Sunday 27 April 2014

Managerial Economics And Financial Analysis (MEFA) Most Important Questions For External Exams (Unit Wise)


Managerial Economics And Financial Analysis (MEFA) Most Important Questions For External Exams (Unit Wise)


Most Important Questions for Final Exam, MEFA (Unit Wise)

UNIT-I

  1. Define Managerial Economics. Explain its Nature And Scope.
  2. Discuss the importance of Managerial Economics in decision making.
  3. What is Managerial Economics? Explain its focus areas.
  4. Point out the importance of Managerial Economics in decision making.
  5. Explain the role of a Managerial Economist in a Business Firm.
  6. Define ‘Demand’ and explain the factors that influence the demand of a product.
  7. State the ‘Law of Demand’. What are the various factors that determine the demand for a Mobile Phone?
  8. Explain the various factors that influence the demand for computer.

UNIT-II

  1. What is meant by ‘Elasticity of Demand’? How do you measure it? (very Imp)
  2. What is cross Elasticity of Demand? Explain
OR
      Explain the concept of Cross Elasticity of Demand. Illustrate your answer with   
      Examples.
  1. Why does the Law of Diminishing Returns operate? Explain with the help of assumed data and also represent in a diagram.
  2. What are the needs for Demand Forecasting? Explain the various steps involved in demand forecasting.
  3. What are the possible approaches to forecasting demand for new products? Illustrate all the methods of Demand Forecasting.
  4. One problem from time series Method.

UNIT-III

  1. Define production Function. Discuss in detail the different types of production functions.

  1. Explain the following with reference to production function
    • Marginal Rate of Technical Substitution(MRTS)
    • Variable Proportions of Factors.

  1. Define ‘Cost’. How are costs classified? Explain any five important cost concepts useful for managerial decisions.
  2. Discuss the role and importance of cost analysis in managerial decisions.

  1. a) State and explain Break-Even analysis and explain its importance.
b) What are its limitations? Use suitable diagrams.
  1. You are required to calculate.
i)                    Margin of Safety
ii)                  Total sales
iii)                Variable cost  from the following figures;
Fixed costs Rs. 12, 000
Profit           Rs. 1, 000
Break-Even Sales Rs.60, 000
  1. a) The information about Raj and Co., are given below.

i)                    Profit-Volume Ratio (P/V Ratio) is 20%
ii)                  Fixed costs Rs. 36000
iii)                Selling price per Unit Rs. 150
            b) Calculate:
i)                    BEP (in Rs.)
ii)                  BEP (in Units)
iii)                Variable Cost per Unit
iv)                Selling Price per Unit

  1. A company reported the following results for two periods.

Period
Sales
Profit
I
Rs.20,00,000
Rs.2,00,000
II
Rs.25,00,000
Rs.3,00,000

                    Ascertain the BEP, P/V Ratio, Fixed cost and Margin of Safety.

  1. Sales are Rs. 1, 10,000 Yielding a profit of Rs. 4,000 in period-I;  Sales are
      Rs. 1, 50,000 with a profit of Rs. 12,000 in period-II. Determine BEP and Fixed    
     Cost.
  1. The P/V Ratio of Matrix Books Ltd is 40% and the Margin of safety is 30%. You are required to work out the BEP and Net Profit, if the Sales Volume is Rs.14,000
  2. A Company prepares a budget to produce 3, 00,000 Units, with fixed costs as Rs. 15, 00,000 and average variable cost of Rs.10 per unit. The selling price is to Yield 20% profit on Cost. You are required to calculate
                                     a) P/V Ratio
                                           b) BEP in Rs and in Units.
  1. You are given the following information about two companies in 2000
Particulars
Company A
Company B
Sales
Rs.50,00,000
Rs.50,00,000
Fixed Expenses
Rs.12,00,000
Rs.17,00,000
Variable Expenses
Rs.35,00,000
Rs.30,00,000

                            



