VI Semester B.

Com, Examination July/ August 2024 NP-345

(NEP Scheme)
COM 6.3: Management Accounting

Scheme of Evaluation
SECTION- A
1. Answer any Six of the following sub-questions. Each carries two marks: (6 x2 = 12)
a) Define Management Accounting.
The Institute of cost and Works Accountants of India has defined management accounting as “a
system of collection and presentation of relevant economic information relating to an enterprise for
planning, controlling and decision making.”
b) Give the meaning of comparative statement.
Comparative statement is those statement where the financial position of different period of
time is considered. The elements of financial position are shown in a comparative form so as to given
an idea of the financial position of two or more.
c) How to calculate “Stock Turnover Ratio” ?
Stock Turnover Ratio is calculated by dividing the cost of goods sold by average inventory.
Stock Turnover Ratio = Cost of goods sold
Average stock
d) State the meaning of cash flow statement.
The cash flow statement describes the inflow and outflow of cash. It summarises the causes of
changes in cash position of a business enterprise between two balance sheets.
e) Name the parties who are interested in the financial statement analysis.
**Shareholders **Employees **Creditors **General Public
f) Give the meaning of ratio analysis
Ratio analysis is most commonly used tool of analysis and interpretation of financial
statements. Ratio analysis helps to analyse the past performance of a company and to make future
projections.
g) What is meant by management audit ?
Management audit is an independent and systematic analysis and evaluation of a company’s
overall activity and performances. It is a valuable tool used to determine the efficiency, functions,
accomplishments and achievements of the company.
h) Given: Current ratio 2.5 , Working capital is 60,000. Calculate the amount of current assets and
current liabilities.
Working Capital = Current Ratio
60000 = 2.5x – 1x
60000 = 1.5x
X = 40000
Current asset = 40,000 * 2.5 = 1,00,000
Current Liability = 40,000 * 1 = 40,000
SECTION – B
Answer any 3 of the following questions. Each carries 4 marks: (3 x 4 = 12)
2. State any 4 differences between Financial Accounting and Management Accounting.
Basis Financial Accounting Management Accounting
1. External and Financial accounting information is mainly Management accounting information is
Internal users intended for external users like investors, mainly meant for internal users, i.e.,
shareholders, creditors, government management
authorities, etc.

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 2. Accounting method It is based on double entry system for It is not based on double entry system.
recording business transactions.

3. Statutory requirements Financial accounting is mandatory. Under Management accounting is optional though
company loan tax laws, Financial its utility makes it highly desirable to adopt it.
accounting is obligatory to satisfy various
statutory provisions.
4. Analysis of cost and profitFinancial accounting shows the profit/ LossManagement accounting provide detailed
of the business as a whole. It does not showinformation about individual products, plants,
the constant profit for individual products, departments or any other responsibility
processes or departments etc. centre.
5. Fast and future data It is concerned with recording transactions It is future oriented and concentrates on what
which have already taken place, i.e., It is likely to happen in future though it may use
represents fast or historical records. past data for future projections.
6. . Periodic and Continuous Financial reports, i.e., Profit and loss Management accounting reports are prepared
reporting account and balance sheet are prepared frequently, i.e., This may be monthly, weekly
usually on a year to year basis. or even daily depending on managerial
requirements.
7. Accounting standard Companies are required to prepare financialManagement accounting is not bound by
accounts according to accounting standardsaccounting standards. It may use any practise
issued by the Institute of charted which generates useful information to
accountants of India. management
8. types of statements Financial statements prepare general In management accounting special purpose
prepared purpose statements profit and loss account reports are prepared, e.g., Performance report
and balance sheet which are used by of sales manager or any other department
external users. manager which are used by top level
management.
9. Publication in audit Financial statements, i.e., Profit and loss Management accounting statements for
account and balance sheet are published forinternal use enthusiasm published for general
general public views and also sent to public use nor this are required to be audited
shareholders. These are required to be by charted accountants.
audited by the chartered accountants.
10. Monetary and non- Financial accounting provides information Management accounting may apply monetary
monetary measurements in terms of money only. or non monetary units of measurement.

