TU BBS 1st Year MGT211 Accounting for Financial Analysis & Planning Syllabus and Model Questions
Course No.: MGT 211
Nature of the Course: Core
Full Marks: 100
Pass Marks: 35
Lecture hours: 150
The objectives of the course are to provide the students with the knowledge required to analyze financial statement for decision making including long-term investment decisions.
The course further attempts to provide sound knowledge required for higher studies in capital planning, analysis of financial statement and investment decisions.
Unit 1: Company: Conceptual and theoretical foundation LH 8
· Meaning, concept, types, and features of Public Limited Company
· Advantages and Privileges of Public Limited Company
· Memorandum of Association, Article of Association and Prospects
· Concept and types of Share Capital of the company
Unit 2: Financial Statement of the Company LH 25
- Meaning, concept, features, objectives and importance of company financial statement
- Meaning, importance, objectives, contents and preparation of worksheet based Income Statement and Balance Sheet (in vertical form) as per Company Act and Mandatory Standards (Nepal Accounting Standard)
- Meaning, objectives, importance, contents and preparation of Cash Flow Statement under direct and indirect approach based on Company Act and Mandatory Standards (Nepal Accounting Standard)
- Meaning and concept of Value Added and its application, and concept, advantages, contents and preparation of Value Added statement showing Value Added generated and applied
Unit 3: Analysis of Financial Statement of a Company LH 14
- Meaning, importance and objectives of financial statement analysis, internationally accepted standard and financial statement, ratio analysis-concept, uses, importance and limitations, types of ratios-computation and interpretation: liquidity, leverage, activity / turnover, profitability and earning evaluation ratio for evaluating the financial performance of the company.
Unit 4: Company Growth, Merger, Combination and Liquidation LH 40
- Company expansion through Amalgamation and Absorption: meaning and concept, Purchase consideration – Concept and Determination
- Accounting treatment in the Books of both Purchasing and Vendor Company
- Preparation of Balance Sheet by Purchasing Company
- Internal Reconstruction: Meaning, importance, need and accounting treatment and balance sheet after reconstruction
- Expansion through Subsidiary Companies (Holding Company)
- Concept of Holding and Subsidiary Company, preparation of Consolidated Balance Sheet by Holding Company after due consideration of:
- Pre-acquisition and post-acquisition profit, Minority Interest, Cost of Control/Goodwill or Capital Reserve, Revaluation of assets, Dividend from Subsidiary Company, Inter Company debt and unrealized profit.
- Corporate Liquidation: Concept and reasons for liquidation, procedures of winding up as per Company Act. Liquidator’s Final Statement of Account: meaning, contents and preparation showing amount realized from assets realized.
Unit 5: Depreciation and its Effect in Financial Statement of a Company LH 22 · Depreciation – Concept and need
- Accounting treatment under following Method of Depreciation – Original Cost Method, Diminishing Balance Method, Revaluation Method, Machine Hour Rate Method, Annuity Method, Depreciation Fund Method, Insurance Policy Method, and Sum of Year Digit Method and Change of Depreciation Method and their effects.
Unit 6: Price Level Changes LH 18
- Concept of Price Level Changes – Inflation and Deflation
- Current Purchasing Power-accounting: Concept and Preparation of Financial Statements after Price Level Adjustments.
- Current Cost Accounting: Concept and determination o Current Replacement Cost, Net Realizable Value of assets
- Depreciation Adjustment o Holding Gains o Inventory Adjustment o Cost of Sales Adjustment o Monetary Working Capital Adjustment o Gearing Adjustment o Current Cost Reserve Preparation of:
- Current Cost Profit and Loss Account o Current Cost Balance Sheet
Unit 7: Long-term Planning – Capital Budgeting LH 23
- Capital Budgeting: Concept and need
- Types of investment Proposals: Mutually Related Project, Mutually Exclusive Project, New Project, Replacement, Diversification, Expansion, Research and Development, Miscellaneous
- Estimation of Cash Flow: o Net Investment Cost of New Project
- Differential Net Investment for replacement and mutually exclusive projects o Annual Net Cash Flow: Differential Net Cash Flow and Net Cash Flow for New Project o Net Cash Flow for Final Year: non-operating and including annual cash flow after tax Methods of evaluation of investment proposal:
- Non-discounted Cash Flow Method
- Playback Period
- Average Rate of Return o Discounted Cash Flow Method
- Net Present Value
- Profitability Index
- Internal Rate of Return
- Selection of Project based on profitability
- Determination of financing mix o Leverage – its meaning and types
- Financial Leverage and effect on the shareholder’s return: effect on EBIT and EPS o Analysis of alternative financial plan EBIT – EPS analysis
Gupta, R.L. and Radhaswamy, M., Advanced Accounting, S. Chand and Sons. New Delhi. Van Horne, Financial Management and Policy, Prentice Hall of India Pandey, I.M., Financial Management, Bikash Publishing House, New Delhi.
