INSTITUTE OF AERONAUTICAL ENGINEERING (Autonomous) Dundigal, Hyderabad

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1 INSTITUTE OF AERONAUTICAL ENGINEERING (Autonomous) Dundigal, Hyderabad MECHANICAL ENGINEERING TUTORIAL QUESTION BANK (ECE / CSE / IT / EEE / ME / CE) Course Name : BUSINESS ECONOMICS AND FINANCIAL ANALYSIS Course Code : AHS015 Class : B. Tech V Semester Branch : MECHANICAL ENGINEERING Academic Year : Course Coordinator : Dr. J.S.V.GOPALA SARMA, Professor, Department of MBA Course Faculty : Mr. M. Ramesh, Assistant Professor, MBA Department. COURSE OBJECTIVES: The course should enable the students to: S. NO DESCRIPTION I Understand the concepts of managerial economics and the market dynamics namely demand, elasticity of demand and pricing in different market structures. II Gain the knowledge on the production theories, cost analysis while dealing with the production and. the concept of, Break even analysis. III IV V Examine the price-output decisions under different types of marketing structures and the significance of different forms of business organizations existing in the modern business. Describe the significance of the project management, capital budgeting, estimation of the projects through capital budgeting methods for choosing the best and optimal projects. Provide the optimal decisions for acquiring the knowledge on financial accounting, management accounting and ratio analysis. COURSE LEARNING OUTCOMES: Students, who complete the course, will have demonstrated the ability to do the following: CAHS CAHS CAHS CAHS CAHS CAHS CAHS CAHS CAHS CAHS Explain the macro economics, micro economics, nature and scope of managerial economics. Describe about demand analysis, the law of demand, demand curve and demand function. Examine the assumptions and exceptions of law of demand with suitable examples. Understand the elasticity of the demand of the product, different types, measurement of elasticity of demand and factors influencing on elasticity of demand. Discuss different methods of demand forecasting and the factors governing demand forecasting. Recognize the Production function, features of Iso-Quants and Iso-Costs, different types of internal economies, external economies and law of returns with appropriate examples. Demonstrate different types of costs for managerial use with suitable examples. Identify the significance and limitations of Break-Even Analysis for decision making and forward planning. Enumerate the features, price-output determination under Perfect Competition, Monopoly and Monopolistic competition Markets. Know the objectives, policies and methods of pricing strategies and price methods.

2 CAHS CAHS CAHS CAHS CAHS CAHS CAHS CAHS Illustrate the features, merits and demerits of different forms of business organizations existing in the modern business. Predict the merits and demerits of different types of public enterprises. Analyze the significance, different types of capital and factors influencing on working capital requirements. Enumerate the concept of capital budgeting and allocations of the resources through capital budgeting methods and compute simple problems for project management. Illustrate the Significance of financial accounting, double entry system, accounts, accounting concepts and conventions. Express the advantages and limitations of the journal, ledger, trial balance and final accounts. Write the significance and limitations and classification of financial ratio analysis. Evaluate different types of financial ratios for knowing liquidity and profitability positions of business concern. TUTORIAL QUESTION BANK S No QUESTION Blooms Taxonomy Level UNIT - I INTRODUCTION TO MANAGERIAL ECONOMICS Part - A (Short Answer Questions) Course Learning Outcome What do you know about the meaning and definitions of business Remember CAHS economics? 2 List out the features and scope of the business economics. Remember CAHS Write the meaning and concept of macro economics. Understand CAHS Illustrate the meaning, and the concept of micro economics. Understand CAHS Explain the meaning, and the concept of investment decisions. Understand CAHS State the meaning, the concept and examples of normative statement. Remember CAHS Explain the meaning and definitions and concept of the demand. Remember CAHS Write the meaning and concept of perfectly price inelastic demand. Understand CAHS Discuss meaning and concept of Giffen s paradox with suitable examples. Understand CAHS Describe the meaning and concept of relatively price elastic demand. Understand CAHS Demonstrate the meaning and concept of relatively price inelastic demand Understand CAHS Write the meaning, definitions and concept of elasticity of demand. Remember CAHS Examine the meaning, definitions and concept of unit price elasticity of Understand CAHS demand. 14 Write the meaning, definitions and concept of perfectly price elastic demand. Understand CAHS Illustrate the meaning, definitions and concept of cross elasticity of demand. Understand CAHS State the meaning, definitions and concept of zero income elasticity of Remember CAHS demand 17 Discuss the meaning, definitions and concept of negative income elasticity. Understand CAHS Illustrate the meaning, definitions and concept of unit income elasticity. Remember CAHS State the meaning, definitions and concept of income elasticity is greater Remember CAHS than unity. 20 Discuss the meaning, definitions and concept of elastic demand. Understand CAHS Express the meaning, definitions and concept of inelastic demand Understand CAHS015.02