3. From the following data calculate the expense ratio and segment ratio viz, administration expenses
ratio and marketing expenses ratio.
Particulars ₹
Sales 4,50,000
Sales return 50,000
Administrative expense 60,000
Interest on loan 20,000
Marketing expenses 40,000
Solution:
1. Calculate the Net Sales

Net Sales = Sales - Sales Return

Net Sales=₹4,50,000−₹50,000=₹4,00,000
2. Calculate the Expense Ratio

Expense Ratio = (Total Expenses / Net Sales) × 100

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 Total Expenses = Administrative Expenses + Marketing Expenses + Interest on Loan
Expenses=₹60,000+₹40,000+₹20,000=₹1,20,000
Expense Ratio= (₹4,00,000₹1,20,000) ×100=30%
3. Calculate the Administrative Expenses Ratio
Administrative Expenses Ratio = (Administrative Expenses / Net Sales) × 100
Administrative Expenses Ratio= (₹60,000/4,00,000) ×100=15%
4. Calculate the Marketing Expenses Ratio
Marketing Expenses Ratio = (Marketing Expenses / Net Sales) × 100
Marketing Expenses Ratio= (₹40,000/4,00,000) ×100=10%
4. From the following balance calculate cash from operations as on 31st December.
Particulars 2022 2023
₹ ₹
Bills Receivables 60,000 57,000
Debtors 20,000 22,500
Bills Payables 30,000 35,000
Creditors 9,000 7,000
Prepaid Expenses 900 800
Outstanding Expenses 2,000 2,200
Accrued Income 700 850
Income Received in Advance 900 350
Profit Made During the Year -- 95,000
Solution :
Calculation of Cash from Operating Activities
Particulars Amount Amount

Profit made during the year 95,000

Add: Decrease in current asset and Increase in current liabilities:
Decrease in Bills Receivables 3,000
Decrease in Prepaid Expenses 100
Increase in Bills Payable 5,000
Increase in Outstanding Expenses 200 8,300
1,03,300
Less: Increase in current asset and Decrease in current liabilities:
Increase in Debtors 2,500
Increase in Accured Income 150
Decrease in Creditors 2,000
Decrease in Income received in advance 550 5,200
Cash from Operating Activities 98,100

5. From the following information prepare a comparative income statement.

Particulars 2022 2023
₹ ₹
Sales 6,00,000 7,50,000
Cost of goods sold 2,30,000 2,80,000
Administrative and selling expense 1,00,000 1,30,000
Other incomes 65,000 73,000
Income tax 38,000 47,000
Solution:
Particulars 2022 2023 Increase/ Percentage
Decrease

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 Sales 6,00,000 7,50,000 1,50,000 25%
Less: Cost of goods sold 2,30,000 2,80,000 50,000 21.73%

Gross Profit 3,70,000 4,70,000 ------- -------

Less: operating expenses

Administrative and selling
1,00,000 1,30,000 30,000 30%
expense

Operating profit 2,70,000 3,40,000 70,000 25.92%

Add: Other incomes 65,000 73,000 8,000 12.31%

Net profit before tax 3,35,000 4,13,000 78,000 23.28%

Less: Income Tax 38,000 47,000 9,000 23.68%

Profit After Tax 2,97,000 3,66,000 69,000 23.23%

6. Write the scope of Management Audit.

Scope of management Audit are as follows:
• Strategic Planning and Policies • Organizational structure • Management systems and procedures
• Human Resources Management • Financial Management • Operations and Production Management
• Marketing Management • Risk Management• Corporate Governance • Information Technology(IT)
Management • Environmental and Social Responsibility • Innovation and Change Management
SECTION – C
Answer any Three of the following questions. Each carries 12 marks: (3 x 12 = 36)
7. From the following information prepare a summarized balance sheet as on 31 st March 2023.
₹
1) Working capital 1,20,000
2) Reserves and surplus 80,000
3) Bank overdraft 20,000
4) Current ratio 2.50
5) Proprietary ratio 0.75
6) Liquid ratio 1.50
Solution:

Current Assets (CA) and Current Liabilities (CL):

• Working Capital = Current Assets - Current Liabilities

• Current Ratio = Current Assets / Current Liabilities
Current Ratio=Current Assets/Current Liabilities=2.50
Current Assets=2.50×CL
Working Capital=Current Assets−Current Liabilities=1,20,000
Current Assets:2.50×1,20,000/1.5= 2,00,000
=1.50×CL=1,20,000
= CL = 1,20,000/1.50=80,000
Liquid Assets (LA):
• Liquid Ratio = Liquid Assets / Current Liabilities-BoD
=1.50=Liquid Assets/80,000-20000= Liquid Assets=1.50×60,000=90,000
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 Proprietary Funds (PF):
FA/PF= 0.75
=WC/PF=0.25
=1/0.25X 1,20,000= ₹4,80,000

Therefore PF-R&S= Share Capital

Share Capital= 4,80,000-80,000
Share Capital=4,00,000

Fixed Assets=0.75X 4,80,000

FA= 3,60,000

Summarized Balance Sheet as on 31st March 2023

Liabilities Amount( ₹) Assets Amount(₹)
Shareholders' Funds 4,00,000 Fixed Assets 3,60,000
Reserves and Surplus 80,000 Current Assets 2,00,000
Bank Overdraft 20,000

Current Liabilities 60,000

(excluding Bank Overdraft)
5,60,000 5,60,,000

8. Following are the balance sheet of Vidhathri Co. Ltd as on 31-3-2022 and 31-3-2023.

Liabilities 31-3-2022 31-3-2023 Assets 31-3-2022 31-3-2023

Share capital 1,40,000 1,80,000 Land and Building 1,24,000 1,38,000
Reserves 12,000 18,000 Furniture 8,000 12,000
Debentures 20,000 22,000 Stock 36,000 39,180
Bills Payable 10,000 4,000 Debtors 30,000 36,000
Creditors 20,800 8,180 Goodwill 4,000 6,000
Cash 800 1,000
2,02,800 2,32,180 2,02,800 2,32,180

Solution: Common Size Statement

Particulars 31-3-2022 % 31-3-2023 %
Equity and Liability
Share Capital 1,40,000 69.03% 1,80,000 77.53%
Reserves 12,000 5.92% 18,000 7.75%
Debentures 20,000 9.86% 22,000 9.48%

Total Equity 1,72,000 84.81% 2,20,000 94.75%

Current Liability
Billa Payable 10,000 4.93% 4,000 1.72%
Creditors 20,800 10.26% 8,180 3.52%

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 Total current liability 30,800 15.19% 12,180 5.25%
Total equity and Liability 2,02,800 100% 2,32,180 100%
Assets
Land and Building 1,24,000 61.14% 1,38,000 57.20%
Furniture 8,000 3.94% 12,000 5.17%
Total fixed assets 1,32,000 65.09% 1,50,000 64.61%
Current Assets
Stock 36,000 17.75% 39,180 16.87%
Debtors 30,000 14.79% 36,000 15.51%
Goodwill 4,000 1.97% 6,000 2.58%
Cash 800 0.39% 1,000 0.43%
Total current assets 70,800 34.91% 82,180 35.39%
Total assets 2,02,800 100% 2,32,180 100%

