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Question Paper Pattern

TYBMM Semester 6 - Financial Management

The following question paper pattern is applicable for April 2019 Examination of University of Mumbai.

Q. 1 Numerical (15 Marks)
OR
Q .1 a) Theory (8 Marks)
Q .1 b) Theory (7 Marks)

Q. 2 Numerical (15 Marks)
OR
Q .2 a) Theory (8 Marks)
Q .2 b) Theory (7 Marks)

Q. 3 Numerical (15 Marks)
OR
Q .3 a) Theory (8 Marks)
Q .3 b) Theory (7 Marks)

Q. 4 Numerical (15 Marks)
OR
Q .4 a) Theory (8 Marks)
Q .4 b) Theory (7 Marks)

Q. 5 Numerical (15 Marks)
OR
Q .5 a) Theory (8 Marks)
Q .5 b) Theory (7 Marks)

Marginal Costing
15 Marks
Proforma of Marginal Cost Sheet
Particulars Per Unit
Rs.
Total
Rs.
Sales xxxx xxxx
Less: Variable Cost xx xx
CONTRIBUTION xxxx xxxx
Less: Fixed Cost xx xx
PROFIT/LOSS xxxx xxxx
No. Formulas  
1 P/V Ratio
2 Break-Even Point Sales
OR
BEP (Rs.)
3 Break-Even Point Sales
OR
BEP (Rs.)
4 Margin of Safety (MOS) Sales
OR
MOS (Rs.)
5 Margin of Safety (MOS) Sales
OR
MOS (Rs.)
6 Sales required to earn a profit of Rs.____________
7 Profit when Sales is Rs. _______________
Sales Budget
15 Marks
Sales Budget Chapter is having two formats
  • 1. Product wise Sales Budget
  • 2. Product wise and Area Wise Sales Budget.
Format of Sales Budget
Product wise
Format of Sales Budget
Product wise and Area Wise
Cash Budget
15 Marks
Format of Cash Budget
Cash Budget for the period___________ to _____________
Note :
1. Total [A] = Opening Balance + Receipts
2. Closing Balance of each month will be the Opening Balance for the next month.
Ratio Analysis
15 Marks
Important Formulas
Each formula is having One Marks.
Note : COGS – Cost of Goods sold.

Important Theory Questions

Following are the important questions for April 2019 Examination of University of Mumbai.

1. What is Financial Management? Objectives of Financial Management.

2. Discuss the important functions performed by a Finance Manager. OR What is Financial Management? Explain the different functions of Finance Manager.

3. State the functions of Finance. OR State the functions and the goals of the financial management.

4. Discuss the significance of Ratio Analysis in understanding the financial position of a company OR State the different uses of Ratio Analysis

5. State the different types of lease contracts.

6. What is budget? What are the objectives of setting up a budget?

7. State the advantages of term loan. OR Briefly outline the features and advantages of term loans. OR Advantages of Owners Funds

8. What factors influence the working capital of a unit? OR State the factors influencing working capital requirement.

9. Discuss any three sources of long term finance in detail. OR Describe the various sources of owned finance for a Business Unit.

10. Briefly mention the various sources of borrowed finance.

11. Briefly write about the sources of short term finance

12. Describe the different types of Preference Shares.

13. State the benefits of Budgeting

14. What do you mean by Budget? Explain the different types of budgets. OR Write a short note on Master Budget

15. What is Working Capital? Explain its Operating Cycle. OR Write a short note on Operating Cycle

16. Sate the limitations of Break Even Analysis.

17. Relationship between Finance Function & Marketing Function.

18. Advantages and Disadvantages of Budgets

19. Difference between Gross Working Capital and Net Working Capital

Short note :

  • a) Fixed and variable cost
  • b) Advantages of Spreadsheet
  • c) Bank Overdraft
  • d) Types of Debentures OR Debenture as a long term source of Finance
  • e) Ploughing back of profit
  • f) Limitations of Ratio Analysis
  • g) Benefits of Costing
  • h) Net Present Value
  • i) Contribution and its relevance
  • j) Elements of a Business Plan
  • k) Preference share capital as a source of finance

Cost Classification
10 Marks

Note :

  • In University Exam, Cost Classification is always asked in Q. 5 for 10 Marks.
  • This Chapter is having only 3 types of Practical Problems.
  • In exam usually any 2 types of Practical Problems are asked.
  • Marks allocation- For each question – 1 Mark.