             You are required to Calculate (For Both Companies)
a)      BEP (in Rs.)
b)      P/V Ratio
c)      Margin of safety

UNIT-IV
  1. a) Define Market and explain how markets are classified?
b) What are the important features in Market structure?
  1. a) What is perfect competition? What are its features?
b) How is market price determined under conditions of Perfect Market    
    Competition?
  1. a) Explain in detail, the important features of perfect competition
b) How can a competitor attain equation position under conditions of perfect  
    competition?
  1. a) Explain the features of Monopoly.
b) How can a Monopolist attain equilibrium position under conditions of    
    monopoly?
  1. What are the features of Monopolistic Competition? How can a firm attain equilibrium position?
  2. Compare and contrast between Perfect competition and Monopoly.
  3. a) What are the causes for the emergence of Monopoly?        
b) How is the equilibrium position attained by a monopolist under varying cost                   
                Conditions?
  1. What do you understand by ‘price discrimination’ and on what basis price can be discriminated?

UNIT-V

  1. a) What are the different types of Business organizations?
b) What are the features of Sole trading form of Organization?

  1. a) What are the characteristics of a Business Unit?
b) What are the characteristic features of a sole trader form of organization?

  1. a) What are the salient features Partnership firm
b) Explain Different kinds of partners.
c) What are the advantages and limitations of partnership firm?

  1. a) What do you mean by Joint Stock Company? What are the salient features?
b) Describe the advantages and disadvantages of Joint Stock Companies?

  1. a) Analyses the Formation of Joint Stock Company?
b) What are the different types of companies?

  1. Distinguish between the Joint Stock Company and Partnership.
  2. What are the objectives behind starting public sector enterprises in the country? To what extent have they fulfilled these objectives?
  3. Analyse the problems of the public sector enterprises and suggest remedial measures for their improvement.

UNIT-VI

  1. What are the components of Working capital? Explain each of them.
  2. a) What is the important of capital?
b) What factors determine the working capital requirements of company?

  1. a) Describe the institutions providing long term finances.
b) What are the different market situations in imperfect competition?

  1. a) What is the importance of Capital budgeting?
b) How do the discounting models differ from non-discounting models?

  1. Explain the right procedure for Capital Budgeting decision

  1. What are the merits and limitations of Pay Back Period? How does Discounting approach overcome the limitations of Pay back method?

  1. What do you understand by time value of money? How is it helpful in Capital Budgeting?
  2. Examine the following three proposals and evaluate them based on
a)     PBP  Method
b)     ARR Method. (ARR on original Investment)
                     Initial Investment is Rs.10, 00,000/- each for all the three projects.


Year
Cash inflows (Rs.)
Project-A
Project-B
Project-B
1.
5,00,000
6,00,000
2,00,000
2.
5,00,000
2,00,000
2,00,000
3.
2,00,000
2,00,000
6,00,000
4.
-------
3,00,000
4,00,000









  1. Determine the Pay Back Period for the information given below
a)      The project cost is Rs. 20,000
b)      The life of the project is 5 years
c)      The cash flows for the 5 years are Rs.10,000, Rs.12,000; Rs.13,000; Rs.11,000; and Rs. 10,000 respectively and
d)     Tax rate is 20%


  1. Calculate the Net present value (NPV) of the two projects X and Y.  Suggest  which of the two projects should be accepted assuming a discount rate of 10%

Item
Project-A
Project-B
Initial Investment
Rs. 80,000
Rs. 1,20,000
Life Period
5 Years
5 Years
Scrap Value
Rs.4,000
Rs.8,000
(Annual Cash Inflows)
(CFAT)
(CFAT)
Year: 1
Rs.24,000
Rs.70,000
    ,,    2
Rs.36,000
Rs.50,000
    ,,    3
Rs.14,000
Rs.24,000
    ,,    4
Rs.10,000
Rs.8,000
    ,,    5
Rs.8,000
Rs.8,000


  1. A Company has at hand two proposals for consideration. The cost of the proposals in both the cases is Rs. 5, 00,000 each. A discount factor of 12% may be used to evaluate the proposals. Cash inflows after taxes are as under.
                              