3 22 Write a short note on price elasticity of demand greater than unity. Remember CAHS Describe a short note on price elasticity of demand less than unity. Remember CAHS State the meaning, definitions and concept of income elasticity is less than Understand CAHS unity. 25 Write the meaning, definitions and concept of cross elasticity of demand in Understand CAHS case of substitutes. 26 Write the meaning, definitions and concept of cross elasticity of demand in Understand CAHS case of complimentary goods 27 Describe the meaning, definitions and concept of cross elasticity of demand Remember CAHS in case of unrelated goods 28 State the meaning, definitions and concept of law of demand. Remember CAHS Elucidate the meaning, definitions and concept of exceptional demand curve. Understand CAHS List out the assumptions and exceptions of law of demand. Understand CAHS Part - B (Long Answer Questions) 1 Define business economics. Explain the characteristics of business Remember CAHS economics. 2 Write the meaning of business economics. Examine the scope of business Understand CAHS economics. 3 Discuss the meaning of law of demand. State the assumptions of law of Remember CAHS demand. 4 Briefly explain the concept and exceptions of law of demand. Understand CAHS Describe the meaning and determinants of law of demand. Understand CAHS Explain the concept and significance/importance of elasticity of demand. Remember CAHS Illustrate the meaning and different types of price elasticity of demand with Understand CAHS suitable diagrams. 8 Write different types of Income elasticity of demand with suitable diagrams. Understand CAHS Identify the factors which are influencing elasticity of demand with suitable Understand CAHS examples. 10 Describe the meaning and different methods of cross elasticity of demand. Understand CAHS How to measure the price elasticity of demand under total expenditure Remember CAHS method? Explain. 12 Write the meaning, definitions and concept of demand function. Understand CAHS Define demand forecasting. Illustrate different methods of demand Understand CAHS forecasting. 14 Discuss the meaning, definitions and factors governing demand forecasting. Understand CAHS Illustrate survey based demand forecasting methods with appropriate Remember examples. 16 Examine the meaning and types of expert opinion method and test marketing Understand method. 17 Describe the meaning and the concept of controlled experiment method and Understand judgement approach method. 18 Express the meaning and concept of moving average method and barometric Remember techniques method. 19 Express the meaning and concept of moving average method and barometric techniques method. Part - C (Problem Solving and Critical Thinking Questions) 1 2 Elucidate the meaning, definitions and different types of price elasticity of demand. Explain the meaning, definitions and different types of income elasticity of demand. CAHS CAHS CAHS CAHS Remember CAHS Remember CAHS015.02

4 3 Write the meaning, definitions and different types of cross elasticity of Remember CAHS demand. 4 Describe meaning and different types of statistical methods of demand Remember CAHS forecasting. 5 Explain the meaning, definitions and concept of investment decision. Remember CAHS Demonstrate the meaning, definitions and concept of price-output decision. Remember CAHS Explain meaning and concept of Input-output Decision with suitable Remember CAHS examples. 8 Discuss the meaning, definitions and concept of different types of income Understand CAHS elasticity. 9 Examine the meaning, definitions and concept of different types of price Understand CAHS elasticity. 10 State the meaning, definitions and concept of different types of Cross Understand CAHS Elasticity. UNIT - II PRODUCTION AND COST ANALYSIS Part A (Short Answer Questions) 1 Explain the meaning, definitions and concept of Break Even Point. Remember CAHS Describe the meaning, definitions and concept of Iso- Cost. Understand CAHS Discuss the meaning, definitions and concept of Iso- Quant. Remember CAHS Write the meaning, definitions and concept of Contribution. Understand CAHS State the the meaning, definitions and concept of Margin of Safety. Remember CAHS Write the meaning, definitions and concept of opportunity cost Understand CAHS Examine Differences between explicit and implicit costs. Understand CAHS Express the meaning, definitions and concept of profit and volume ratio. Understand CAHS Write the meaning, definitions and concept of angle of incidence. Understand CAHS Elucidate the meaning, definitions and concept and assumptions of break Remember CAHS even analysis. 11 Discuss the meaning, definitions and concept of contribution. Remember CAHS State the meaning, definitions and concept of margin of safety ratio. Remember CAHS Explain the meaning of Break Even Analysis. List out the assumptions and Understand CAHS advantages of of Break-Even Analysis. 14 What is the meaning of External Economies? List out the external economies Understand CAHS of scale. 15 Discuss the meaning, definitions and concept of internal economies of scale. Understand CAHS Write the meaning and computation procedure of contribution. Understand CAHS State the meaning and computation procedure of Margin of Safety Remember CAHS Discuss the meaning and computation procedure of P/V Ratio. Remember CAHS Examine the meaning and computation procedure of Break-Even Point ( in Understand CAHS value) 20 Elucidate the meaning and computation procedure of Break-Even Point ( Understand CAHS in units) 21 Express the meaning and computation procedure of Margin of Safety Ratio Understand CAHS Illustrate the meaning and computation procedure of estimated sales at a CAHS Understand desired profit. 23 Explain the managerial economies and commercial economies of scale of Remember CAHS production. 24 Explain the financial economies and technical economies of scale of Remember CAHS production.