Tips to Study :
Start with the following sequence only :

  • Classification on the Basis of function.
  • Behaviour to change in level of activity
  • Traceability to Product.

Type 1 - Function

Classify the following cost on the Functions.
Answer can be :

  • Factory Cost
  • Office & Administration Cost
  • Selling & Distribution Cost

Cost Explanation
1. Factory Cost It includes all factory related expenses like factory rent, wages of works, purchase of raw material etc.
2. Office & Administration Cost It includes all Office & Administration related expenses like office rent, manager’s salary, printing & stationary etc.
3. Selling & Distribution Cost It includes all Selling & Marketing related expenses like showroom rent, sales mangers salary, marketing research expenses tec.
Classify the following cost on the basis of function
Question Answer
1. Carriage Outward Selling & Distribution Cost
2. Carriage Inward Factory Cost
3. Audit Fees / Auditor’s Fees / Lawyer’s Fees/ Directors Fees Office & Administration Cost
4. Raw Materials Factory Cost
5. Printing & Stationary / Stationary Expenses Office & Administration Cost
6. Manufacturing Expenses Factory Cost
7. Salaries/ Salaries of Administrative Staff/ Office Peon Salary / Salaries to Peon Office & Administration Cost
8. Rent of Showroom / Showroom Expenses/ Showcase Expenses Selling & Distribution Cost
9. Telephone Expenses / Telephone Fax Expenses Office & Administration Cost
10. Maintenance Expenses of Machinery / Depreciation of Plant & Machinery Factory Cost
11. Trade Fair Expenses / Exhibition Expenses Selling & Distribution Cost
12. Advertising Expenses / Market Research Expenses / Free Samples / Packing Expenses Selling & Distribution Cost
13. Storekeepers Wages Factory Cost
14. Repairs to Computers / Depreciation of office Computer / Depreciation of Furniture Office & Administration Cost
15. Establishment License / Shop & Establishment License Office & Administration Cost
16. Office Cleaning Expenses Office & Administration Cost
17. Warehouse Rent Factory Cost
18. Fuel & oil / Power & Fuel / Heat & Light / Heating & Lighting Expenses in Factory Factory Cost
19. Delivery Van Repairs / Depreciation to Delivery Van / Fuel of Delivery Vehicle Selling & Distribution Cost
20. Office Rent Office & Administration Cost
21. Sales Commission / Salesmen’s Salary Selling & Distribution Cost
22. Bank Charges Office & Administration Cost
23. Factory Salary / Factory Watchman’s Wages/ Foremen’s Wages / Indirect Wages / Direct Expenses Factory Cost
24. Sales Stationary Expenses Selling & Distribution Cost
25. Consumable Stores Factory Cost

Type 2 - Behaviour

Classify the following cost on the basis of Behaviour to change in level of activity.
Answer can be :

  • Fixed Cost
  • Variable Cost
  • Semi-variable Cost

Cost Interpretation
1. Fixed Cost Always same.
Constant at all output level
2. Variable Cost Changes as per changes in output
3. Semi- variable Cost Constant up to one level then changes as per changes in output.
IMP

1. Semi-variable Cost will be the answer only in case of Electricity Bill & Telephone Bill.

2. In rest all cases, answer will be either Fixed Cost or Variable Cost.

Classify the following cost on the basis of Behaviour to change in level of activity
Question Answer
1. Landline phone Charges / Telephone Charges Semi-variable Cost
2. Electricity Bill / Factory Electricity Bill / Office Electricity Bill / Showroom Electricity Bill Semi-variable Cost
3. Cost of Raw Material / Indirect Material /Direct Material / Raw Material Cost Variable Cost
Factory Rent / Office Rent / Rent of shop in mall / Shop’s Rent / Showroom Expenses Fixed Cost
4. Manufacturing Wages / Overtime paid to Workers / Wages to Labour / Variable Cost
Productive Wages / Wages to machine operator on piece rate basis / Direct Labour
5. Manger’s Salary / Watchman’s Salary / Supervisor’s Salary / Salaries of Salesmen / Factory Manager’s Salary Fixed Cost
6. Carriage Inward / Carriage Inward Charges / Carriage Outward Variable Cost
7. Depreciation of Office Furniture / Depreciation of Plant & Machinery / Depreciation of Office Building / Depreciation of Delivery Van Fixed Cost
8. Rent of Warehouse / Rent for Factory & office Fixed Cost
9. Sales Commission / Salesmen’s Commission / Commission on Sales Fixed Cost
10. Printing of Pamphlets / Xerox Charges Fixed Cost
11. Consultant Fees / Directors Fees Fixed Cost
12. Exhibition Expenses Fixed Cost
13. Showroom Insurance / Office Insurance Premium / Factory Insurance Fixed Cost
14. Advertising Fixed Cost
15. Plywood used in wooden furniture Variable Cost
16. Purchase commission at the rate of one percent Variable Cost
17. Cost of milk in manufacturing of Ice-cream Variable Cost
18. Office Cleaning Expenses Fixed Cost
19. Repairs & Maintenance Variable Cost
20. Indirect Wages Fixed Cost
Cash Budget
15 Marks