Year
Proposals X(Rs.)
Proposals Y(Rs.)
1
1,50,000
50,000
2
2,00,000
1,50,000
3
2,50,000
2,00,000
4
1,50,000
3,00,000
5
1,00,000
2,00,000
                                
Which one will you recommend under NPV method?

  1. Conceder the case of the company with the following two investment alternatives each costing Rs.9 lakhs. The details of the cash inflows;


Year
Rs.     in Lakhs
Project-1
Project-2
1
3
6
2
5
4
3
6
3

                   The cost of capital is 10% per year. Which project will you choose under
                   NPV method?

  1. The following are the details pertaining to a company which is considering to acquire a fixed asset:
Project A: Cost of the proposal: Rs.42, 000, Life 5 years, Average after Tax
Cash inflow Rs.14000. (constant)
Project B: Cost of the proposal Rs.45000, Life 5 years       
Annual cash inflows 1st year Rs. 28,000, 2nd year Rs.12, 000, 3rd year
Rs.10, 000  4th Rs.10, 000 and 5th year Rs. 10,000. Determine IRR. Which project
do you recommend?

  1. Mahesh Enterprises is considering of purchasing a CNC Machine. The following are the earnings after tax from the two alternative proposals under consideration each costing Rs. 8, 00,000. Select the better one, if the company wishes to operate at 10% rate of return.

Year 1
Year 2
Year 3
Year 4
Year 5
Proposal I
80000
240000
320000
480000
320000
Proposal II
240000
320000
400000
240000
160000
Present value of Re @ 10%
0.909
0.826
0.751
0.683
0.620
                  




UNIT-VII

  1. Give a brief account on the important records of Accounting under Double Entry System and discuss briefly the scope of each?

  1. Explain the purpose of preparing the following accounts/statements and also elaborate the various items that appear in each of them.
                  a) Trading Account
                  b) Profit & Loss Account
                  c) Balance Sheet

  1. Explain the following concepts and illustrate their treatment with imaginary data.
a) Depreciation
            b) Prepaid expenses
            c) Reserve for bad and Doubtful debts
            d) Income received in advance

  1. Explain the following adjustments and illustrate suitably with assumed data.
a) Closing stock
            b) Outstanding expenses
            c) Prepaid Income
            d) Bad debts

  1. (a) Define the concepts ‘Accounting’, Financial Accounting and Accounting System’.
(b) Explain the main objectives of Accounting and its important functions.

  1. What is three columnar cash book? What is Contra Entry? Illustrate
  2. What do you understand by Double Entry Book Keeping? What are its advantages?

  1. What is Trial Balance? Why it is prepared?
  2. What are the different Concepts and Conventions of Financial Accounting?


Illustration: I

Journalize the following transactions and prepare a cash ledger.
1.      Ram invests Rs. 10, 000 in cash.
2.      He bought goods worth Rs. 2000 from shyam.
3.      He bought a machine for Rs. 5000 from Lakshman on account.
4.      He paid to Lakshman Rs. 2000
5.      He sold goods for cash Rs.3000
6.      He sold goods to A on account Rs. 4000
7.      He paid to Shyam Rs. 1000
8.      He received amount from  A   Rs. 2000



Illustration II

Journalize the following transactions and post them into Ledgers
Jan 1. Commenced business with a capital of Rs. 10000
,,    2. Bought Furniture for cash Rs. 3000
,,    3. Bought goods for cash from ‘B’ Rs. 500
,,    4. Sold goods for cash to A Rs. 1000
,,    5. Purchased goods from C on credit Rs.2000
,,    6. Goods sold to D on credit Rs.  1500
,,    8. Bought machinery for Rs. 3000 paying Cash
,,   12. Paid trade expenses Rs. 50
,,   18. Paid for Advertising to Apple Advertising Ltd. Rs. 1000
,,   19. Cash deposited into bank Rs. 500
,,   20. Received interest Rs. 500
,,   24. Paid insurance premium Rs. 200
,,   30. Paid rent Rs. 500
,,   30. Paid salary to P Rs.1000



Illustration-III
During January 2003 Narayan transacted the following business.

