Most Important Questions for Final Exam, MEFA (Unit Wise)
UNIT-I
- Define Managerial Economics. Explain its Nature And Scope.
- Discuss the importance of Managerial Economics in decision making.
- What is Managerial Economics? Explain its focus areas.
- Point out the importance of Managerial Economics in decision making.
- Explain the role of a Managerial Economist in a Business Firm.
- Define ‘Demand’ and explain the factors that influence the demand of a product.
- State the ‘Law of Demand’. What are the various factors that determine the demand for a Mobile Phone?
- Explain the various factors that influence the demand for computer.
UNIT-II
- What is meant by ‘Elasticity of Demand’? How do you measure it? (very Imp)
- What is cross Elasticity of Demand? Explain
OR
Explain the concept of Cross Elasticity of Demand. Illustrate your answer with
Examples.
- Why does the Law of Diminishing Returns operate? Explain with the help of assumed data and also represent in a diagram.
- What are the needs for Demand Forecasting? Explain the various steps involved in demand forecasting.
- What are the possible approaches to forecasting demand for new products? Illustrate all the methods of Demand Forecasting.
- One problem from time series Method.
UNIT-III
- Define production Function. Discuss in detail the different types of production functions.
- Explain the following with reference to production function
- Marginal Rate of Technical Substitution(MRTS)
- Variable Proportions of Factors.
- Define ‘Cost’. How are costs classified? Explain any five important cost concepts useful for managerial decisions.
- Discuss the role and importance of cost analysis in managerial decisions.
- a) State and explain Break-Even analysis and explain its importance.
b) What are its limitations? Use suitable diagrams.
- 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
- 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
- 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.
- 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.
- 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
- 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.
- 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
- a) Define Market and explain how markets are classified?
b) What are the important features in Market structure?
- a) What is perfect competition? What are its features?
b) How is market price determined under conditions of Perfect Market
Competition?
- a) Explain in detail, the important features of perfect competition
b) How can a competitor attain equation position under conditions of perfect
competition?
- a) Explain the features of Monopoly.
b) How can a Monopolist attain equilibrium position under conditions of
monopoly?
- What are the features of Monopolistic Competition? How can a firm attain equilibrium position?
- Compare and contrast between Perfect competition and Monopoly.
- a) What are the causes for the emergence of Monopoly?
b) How is the equilibrium position attained by a monopolist under varying cost
Conditions?
- What do you understand by ‘price discrimination’ and on what basis price can be discriminated?
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UNIT-V
- a) What are the different types of Business organizations?
b) What are the features of Sole trading form of Organization?
- a) What are the characteristics of a Business Unit?
b) What are the characteristic features of a sole trader form of organization?
- a) What are the salient features Partnership firm
b) Explain Different kinds of partners.
c) What are the advantages and limitations of partnership firm?
- a) What do you mean by Joint Stock Company? What are the salient features?
b) Describe the advantages and disadvantages of Joint Stock Companies?
- a) Analyses the Formation of Joint Stock Company?
b) What are the different types of companies?
- Distinguish between the Joint Stock Company and Partnership.
- What are the objectives behind starting public sector enterprises in the country? To what extent have they fulfilled these objectives?
- Analyse the problems of the public sector enterprises and suggest remedial measures for their improvement.
UNIT-VI
- What are the components of Working capital? Explain each of them.
- a) What is the important of capital?
b) What factors determine the working capital requirements of company?
- a) Describe the institutions providing long term finances.
b) What are the different market situations in imperfect competition?
- a) What is the importance of Capital budgeting?
b) How do the discounting models differ from non-discounting models?
- Explain the right procedure for Capital Budgeting decision
- What are the merits and limitations of Pay Back Period? How does Discounting approach overcome the limitations of Pay back method?
- What do you understand by time value of money? How is it helpful in Capital Budgeting?
- 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 |
- 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%
- 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 |
- 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?
- 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?
- 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?
- 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
- Give a brief account on the important records of Accounting under Double Entry System and discuss briefly the scope of each?
- 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
- 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
- Explain the following adjustments and illustrate suitably with assumed data.
a) Closing stock
b) Outstanding expenses
c) Prepaid Income
d) Bad debts
- (a) Define the concepts ‘Accounting’, Financial Accounting and Accounting System’.
(b) Explain the main objectives of Accounting and its important functions.
- What is three columnar cash book? What is Contra Entry? Illustrate
- What do you understand by Double Entry Book Keeping? What are its advantages?
- What is Trial Balance? Why it is prepared?
- 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 |
|
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
- Explain the meaning of the ‘Analysis of Financial Statements’. Discuss briefly the different type of analysis.
- Discuss the importance of Ratio Analysis for inter firm and intra-firm comparison, including circumstances responsible for its limitations, if any.
- How are ratios classified for the purpose of financial analysis? With assumed data, illustrate any two types of ratios under each category?
- Write a brief note on the importance of ratio analysis to different category of users.
- As a financial analyst, what precautions would you take while interpreting ratios meaningfully?
- What are the limitations of Ratio Analysis? Does ratio analysis really measure the financial performance of a company?
- 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 |
- 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 |
- 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 |
- 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 | |
- 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
- 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.
- 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.
- 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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