Munankarmi, S.P., Accounting for Financial Analysis and Planning, Samjhana Publication House, Kathmandu.
Koirala, Y.R. and et.al, Accounting for Financial Analysis and Planning, Ashmita Publication, Kathmandu.
Shrestha, B.P. and Singh, Y.M., Accounting for Financial Analysis and Planning, Buddha Academy Publication House, Kathmandu.
Dangol, R.M., Accounting for Financial Analysis and Planning, Taleju Publishing House, Kathmandu.
Upadhyay, J.P. and Dahal, R., Accounting for Financial Analysis and Planning, Khanal Publication, Kathmandu.
Shukla, Grewal and Gupta, Advanced Accounting, Sahitya Bhawan, Agra.
Shukla, Grewal and Gupta, Advanced Accounts, S. Chand and Co., New Delhi.
Khan and Jain, Financial Management: Text and Problems, Tata McGraw Hill Co., New Delhi.
MGT 211: Accounting for Financial Analysis and Planning Model Questions
BBS 1st Year
Full Marks: 100
Pass Marks: 35
Candidates are required to give their answer in their own words as far as practicable. The figures in the margin indicate full marks.
Attempt ALL Questions
Brief Questions Answer (10×2=20)
- Write about the two differences between Equity Share Capital and Preference Share Capital.
- Differentiate between pre-acquisition and post-acquisition dividend.
- Define the meaning of cash from financing activities.
- What do you mean by current purchasing power method?
- Why is Capital Budgeting significant for an organization?
- A company presents the following information.
Equity Share Capital of Rs 100 each = Rs.100000
8% Preference share capital of Rs 100 each = Rs.60000
6% Debentures = Rs.40000
The company is within 40% tax racket
Required: EPS at EBIT level of Rs.100000
- You are provided the following information.
Sales = Rs.300000 Wages to workers = Rs.50000
Interest received = Rs.10000 Cost of bought in materials and services = Rs.180000 Required: Amount of value added.
- A company whose NPAT was Rs.60000, has 10% Debenture of Rs.100000 and 8% Performance Share Capital of Rs.100000. If tax rate is 40%, find out Interest Coverage Ratio.
- The following information are provided Cost of sales adjustment = Rs.30000
Depreciation adjustment = Rs.10000
Current cost adjustment = Rs.60000
Required: Monitory working capital adjustment
- A machine was purchased on 1st Baisakh, 2068 for Rs.90000 and incurred Rs.10000 each for transportation and installation. It was estimated that the machine will have a scrap value of Rs.10000. The total life of the machine will be 10000 hours. If machine runs for 3000 hours during 2068, find out the amount of depreciation for the year 2068.
Descriptive Questions Answer (attempt any five) (5×10=50) 11. a. Ratio Analysis is used to measure financial performance of the organization, comment. (5) b. The following information are given.
|Current Ratio = 2||Current Liabilities = Rs.250000|
|Fixed Assets = Rs.500000||Stock = Rs.100000|
|Prepaid expenses = Rs.25000||Debenture = Rs.100000|
| Share Capital = Rs.300000
Inventory Turnover ratio = 5 times
|Net Profit = Rs.50000|
|Required: a. Quick Ratio||b. Sales (Rs.)|
|c. Debt to Total Capital Ratio||d. Return on Total Assets||(1.25×4=5)|
- A company is considering the replacement of old machine. The existing machine is 5 year old, has current cash salvage value of Rs.30000 and remaining depreciable life of 10 years. The machine was originally purchased for Rs.75000 and it is being depreciated at Rs.5000 per year for tax purpose.