Date
Transactions
Amount
2003
Jan.1
,,    2
,,    3
,,    4
,,    5
,,    6
,,    7
,,    8
,,    9
,,    10
,,    11
,,   12

Commenced business with cash
Purchased goods on credit from Shyam
Received goods from Murthy as advance for goods ordered by him
Paid Wages
Goods returned to shyam
Goods sold to Kamal
Goods returned by Kamal
Paid into Bank
Goods sold for Cash
Bought goods for cash
Paid salaries
Withdrew cash for personal use

40000
30000
  3000
    500
   200
10000
500
500
750
1000.
700
1000
Journalize the above transactions and prepare cash Account

Illustration- IV
Record the following transactions in the suitable form of Cash book

2004 Jan 1
Started business with cash
20000
2
Paid for purchases of Machinery from M/s Ram and Co
3000
3
Paid insurance premium
200
5
Paid rent for the month of Dec 2003
500
8
Paid cash for purchase of goods
3000
10
Sold goods for cash
4000
12
Drew cash for personal use
200
14
Paid to Arun Rs.400 for full settlement of Rs.500

15
Received Cash from Karuna Rs. 1000 in full settlement of Rs. 1050


Also prepare Cash Account

Illustration V:

From the following list of balances prepare a Trial Balance as on 30-6-2003


Rs.


Rs.
i
Opening Stock
1800
xiii
Plant
750
ii
Wages
1000
xiv
Machinery tools
180
iii
Sales
12000
xv
Lighting
230
iv
Bank loan
440
xvi
Creditors
800
v
Coal coke
300
xvii
Capital
4000
vi
Purchases
7500
xviii
Misc. receipts
60
vii
Repairs
200
xix
Office salaries
250
viii
Carriage
150
xx
Office furniture
60
ix
Income tax
150
xxi
Patents
100
x
Debtors
2000
xxii
Goodwill
1500
xi
Leasehold premises
600
xxiii
Cash at bank
510
xii
Cash in hand
20






Illustration VI

Prepare a Trial Balance from the following Data for the year 2003.


Rs.

Rs.
Freehold property
10800
Discount received
150
Capital
40000
Returns inwards
1590
Returns outwards
2520
Office expenses
5100
Sales
80410
Bad debts
1310
Purchases
67350
Carriage outwards(sales exp)
1590
Depreciation on furniture
1200
Carriage inwards
1450
Insurance
3300
Salaries
4950
Opening stock
14360
Book debts
11070
Creditors for expenses
400
Cash at bank
2610
Creditors
4700




Illustration: VII

The following is the Trial Balance of Abhiram, was prepared on 31st March 2006. Prepare Trading and Profit& Loss Account and Balance Sheet.



 Debit   Rs.
Credit  Rs.
Capital

------
22000
Opening stock
10000
------
Debtors and Creditors
8000
12000
Machinery
20000
-------
Cash at Bank
2000
-------
Bank overdraft
------
14000
Sales returns and Purchases returns
4000
8000
Trade expenses
12000
-------
Purchases and Sales
26000
44000
Wages
10000
-------
Salaries
12000
-------
Bills payable
-------
10600
Bank deposits
6600
-------
TOTAL

110600
110600


Closing Stock was valued at Rs.60, 000







Illustration VIII

Prepare Trading and Profit &Loss A/C for the year ended 31.12.2001 and a Balance Sheet as on that date from the following Trial Balance.


