful debts 1,000 1,200
Bills receivable 4,000 3,000
Bills payable 5,000 6,000
Sundry creditors 8,000 9,000
Inventories 5,000 8,000
Short term investments 10,000 12,000

8. Calculate cash from business operation from the following P&L A/c

Particulars Rs. Particulars Rs.

To Expenses paid 3,00,000 By GP 4,50,000
To deprecation 70,000 By profit on sale of land 50,000
To Loss on sale of machinery 4,000 By Dividends 4,000
To Discount 200 By Interest on investment 6,000
To Goodwill 20,000
To Net profit 1,15,000
5,10,000 5,10,000

Section-C

1. What are the various sources of Fund? How they can be applied for?
2. Distinguish between `Cash flow statement’ and `Funds Flow Statement’.

3. From the following balance sheet of Sekar Ltd., prepare a statement of sources and
application of funds and schedule of changes in working capital for 2002.

Balance sheet as on 31.12.2001 and 31.12.2002

Liabilities 2001 2002 Assets 2001 2002

Rs. Rs. Rs. Rs.
Share capital 1,00,000 1,25,000 Land and building 1,00,000 95,000
General reserve 25,000 30,000 Plant & machinery
P/L A/c 15,250 15,300 Inventory 75,000 84,500
Bank loan 35,000 --- Sundry debtors 50,000 37,500
Creditors 75,000 67,500 Cash 40,000 32,000
Provision for tax 15,000 17,500 Bank 250 300
 Goodwill -- 4,000
-- 2,000
2,65,250 2,55,300 2,65,250 2,55,300

Additional information

a. Dividend of Rs. 11,000 was paid during 2002

b. Depreciation on plant written off in the year 2002 was Rs. 7,000
c. A provision for income tax Rs. 16,500 was made during the year.

4. From the following balance sheet of XYZ ltd prepare a Fund Flow statement
Balance sheet

Liabilities 2005 2006 Assets 2005 2006

Rs. Rs. Rs. Rs.
Equity share capital 3,00,000 4,00,000 Goodwill 1,15,000 90,000
Pref. share capital 1,50,000 1,00,000 Building 2,00,000 1,70,000
General reserve 40,000 70,000 Plant 80,000 2,00,000
P/L A/c 30,000 48,000 Debtors 1,60,000 2,00,000
Proposed dividend 42,000 50,000 Stock 77,000 1,09,000
Creditors 55,000 83,000 Bills receivable 20,000 30,000
Bills payable 20,000 16,000 Cash in hand 15,000 10,000
Provision for tax 40,000 50,000 Cash at bank 10,000 8,000
6,77,000 8,17,000 6,77,000 8,17,000

Additional information
a. Depreciation: Plant- Rs.10, 000 and building Rs.20,000 charged in 2006.
b. An interim dividend of Rs. 20,000 has been paid in 2006
c. Income tax Rs. 35,000 was paid during 2006.

5. From the following Balance sheet of Kandan Ltd as on Dec 31 , 1979 and 1980 you are
required to prepare cash flow statement for the year ended Dec 31 1980

Balance sheet

Liabilities 1979 1980 Assets 1979 1980

Rs. Rs. Rs. Rs.
Share capital 1,00,000 1,00,000 Goodwill 12,000 12,000
General reserve 14,000 18,000 Building 40,000 36,000
P/L A/C 16,000 13,000 Plant 37,000 36,000
Creditors 8,000 5,400 Investment 10,000 11,000
Bills payable 1,200 800 Stock 30,000 23,400
Provision for taxation 16,000 18,000 Bills receivable 2,000 3,200
Provision for doubtful debts 400 Debtors 18,000 19,000
 600 Cash 600 200
Bank 6,000 15,000

1,55,600 1,55,800 1,55,600 1,55,800

Addition information:

a. Depreciation on plant Rs.4,000

b. Provision for taxation of Rs. 19,000 was made during the year 1980.

UNIT-IV Marginal Costing

Section-A

1. Define `Marginal cost’.

2. What do you mean by understand by `contribution’.
3. What is P/V ratio?
4. Explain the meaning of `Break even point’.
5. Describe the meaning of ‘Margin of safety’.
6. What is Break even chart?

