CYBER RESEARCH & TRAINING INSTITUTE

TEST EXAMINATION 2011

Financial Management

(Paper : 2.5)

Time : 4 Hours F.M. : 80

1. Answer any 10 (Ten) (10 x 2 = 20)

(a) What is Fund flow statement?

(b) What is capital Budgeting ?

(c) What is positive working capital?

(d) What is negative working capital?

(e) What is ploughing back of profit?

(f) What is convertible debenture?

(g) What are the sources of short term working capital?

(h) What is time value of money?

(i) What is a comparative financial statement?

(j) Explain the significance of stock turnover ratio.

(k) What do you mean by financial statement?

(l) What is meant by participating preference share?

(m) What is composite ratio? Give an example?

(n) What do you mean by permanent working capital?

(o) What do you mean by fund?

(p) What is cash flow statement?

(q) What do you mean by cost of capital?

 Overhead (including depreciation Rs. 50,000) Rs. 2,50,000
2. Answer any 5 (Five) (12 x 5 = 60)
Raw materials are in stock on an average for one month. Materials are in process on an
(a) A company wants to select one of the three projects—X, Y and Z. Initial investment average for two months. Finished goods are in stock on an average for two months. Credit
in each case is Rs. 20,000. Net cash flows from the projects are as follows: allowed to Debtors three months and that received from suppliers of raw materials one
month. Lag in payment of wages half a month and of overhead one month. Cash on hand
Year Projects X Projects Y Projects Z and at Bank – 10% of net working capital.
1 2,000 1,000 2,500 You may assume that production is carried on evenly throughout the year and
2 3,000 4,000 3,000 overheads accrue similarly. One fourth of the output is sold against cash.
3 4,000 4,000 4,000
4 6,000 8,000 9,000
5 10,000 10,000 8,000
6 10,000 9,000 10,000 (h) From the following Balance Sheets of ABC Ltd. Make out:

(i)Statement of Changes in the Working Capital, and (ii) Fund-flow Statement.

Expected rate of return is 15% and PV factors at 15% rate of discount are the following:
Balance Sheets
Year: 1 2 3 4 5 6 Liabilities 31.12.98 31.12.99 Assets 31.12.98 31.12.99
P.V factor 0.8696 0.7561 0.6575 0.5718 0.4972 0.4323 Rs. Rs. Rs. Rs.

Which of the three projects will you recommend and why? Equity Share Capital 3,00,000 4,00,000 Goodwill 1,15,000 90,000
(12)

(b) i.) What do you mean by IRR? Advantages of IRR 8% Redeemable 1,50,000 1,00,000 Land and 2,00,000 1,70,000
ii)Disadvantages of IRR 2+5+5 Preference Share Buildings
Capital
(c) i) What do you mean by analysis and interpretation of financial statement? Discuss
briefly the different tools of financial statement analysis.
ii) Discuss briefly about the different users of financial statement. ( 6 + 6) General Reserve 40,000 70,000 Plant 80,000 2,00,000
(d) i) Advantages of Ratio analysis.
ii) Distinguish between Fund Flow Statement and Cash Flow Statement. ( 5 + 7)
Profit and Loss 30,000 48,000 Debtors 1,60,000 2,00,000
(e) i) Distinguish between permanent and variable working capital. Account
ii) Objectives of Financial Management.
iii) Functions of Financial Management. ( 4 + 4 + 4) Proposed Dividend 42,000 50,000 Stock 77,000 1,09,000

(f) i) Give a format of AS – 3 of Cash Flow Statement. 12

Creditors 55,000 83,000 Bills Receivable 20,000 30,000

(g) From the following details concerning a manufacturing enterprise estimate the amount
of working capital needed to finance an activity level of 50%. The capacity of the
concern is to produce 2,40,000 units p.a. (12) Bills Payable 20,000 16,000 Cash in Hand 15,000 10,000
Provision for 40,000 50,000 Cash at Bank 10,000 8,000
Expected selling price Rs. 10.00 Per Unit Taxation
Cost of Raw Materials Rs. 3.00 ,, ,, 6,77,000 8,17,000 6,77,000 8,17,000
Direct Labour Cost Rs. 2.50 ,, ,,
PG( 3)
Additional information:
a) Depreciations of Rs. 10,000 and Rs. 20,000 were charged on Plant and Land and
Buildings respectively in 1999.
b) An interim dividend of Rs. 20,000 was paid in 1999.
c) Income tax of Rs. 35,000 was paid during the year 1999.

(i) Prepare a Balance sheet of Zylit Ltd. from the following information : (12)

Sales/Net Worth 5 times Sales to Inventory 16 times

Annual Sales Rs. 25,00,000 Debtors Velocity 10 times
Net Worth/Current liabilities 4 Times Reserves & Surplus Rs. 1,25,000
Total Debts Proprietorship 60% Fictitious Assets 25,000
Ratio 80% of Sales were on
Fixed Assets to Net Worth 80% credit
Current Ratio 3:1

(4)