Dr, Rs.
Cr, Rs.
Furniture
6500

Plant and machinery
60000

Buildings
75000

Capital

125000
Bad debts
1750

Reserve for bad debts

3000
Sundry debtors
40000

Sundry creditors

24000
Stock(1.1.2001)
34600

Purchases
54750

Sales

154500
Bank over draft

28500
Sales returns
2000

Purchase returns

1250
Advertising
4500

Interest
1180

Commission received

3750
Cash in hand
6500

Salaries
33000

General expenses
7820

Car expenses
9000

Taxes and insurance
3500


340000
340000
           Closing stock valued at Rs. 50000

Illustration VIII
The following figures have been extracted from the records of Fancy Stores a proprietary concern as on 31.12.2003.

Rs.

Rs.
Furniture
15000
Insurance
6000
Capital A/C
54000
Rent
22000
Cash in hand
3000
Sundry debtors
60000
Opening stock
50000
Sales
600000
Fixed deposits
134600
Advertisement
10000
Drawings
5000
Postages and telephone
3400
Provision for bad debts
3000
Bad debts
2000
Cash at Bank
10000
Printing and stationary
9000
Purchases
300000
General charges
13000
Salaries
19000
Sundry  creditors
40000
Carriage inwards
41000
Deposit from customers
6000


Prepare Trading, Profit and loss account and Balance sheet after taking into consideration the following information.
a)      Closing stock as on 31st March was Rs. 10000.
b)   Salary of Rs. 2000 is yet to be paid to an employee.
 
 





Illustration IX
Prepare Trading and Profit &Loss A/C for the year ended 31.12.2001 and a Balance Sheet as on that date from the following Trial Balance.


Debit  Rs.
Credit   Rs.
Purchases
45000

Debtors
60000

Interest earned

1200
Salaries
9000

Sales

96300
Purchase returns

1500
Wages
6000

Rent
4500

Sales returns
3000

Bad debts return off
2100

Creditors

36600
Capital

31800
Drawings
7200

Printing and stationary
2400

Insurance
3600

Opening stock
15000

Office expenses
3600

Furniture and fittings
6000

GRAND  TOTAL
167400
167400

    Adjust the following
a)      Closing stock Rs.20000
b)      Write off furniture @ 15% per annum.




UNIT-VIII


  1. Explain the meaning of the ‘Analysis of Financial Statements’. Discuss briefly the different type of analysis.
  2. Discuss the importance of Ratio Analysis for inter firm and intra-firm comparison, including circumstances responsible for its limitations, if any.

  1. How are ratios classified for the purpose of financial analysis? With assumed data, illustrate any two types of ratios under each category?


  1. Write a brief note on the importance of ratio analysis to different category of users.
  2. As a financial analyst, what precautions would you take while interpreting ratios meaningfully?

  1. What are the limitations of Ratio Analysis? Does ratio analysis really measure the financial performance of a company?

  1. following is the Profit and Loss account and Balance Sheet of Jai Hind Ltd. Calculate the following ratios:
a) Gross Profit Ratio
b) Current Ratio
c) Quick ratio

Profit and Loss Account

Particulars
Rs.
Particulars
Rs.
To Opening Stock of
      Finished goods
      Raw materials
To Purchase of raw material
To Manufacturing Expenses
To Administration Expenses
To Selling& Distribution Exp
To Loss on sale of Plant
To Interest on Debentures
    
To Net Profit


100000
50000
300000
100000
50000
50000
55000
10000

385000

By Sales

By Closing Stock:
      Raw Material
      Finished goods
By Profit on sale of shares
800000


150000
100000
50000
1100000
1100000

Balance Sheet

Liabilities
Rs.
Assets
Rs.
Share Capital:
Equity Share Capital
Preference share Capital
Reserves
Debentures
Sundry creditors
Bills payable

100000
100000
100000
200000
100000
50000

Fixed Assets
Stock of Raw Materials
Stock of finished goods
Sundry Debtors
Bank balance
250000
150000
100000
100000
50000

650000

650000

  1. a) From the following information, calculate

i. Debt-Equity ratio
           ii. Current ratio


Rs.