Note :

  • In University Exam, Cash Budget is for 15 Marks.
  • This Chapter is having only one format. This format is available in the Format section of this website.
  • Marks are given for each correct posting.

Tips to study –

  • First understand the format.
  • Start with easy problems & practice more and more difficult problems for scoring.
Illustration 1: (Adapted, April 15)

From the following information of MM Ltd. prepare a monthly cash budget for the quarter commencing from April 2018.

Additional Information:
  • (a) 10% of sales and purchases are for cash.
  • (b) 50% credit sales are paid in the month following the month of sales and rest in the further next month.
  • (c) Credit purchases are paid in the month of fallowing the month of purchases.
  • (d) 50% of wages are paid in the same month and the balance in the following month.
  • (e) Overheads are paid in the month they are incurred.
  • (f) Machinery to be purchased at Rs. 60,000 in the month of June.
  • (g) Opening balance as on 1st April is expected to be Rs. 4, 50,000.
Solutions
Cash Budget
Illustration 2 (Adapted, Oct. 14)

Prepare Cash Budget of P Ltd. for the three months ended 30-6-2018 from the following information:

Additional Information:
  • (i) 20% of the sales are for cash and the credit sales are collected ½ monthly.
  • (ii) Purchases have one month credit and enjoy 5% cash discount at the time of payment.
  • (iii) Wages are paid in half month and other expenses are paid after one month.
  • (iv) During May the company paid a dividend of 15% on its Equity Capital of Rs. 2, 00,000.
  • (v) A quarterly payment of Rs. 50,000 has to be paid in June.
  • (vi) On 31st March the unit had a cash balance of Rs. 28.000.
Solutions
Cash Budget
Illustration 3: (Adapted, April 2014)

Prepare a cash budget for the three months ending 30th June 2018 from the following information:

Additional Information:
  • (i) 20% of purchases and 25% of sales are for cash.
  • (ii) The average collection period of the company is half month.
  • (iii) The credit purchases are paid after one month.
  • (iv) Wages are paid half monthly.
  • (v) Rent of Rs. 500 is paid every month and it is included in expenditure. All other expenditure is paid after one month.
  • (vi) Cash balance on 1st April 2018 was Rs. 25,000.
Solutions
Cash Budget
Illustration 4: (Adapted, Oct. 2013)

From the following details of Technology Ltd. prepare a cash budget for the 3 months commencing from April, 2018.

Additional Information:
  • (a) Cash sales are 25% of total sales.
  • (b) 50% of the Credit sales are collected in the month and the balance in the next month.
  • (c) Credit Period allowed by suppliers is a month.
  • (d) Balance on 1st April, 2018 is expected to be Rs. 15,000.
  • (e) Interest from investment Rs. 2,000 expected in May and June, 2018.
  • (f) Income Tax to be paid in the month of June Rs. 5,000.
  • (g) Expenses are paid after a month.
Illustration 5: (Adapted, April 2013)

Prepare Cash Budget of F.M. Ltd. for 3 months commencing from October, 2018:

Additional Information:
  • (a) Cash as on 30th September is Rs. 1, 00,000.
  • (b) Cash Sales are 25% of Total Sales.
  • (c) 60% of Credit Sales are collected in the same month and balance 40% in the following month.
  • (d) Payment of purchase is made 40% in same month and 60% in the following month.
  • (e) Rent of Rs. 20,000 paid every month.
  • (f) Interest @ 10% on loans of Rs. 2, 00,000 is paid in the month of December.
Illustration 6: (Adapted, Oct 2012)

Prepare a Cash Budget for January to March 2019 from the following information of ABCD Ltd.:

All figures in Rs.