The new machine will cost Rs.150000 and will be depreciated on straight line basis over 10 years with no salvage value. The management of the company anticipates that with expanded operation, there will be a need of an additional working capital of Rs.30000. The new machine will allow the company to expand the current operation and there by increase annual sales revenue by Rs.40000 and annual variable operating cost by Rs.10000. The company’s tax rate is 50% and its cost of capital is 10%.
Required: i) Net cash outlay (NCO) ii) Incremental annual cash inflow (CFAT) iii) Final year cash inflow. iv) Net Present Value (NPV) of the project.
|v) Decision regarding replacement of old machine.||(2+2+2+2+2)|
|13. a. Clarify the meaning of depreciation with two main objectives.||(5)|
- The following are the particulars relating to the machine account.
- i) Purchase 5 machines at Rs.10000 each ii) Date of purchase January 1, 2008 iii) Depreciation applied Straight line at 20% p.a. iv) Salvage Value 2000 each (Book value)
- v) Scrapped One machine realizing Rs.6000 on the last date of December, 2010 vi) Accounts closed on The last date of December every year
Required: Machinery account for 2010 (5)
- A book store performed the following transactions during the year, 2012.
|Amount (Rs.)||Amount (Rs.)|
|Less: cost of goods sold:|
Less: Operating Expenses:
|Selling and Distribution (cash)||240000|
|Net income before tax||800000|
|Less: Income Tax||200000|
|Net income after Tax||600000|
Average Index 160
Time of fixed assets purchased 100
Required: a) Purchasing power gain or less on holding monetary items.
- b) Restated purchasing power income statement (5+5=10)
- The balance sheet of a company is as follows:
|Liabilities||Amount (Rs.)||Assets||Amount (Rs.)|
|3000 Equity Share Capital of Rs.100 each, Rs.75 called up||225000||Land & Building||200,000|
|10% Preference Share Capital of
Rs.100 each, fully paid up
|100000||Plant & Machinery||240,000|
|Preference dividend due||12000
The Company went into voluntary liquidation. The assets except cash realized Rs.450000 including Rs.180000 on sale of plant and machinery, which was mortgaged against 8% debenture. The liquidator was entitled to a remuneration of 4% on value of assets realized and 2% on amount paid to equity shareholders. The cost of liquidation was Rs.12000.
Required: Liquidator’s final statement of account (10)
- Define consolidated balance sheet. How would you ascertain the amount of minority interest and capital reserve or goodwill? Explain with suitable example. (4+6=10)
Analytical Questions Answer (attempt any two) 2×15=30)
- A company and B company decided to amalgamate and a new Company, C Company is formed to take over the amalgamated companies with effect from January 1, 2013, when their balance sheet stood as follows:
|Liabilities (Rs.)||A Co||B Co||Assets (Rs.)||A Co||B Co|
|Equity shares of Rs 100 each||1000000||500000||Goodwill||190,000||60,000|
|Accounts payable||95,000||47,500||Furniture||85 , 000|
|Cash at bank||85,000||30,000|
C Company issued 5000 equity shares of Rs.100 each, 10000, 8% preference shares of Rs.10 each and 10% debentures Rs.200000 to the public apart from the issues made to carry out the business combination.
- Calculate the amount payable to each company assuming that the purchase consideration was settled by the following in each of the companies. 40% in equity shares, 30% in preference shares, 20% in debentures and the rest in cash.
- Necessary journal entries in the book of A Co.
- Amalgamated balance sheet of New Company. (4+6+5)
- An unadjusted trial balance of a company is given below.
|Particulars||Debit (Rs.)||Credit (Rs.)|
|Interest on loan||6000|
|10% Bank Loan||100000|
- Closing stock Rs.50000
- Prepaid rent was Rs.2000
- Out standing interest on bank loan was Rs.4000
- Depreciation on furniture at 10% per annum
|Required: i. Income Statement||(4)|
|ii. Balance Sheet||(5)|
|iii. Cash flow Statement||(6)|
- a. Explain the meaning, features and privileges of public limited company. (2+3+3=8) b. “Cash Flow Statement is useful internally to management and externally to investors and creditors”, Discuss. (7)