Rs.
Debentures
1,40,000
Bank balance
30,000
Long term Loans
70,000
Sundry Debtors
70,000
General reserve
40,000


Creditors
66,000


Bills payable
14,000


Share capital
1,20,000



b) Calculate interest coverage ratio from the following information


Rs.
Net profit after deducting interest and taxes
6,00,000
12% Debentures of the face value of
15,00,000
Amount provided towards taxation
1,20,000

  1. Compute the following ratios.
a) Calculate Earnings per share

Rs.
Net profit before preferential dividend
1,15,000
Equity share capital (40,000 shares of Rs.100 each)
4,00,000
12½% Preference share capital
2,00,000






b) Calculate Debtors Turnover Ratio

Total sales for the year
Rs.1,75,000
Cash sales 25% of total sales
Rs
Sales returns out of credit sales
Rs. 10,000
Sundry Debtors-Opening balance
Rs. 8,000
Sundry Debtors-Closing balance
Rs.12,000

c) Calculate interest coverage ratio


Rs.
Net profit after deducting interest and taxes
6,00,000
12% Debentures of the face value of
15,00,000
Amount provided towards taxation
1,20,000


  1. From the information given below calculate:
a) Inventory turnover ratio (Stock)
b) Receivables Turnover ratio (Debtors)


(Amount in Lakhs of Rs.)
Sales (100% credit)
42.00
Opening stock
6.00
Closing stock
7.00
Sales returns
3.00
Opening Balance of Sundry debtors
6.00
Closing Balance of Sundry debtors
4.00
Opening Balance of Bills Receivables
3.00
Closing Balance of Bills Receivables
5.00
Gross profit= 30% of Sales


  1. From the following extract of a balance sheet of an Airlines company calculate the debt equity ratio and interest coverage ratio. Given that the Debt-Equity ratio is in the range of 10:1, how do you interpret this ratio?

                50,000, 10% Preference shares of               Rs. 100 each
                2, 00,000 equity shares of                           Rs. 10   each
                10%, 30,000 Debentures of                         Rs. 100 each
                Net profit during the year was                     Rs. 10, 00,000

  1. The following are the extracts from the financial statements of Blue and Red Ltd.; as on 31st March 2001 and 2002 respectively.


                                                            31. March 2001              31. March 2002
                                                                      Rs.                                 Rs.
Stock                                       10,000                                    25,000
Debtors                                    20,000                                   20,000
Bills Receivables                     10,000                                     5,000
Cash in Hand                           18,000                                   15,000
Bills payable                            15,000                                    20,000
Bank overdraft                                                                        2,000
9% Debentures                    5, 00,000                              5, 00,000
Sales for the year                 3, 50,000                               3, 00,000
Gross profit                             70,000                                    50,000

Compute for both the years the following:
(a) Current Ratio
(b) Acid Ratio
(c) Stock Turnover Ratio. Also interpret the results.


  1. Following is the Balance Sheet of XYZ  company as on 31st Dec 2000

Liabilities
Rs.
Assets
Rs.

Equity share capital
Capital Reserve
8% loan on Mortgage
Trade Creditors
Bank overdraft



20,000
10,000
16,000
8,000
6,000

Goodwill
Fixed assets
Stocks
Debtors
Investments
Cash in hand

12,000
28,000
6,000
6,000
2,000
6,000

60,000
60,000

Sales amounted to Rs. 1, 20,000. Calculate Ratios for
(a) Testing liquidity, and
(b) Solvency of the Company.





  1. a) ABC Ltd has the following information:

                   Cash = Rs.4, 000             Debtors= Rs.4, 000
                   Inventory = Rs.24, 000   Current Liabilities = Rs.16, 000
                   Determine the current ratio and acid-test ratio.

      b) A company has sold products worth Rs.6, 00,000 with a gross profit margin of   
          20%. The inventory at the beginning of the year is Rs.30, 000 and at the end of   
          the year is Rs. 50,000. Determine the inventory turnover ratio and inventory     
          holding Period.

                                                                                                        

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