9. The following are the summarized balance sheet of Unnati Ltd.

Liabilities 31-3-2022 31-3-2023 Assets 31-3-2022 31-3-2023

Share capital 2,00,000 2,50,000 Land and building 2,00,000 1,90,000

General reserves 50,000 60,000 Plant and machinery 1,50,000 1,69,000
Profit and loss 30,500 30,600 Stock 1,00,000 74,000
Secured loans 70,000 ----- Debtors 80,000 64,200
Creditors 1,50,000 1,35,200 Cash 500 600
Provision for taxation 30,000 35,000 Bank ----- 8,000
Goodwill ----- 5,000
5,30,500 5,10,800 5,30,500 5,10,800

Additional information:
1) Dividend of ₹23,000was paid during the year.
2) Assets of Dhriti Ltd were purchased for a consideration of ₹50,000 payable in shares. The assets
purchased were stock ₹20,000 and machinery ₹25,000.
3) Further machinery was purchased for ₹8,000.
4) Depreciation written off on machinery ₹12,000.
5) Income tax paid during the year was ₹33,000.
6) Loss on sale of machinery ₹200 was written off to general reserve.
You are required to prepare the cash-flow statement as per Ind AS-07
Unnati Ltd.
Cash Flow Statement FYE 31-3-2023
Particulars Amount(₹) Amount(₹)
Net Profit 100

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(+) Gen.Researve 10,200
Dividend Paid 23,000
Provision for Taxation 33,000 66,200
PBT 66,300
(+) Non-Cash/Non-operating Expenses
Depericiation on Machinery 12,000
Depericiation on on L& B 10,000 22,000
(-) Non-Cash/ Non operating Income
88,300
(+) Increase in CL and Dec. in CA
Dec. in Drs 15,800
Dec in Stock 46,000 61,800
1,50,100
(-) Dec in CL and Inc. in CA
Dec in Crs 14,800 -14,800
1,35,300
(-) IT paid -28,000
CF From OA 1,07,300

Cash Flow from Investing Activities

(-) Purchase of Plant and Machinery -8,000
(+) Sale of Machinery 1,800
CF From IA -6,200
Cash Flow from Financial Activities
(-) Bank Loan -70,000
(-)Dividend paid -23,000
CF From FA -93,000
Net Cash Flow 8,100
(+) Op. Cash Bal 500

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 Closing Cash Balance 8,600
Share Capital a/c
Particulars Amount Particulars Amount
By Balance b/d 2,00,000
By Stock a/c 20,000
By machinery a/c 25,000
To Balance c/d 2,50,000 By goodwill a/c (B/F) 5,000
2,50,000 2,50,000

Machinery a/c
Particulars Amount Particulars Amount
To Balance b/d 1,50,000 By Depreciation a/c 12,000
To Share capital a/c 25,000 By loss on sale a/c 200
To bank a/c (purchase0 8,000 By bank a/c (sale) (b/f) 1,800
By Balance c/d 1,69,000
1,83,000 1,83,000

Goodwill a/c
Particulars Amount Particulars Amount
To Balance b/d ---
To Share Capital a/c 5,000 By Balance c/d 5,000
5,000 5,000

Provision for Taxation

Particulars Amount Particulars Amount
To Bank a/c 28,000 By Balance b/d 30,000
To Balance c/d 35,000 By adjusted to P/L a/c (b/f) 33,000
63,000 63,000

General Reserves
Particulars Amount Particulars Amount
To Machinery a/c 200 By Balance b/d 50,000
To Balance c/d 60,000 By adjusted to P/L a/c (b/f) 10,200
60,200 60,200

10. Briefly explain the features and advantage of corporate governance report.
Features of Corporate Governance
Corporate governance consists of five basic features: accountability, transparency, fairness,
responsibility, and managing risks. Let’s understand each of these.
• Accountability
• Transparency

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 • Fairness
• Responsibility
• Managing Risks
Advantages of Corporate Governance
• Compliance with laws
• Lesser fines and penalties
• Better management
• Reputation and relationships
• Lesser conflicts and frauds