Other Information:
  • (a) Closing Cash in hand on 31/12/2018 was Rs. 21,800.
  • (b) 30% of sales are for cash and debtors get realized, in 1 month period.
  • (c) One month credit is available from creditors for purchases.
  • (d) Overheads are paid in the next month.
  • (e) Lag in the payment of wages is 1 month.
  • (f) 5% Commission is payable on total sales in the month of sales.
  • (g) A grant of bank loan of Rs. 18,000 is expected in February, 2019.
  • (h) Dividend on investments Rs. 1,000 is payable in March, 2019.
Illustration 7: (Adapted, April 2012)

Mr. Akash has given the sales forecast for January to July, 2018 and Actual Sales for November and December, 2017 as under with the particulars given.
Prepare Cash Budget for five months January to May, 2018:

All figures in Rs.

Additional Information:
  • (a) Sales 20% cash and 80% on Credit Basis Collection in the 2nd month (i.e. January in March).
  • (b) Commission 5% on sales payable in the month of sales only.
  • (c) Purchases are made and paid for in the preceding month.
  • (d) Purchases are 60% of sales of each month.
  • (e) Rent and other Expenses paid Rs. 7,50,000 every month.
  • (f) Machinery for Rs. 25,00,000 to be purchased in the month of March for cash.
  • (g) Advance Tax Rs. 15,00,000 to be paid in the month of April.
  • (h) Opening Cash Balance on 1st January Rs. 25,00,000.
Illustration 8: (Adapted , April 2011)

Prepare the Cash Budget of a trader for the three months commencing from April with the following details:

  • (a) Cash sales are 25% of total sales.
  • (b) 60% of credit sales are collected in the same month and the balance 40% in the following month.
  • (c) 60% of purchase payment is made in the same month and 40% in the following month.
  • (d) Rent of Rs. 4,000 is paid every month.
  • (e) Dividend received in May Rs. 11,000.
  • (f) Cash balance on 31st March is Rs. 1,00,000.
The following details are also provided:
Illustration 9: (Adapted, April 2010)

Prepare Cash Budget from January 2010 to June 2010 from the following information of Gama Ltd.:

  • (a) The estimated sales and expenses are as follows:
  • (b) 20% sales are on cash and the balance on credit are collected in the month following the sales.
  • (c) Debentures worth Rs. 40,000 to be sold in January.
  • (d) Cash balance at the end of December-2009 is Rs. 60,000.
  • (e) Lag in payment of wages and salaries are 1 month.
Illustration 10 :( Adapted, Oct. 2010)

Prepare a Cash Budget for January - 2018 to March - 2018 from the following information of CCD Ltd.: (All figures in Rupees)

Other Information:
  • (a) Closing Cash in hand on 31.12.2017 was Rs. 21,800.
  • (b) 30% of sales are for cash and debtors get realized in 1 month period.
  • (c) One month credit is available from creditors for purchases.
  • (d) Overheads are paid in the next month.
  • (e) Lag in the payment of wages is paid 1 month.
  • (f) 5% Commission is payable on total sales in’ the month of sales.
  • (g) A grant of bank loan is expected in February 2018 of Rs. 18,000.
  • (h) Dividend on investments Rs. 1,000 in March 2018.
Ratio Analysis
15 Marks

Note :

  • In University Exam, Ratio Analysis is always asked in Q. 1 for 15 Marks.
  • This Chapter is having only 12 Important Formulas.
  • In exam usually 7-8 formulas are asked.
  • Marks allocation- For formula – 1 Mark . Calculation – 1 Mark.

Tips to study :

  • First understand all 12 formulas.
  • I have classified problems on the basis of Difficulty Level
  • Start with easy problems & practice more and more difficult problems for scoring.

DIFFICULTY LEVEL – EASY

Illustration 1: Adapted (April 2003)

From the following data calculate:
(1) Current Ratio, (2) Stock to Working Capital Ratio, (3) Average Collection Period, (4) Debtors Turnover Ratio.

Particulars Rs.
Fixed Assets 2,00,000
Stock 50,000
Debtors 11,000
Bills Receivable 4,000
Cash and Bank 26,000
Creditors 16,000
Bills Payable 6,000
Sales 2,00,000
Solution :
Illustration 2: (Adapted, April 2011)

From the following information calculate:
(1) Current Ratio (2) Debt Equity Ratio (3) Stock to Working Capital Ratio (4) Gross Profit Ratio (5) Net Profit Ratio (6) Debtors Turnover Ratio and Collection Period (7) Operating Ratio.