7. Ascertain contribution: Rs.

Prime cost 40,000
Variable overheads 20,000
Fixed overheads 30,000
Sales 90,000
8. From the following find profit Rs.
Fixed cost 5,00,000
Variable cost per unit 10
Selling price per unit 15
Output level 1, 50,000 units

9. What is the Breakeven point when P/V Ratio is 40% and fixed cost is Rs. 5,00,000.

10. Calculate BEP in units and value for the following ;

Total cost Rs.50,000

Total variable cost Rs.30,000
Sales (5,000 units) Rs.50,000

Section-B

1. Describe the objectives of marginal costing?

2. Marginal costing is a valuable aid for management decision - Discuss.
3. What is ‘Key Factor”? Explain its significance.
4. From the following information find out
a.BEP
b.Margin of safety
Total Fixed Cost Rs.1,80,000
Total Variable Cost Rs.3,00,000
Selling Price Rs.6/unit, No. of units sold 2,00,000 u.

5. Sales Rs. 1,00,000 ; profit Rs.10,000 ; Variable cost 70%

Find out

a. P/V Ratio
b. Fixed cost
c. Sales to earn a profit of Rs. 40,000

6. From the following details find out

a. Profit volume ratio
b. Break even sales
c. Margin of safety

Sales Rs.1,00,000
Total cost Rs.80,000
Fixed cost Rs.20,000
Net profit Rs.20,000
 Section-C

1. Explain the advantages and limitations of Marginal costing.

2. Define marginal costing. How does `Marginal cost’ differ from `Total cost’.

3. The Sales and profit for 1996 and 1997 are follows

Year Sales Profit

Rs. Rs.
1996 1,50,000 20,000
1997 1,70,000 25,000
Find out:

a. P/V ratio
b. BEP
c. Sales for a profit of Rs. 40,000
d. Profit for sales of Rs. 2,50,000
e. Margin of safety at a profit of Rs. 50,000

4. Assuming that the cost structure and selling price remain the same in periods I and II find out
a. Profit volume ratio
b. Fixed cost
c. Breakeven point for sales
d. Profit when sales are Rs.1,00,000
e. Sales required to earn a profit of Rs.20,000
f. Margin of safety at a profit of Rs.15,000 and
g. Variable cost in period II

Period Sales Profits

Rs. Rs.
I Year 1,20,000 9,000
II Year 1,40,000 13,000

5. Present the following information to management:

a. The marginal product cost and contribution per unit and
b. The total contribution and profits resulting from each of the following sales mixes:

Particulars Product Per unit (Rs.)

Direct materials A 10
Direct material B 9
Direct wages A 3
Direct wages B 2

Fixed expenses- Rs.800

 (Variable expenses are allotted to product at 100 per cent direct wages)
Sale price A Rs.20
Sale price B Rs.15
Sale mixes
1. 100 units of product A and 200 of B
2. 150 units of product A and 150 of B
3. 200 units of product A and 100 of B.

Recommend which of the sales mixes should be adopted.

UNIT-V Budgetary Control

Section-A
1. What is a budget?
2. Explain the importance of budgetary control.
3. Explain Advantages of budgetary control.
4. What is Master Budget?
5. What is Z.B.B.?
6. What is `Flexible budget’?
7. From the following details compute the material purchase during November 2007;
Estimated sales 5,000 units
Expected closing stock 2,000 units
Opening stock 1,000 units.
Material requirement is 60 Kgs for an output of 100 units of finished product.

8. Find out the quantity of Raw material to be purchased from the following
 Kgs
Opening stock of raw material 10,000
Material expected to be consumed 20,000
Closing stock of material required 5,000

9. Prepare purchase budget for material A

Estimated Stock on 1st Jan 1,600

Estimated stock on 31st Jan 2,000
Estimated Consumption in the month 12,000

10. Prepare production budget for the quarter ending 31st March 2004

Budgeted sales for the quarter 40,000 tons

Stock on 31st Dec 2003 8,000 tons

Required stock on 31st March 2004 10,000 tons

Section-B
1. Compare `Budget’, budgeting and `budgetary control’.
2. Distinguish between `Budget and Forecasts’.
3. What are the different classifications of budget?
4. The sales director of a manufacturing company reports that next year he expected to sell 40,000
units of a particulars product. The production department gives following particulars.