11. Following is the balance sheet of ABC limited as on 31st march 2022.
Liabilities Amount Assets Amount

Equity share capital 5,00,000 Land and Building 9,00,000

8% Preference share capital 4,00,00 Plant and Machinery 8,00,000

Reserves and surplus 4,00,00 Closing stock 3,00,000
9% Debentures 6,00,000 Debtors 2,00,000
Current liabilities 4,00,000 Bank 90,000
Prepaid expenses 10,000
23,00,000 23,00,000
Additional Information:
Sales during the year ₹8,00,000, Cost of goods sold ₹6,00,000, administrative expense ₹1,12,000,
commission and discount earned ₹12,000, loss on sale of machinery ₹34,000, Profit on sale of
building ₹54,000. You are required to calculate:
a) Current ratio b) Liquid ratio c) Stock turnover ratio d) Gross profit ratio e)Operating cost
ratio f) Net profit ratio g) Debt-equity ratio h) Solvency ratio j) Proprietary ratio
Solution:
a) Current ratio = Current asset
Current liabilities
Current Assets:
- Bank: ₹90,000
- Debtors: ₹2,00,000
- Closing Stock: ₹3,00,000
- Prepaid Expenses: ₹10,000

Total Current Assets = ₹90,000 + ₹2,00,000 + ₹3,00,000 + ₹10,000 = ₹6,00,000

Total Liabilities =₹4,00,000
Current ratio = 6,00,000 = 1.5
4,00,000

b)Liquid ratio = liquid asset

current liabilities
Quick Assets = Current Assets - Stock
Quick Assets = ₹6,00,000 - ₹3,00,000 = ₹3,00,000
Liquid ratio = 3,00,000 = 0.75
4,00,000
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c)Stock turnover ratio = Cost of goods sold
Average stock
= 6,00,000 = 2
3,00,000
d) Gross profit ratio = Gross Profit
Sales
Gross Profit = Sales - Cost of Goods Sold
Gross Profit = ₹8,00,000 - ₹6,00,000 = ₹2,00,000
Gross profit ratio = 2,00,000
8,00,000
= 2.5
e) Operating Cost Ratio
Operating Cost Ratio=Operating CostSales×100
Operating Cost Ratio=Operating Cost / Sales×100
Operating Cost = Cost of Goods Sold + Administrative Expense - Commission and Discount
Earned
=6,00,000+1,12,000−12,000=7,00,000
Operating Cost Ratio=7,00,000/8,00,000×100=87.5
f) Net profit ratio = Net Profit
Sales
Net Profit = Gross Profit - Administrative Expense + Commission and Discount Earned +
Profit on Sale of Building - Loss on Sale of Machinery
Net Profit = 2,00,000−1,12,000+12,000+54,000−34,000=1,20,000
Net profit ratio = 1,20,000 X 100 = 15%
8,00,000

g) Debt-Equity Ratio
Debt-Equity Ratio=Total Debt/Equity
Total Debt = 9% Debentures + Current Liabilities =6,00,000+4,00,000=10,00,000
Equity = Equity Share Capital + 8% Preference Share Capital + Reserves and Surplus
=5,00,000+4,00,000+4,00,000=13,00,000
Debt-Equity Ratio=10,00,000/13,00,000=0.77
h) Solvency Ratio
Solvency Ratio=total Assets/Total Liabilities
Total Assets = 23,00,000 (given) Total Liabilities = 23,00,000 (given)
Solvency Ratio=23,00,000/23,00,000=1
g)Proprietor ratio
Proprietary Ratio=Total Assets/Shareholders’ Funds
Shareholders' Funds = Equity Share Capital + 8% Preference Share Capital + Reserves and
Surplus
=5,00,000+4,00,000+4,00,000=13,00,000
Total Assets = 23,0 0,000
Proprietary Ratio=13,00,000/23,00,000=0.565

Dr. Sowmya D N
Associate Professor and HoD, Commerce
Seshadripuram Academy of Business Studies
Kengeri Satellite Town
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[email protected]
9036760688

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