Income Statement
Position Statement
Solution :
Illustration 3: (Adapted, April 2013)

Given below is the Vertical Income statement and Vertical Balance Sheet of UP. Ltd. for the year 2017 − 2018.

(a) Vertical Income Statement for the year ended 31st March 2018:
(b) Vertical Balance Sheet as on 31st March, 2018:

Calculate the following ratios:
(1) Gross Profit Ratio, (2) Net Profit Ratio, (3) Operating Ratio, (4) Debt-Equity Ratio, (5) Debtors Turnover Ratio, (6) Current Ratio, (7) Proprietary Ratio.

Illustration 4: (Adapted, Oct 2013)

From the following information provided in income statement and vertical balance sheet of M/s. Digital Ltd. Calculate:
(1) Current Ratio (2) Gross Profit Ratio (3) Net Profit Ratio (4) Operating Ratio (5) Debt Equity Ratio (6) Debtor’s Turnover Ratio (7) Stock to Working Capital Ratio.

Vertical Income Statement
Vertical Balance Sheet
Solution :
Illustration 5: (Adapted, April 2014)

From the income Statement and position statement provided below:
Calculate
(I) Debt Equity Ratio, (Ii) Current Ratio, (Iii) Proprietary Ratio, (Iv) Stock Working Capital Ratio, (V) Operating Ratio, (Vi) Debtors Turnover Ratio and Collection Period, (Vii) Net Profit Ratio.

Income statement for the year ended 31-12-2018
Position Statement of G. Ltd. as on 31-12-2018
Solution :

DIFFICULTY LEVEL – HIGH

Illustration 1: (Adapted, April 2012)

Given below is the Vertical Balance Sheet of Etch Square Ltd. for the Financial Year 2017-18

Additional Information:
Net Sales for the year Rs. 2,18,240
Net Profit before Tax Rs. 41,000
Tax payable @ 30%

Find:
(1) Current Ratio, (2) Debtors Turnover Ratio and Collection Period, (3) Debt Equity Ratio, (4) Net Profit Ratio, (5) Stock Working Capital Ratio, (6) Proprietary Ratio.

Solution :
Working Note :
Particulars Rs.
Net Profit Before Tax
Less: Income Tax @ 30% ( 41,000 X 30% = Rs. 12,300)
Net Profit After Tax
41,000
12,300
28,700
Illustration 2: (Adapted , Oct. 2012)

Given below are the Performance Statement (Income Statement) and Position Statement (Balance Sheet) of Master Manufacturing Ltd. for the financial year ended 31st March, 2018.

Income statement for the year ended 31/3/2018.
Vertical Balance Sheet as on 31st March, 2012

Note: Out of the total sales, Rs. 12,00,000 consisted of cash sales.

Calculate the following Ratios;
(1) Stock-Working Capital Ratio, (2) Gross Profit Ratio, (3) Selling and Distribution Ratio, (4) Debtors Turnover Ratio and Debtors’ Velocity, (5) Proprietary Ratio, (6) Creditors Turnover Ratio and Creditors’ Velocity, (7) Current Ratio.

Solution :
Illustration 3: (Adapted, Oct. 14)

From the following information calculate:
(1) Debt Equity Ratio, (2) Current Ratio, (3) Proprietary Ratio, (4) Stock Working Capital Ratio, (5) Gross Profit Ratio, (6) Net Profit Ratio, (7) Debtors Turnover Ratio and Collection Period.
Assume 50% taxation on Net Profit.

Income statement of S. Ltd. for the year ended 31-12-2018
Position Statement of S. Ltd as on 31-12-2018
Solution :
Illustration 4: (Adapted, April 15)

You are given the Position Statement and Income Statement of a unit as below:

Position statement of M/s. S. Ltd. for the year ended 31-12-2018
Position statement of M/s. S. Ltd. for the year ended 31-12-2018

Additional Information:

  • Income tax rate applicable is 50% on net profit.
  • Out of total sales, 25% is cash sales.

Calculate the following ratios:
(1) Current Ratio. (2) Debt-Equity Ratio. (3) Debtors Turnover Ratio. (4) Gross Profit Ratio. (5) Operating Ratio. (6) Proprietary Ratio. (7) Net Profit Ratio.

Solution :