Two kinds of raw material A and B required for manufacturing the product each product require
3 units materials A and 2 units of material B. The estimated opening balance of next year will be:

Finished product: 10,000 units: material A - 12,000 units, Material B - 15,000 units.

The desirable closing balances at the end of the year are:

Finished product-16,000 units, Material A- 14,000 units, Material B -15,000 units

Draw up materials purchase budget.

5. Draw a material procurement budget (Quantitative) from the following information Estimated
sales of a product 40,000 units. Each unit of the product requires 3 units of material A and 5 units of
material B.
Estimated opening balance at the commencement of the next year.
Finished product 5,000 units
Material A 12,000 units
Material B 20,000 units
Material on order
Material A 7,000 units
Material B 11,000 units
The desirable closing balance at the end of the next year
 Finished product 7,000 units
Material A 15,000 units
Material B 25,000 units
Material on order
Material A 8,000 units
Material B 10,000 units

6. From the following particulars prepare a production budget of sales corporation for the year
ended on 30 June 2007:

Product Sales (Units) 1.7.2006 1.07.2007

(as per Sales Budget)

A 1,50,000 14,000 15,000

B 1,00,000 5,000 4,500
C 70,000 8,000 8,000

7. From the following particulars ,prepare production budget for 3 months ending 30 June 1993
th

Particulars Estimated Sales Units

April 1993 1,40,000

May 1993 1,60,000
June 1993 1,30,000
July 1993 1,20,000

It’s the policy of the company to maintain 50% of the month’s sales as opening stock.

Section-C

1. Discuss the steps in the installation of a budgetary control system.

2. What is `Flexible budget? State the importance and limitation of flexible Budget.
3. Write a short notes on
(a)ZBB (b) Master Budget (c) Flexible Budget.
4. From the following particulars ,prepare production cost budget for the month Dec. 2000

Particulars Opening stock Closing stock

(1.1.2000) (31.12.2000)
Finished goods 1200 units 1600 units
Raw material A 5000kg 4800 kg
Raw material B 2000kg 3100 kg
a. Budget sales for the month - 7000 units
b. Raw materials required to produce one unit-A 4 kg at Rs.8 per kg; B 2 kg at Rs. 25 per kg.
5. XYZ Company wishes to arrange O.D facilities with its bankers during the period April-June when
it will be manufacturing mostly for stock.
i. Prepare cash budget for the above period from the following data

Months Sales Purchases Wages

Rs. Rs. Rs.
Feb 1,80,000 1,24,800 12,000
March 1,92,000 1,44,000 14,000
April 1,08,000 2,43,000 11,000
May 1,74,000 2,46,000 10,000
June 1,26,000 2,68,000 15,000
ii. 50% of credit is realized is the month following the sales and the other 50% in the
second month following, creditors are paid in the month following the month of
purchase.
iii. Wages are paid at end of the respective month.
iv. Cash at bank 1 April Rs.25,000.
st

6. Companies at present operation at 80 % capacity produce and sell 40,000 units. Given below are
the expenses per unit.

Direct material 15
Direct labour 10
Factory overheads (30% fixed) 5
Office overheads (60% variable) 3
Selling and distribution overheads (50% Fixed) 2
Selling price 45
Prepare a budget at 60 % capacity and 90% capacity.

7. On the basis of the following particulars draw up a flexible budget for overheads expenses and
determine the overheads rate at 70% 80% and 90% plant capacity

Particulars 70% 80% 90%

Variable overheads
Indirect labour - 12,000 --
Indirect materials - 4,000 --
Semi-variable overheads
Power(30% fixed) - 20,000 --
Repairs(40% fixed) - 2,000 --
Fixed overheads
Depreciation - 11,000 --
Insurance - 3,000 --
Salaries - 10,000 --
Total overheads expenses 62,000
Estimated direct labour hours 1,24,000hrs