5 25 Discuss the marketing economies and risk bearing economies of scale of Remember CAHS production. 26 Discuss the economies of larger dimension and economies of research and Remember CAHS development. 27 Write a short note on the internal economies and external economies of scale Understand CAHS of production. 28 Write a short note on the economies of concentration from external Understand CAHS economies of scale of production. 29 Write a short note on the economies of welfare from external economies. Understand CAHS Part - B (Long Answer Questions) 1 What is the meaning of internal economies of scale of production? Describe Understand CAHS different types of Internal Economies. 2 Briefly explain the meaning and different types of external economies of Remember CAHS scale of production. 3 Discuss the meaning, definitions and significance of Break-Even Analysis. Understand CAHS State the concept and assumptions of Break Even Analysis. How will you Remember CAHS calculate break even point in units? 4 State the definitions and limitations of Break-Even Analysis. How will you Remember CAHS calculate breakeven point in value? 5 Define Production function. How can a producer find its usefulness? Understand CAHS Illustrate. 6 State the meaning, definitions, concept and features of Iso- Quants with Remember CAHS suitable diagram. 7 State the meaning, definitions, concept and features of Iso-Costs with Remember CAHS suitable diagram. 8 Demonstrate the Cobb-Douglas Production Function with suitable diagram. Understand CAHS Briefly Explain the classification of costs for managerial use with suitable examples. 10 Describe meaning, definitions and different types of internal Economies. How these economies are useful to the producer. Part C (Problem Solving and Critical Thinking) 1 Compute ( i)p/v Ratio (ii) Break Even Point in Value ( iii) Sales required to earn a profit of Rs.4,50,000 and (iv) Profit when Sales are Rs.21,60,000 from the following given table: Particulars Amount Fixed Expenditure 90,000 Variable Cost Per unit : Direct Material Direct Labour Direct Overheads % of Direct Labour Selling price per unit 12 Understand CAHS Understand CAHS Understand CAHS015.03

6 2 Determine i)p/v Ratio (ii) Break Even Point in Value ( iii) Sales required to earn a profit of Rs.12,500 and (iv) Profit when Sales are Rs.2,50,000 from the following given table: Particulars Amount Fixed Expenditure 50,000 Variable Cost Per unit : Direct Material Direct Labour Direct Overheads % of Direct Labour Selling price per unit 25 Trade Discount 4% Understand CAHS The following data are available from the records of a company Understand CAHS Particulars Amount Sales 60,000 Variable cost.30,000 Fixed Cost 15,000 You are required to i) Compute the P/V Ratio, Break-Even Point and Margin of Safety at this level. ii) Compute the above with the effect of 10% increase in selling price. iii) Compute the above with the effect of 10% decrease in selling price. 4 The Sales Turnover and profit during two years were given in the table as follows: Years Sales 7,00,000 9,00,000 Remember CAHS Profit -10,000 10,000 You are required to Compute the following: i) P/V Ratio ii) Fixed Cost iii) Break Even Point in Value and Units iv) Sales required to earn a profit of Rs.40,000 v) Profit when Sales are Rs.12,00,000. The Selling Price per unit can be assumed at Rs.100 The Sales Turnover and profit during two years were given in the table as below: Years Sales 38,000 65,000 Profit / Loss -2,400 3,000 Table 1 Compute the (i)p/v Ratio ( ii) Fixed Cost (iii) Break Even Point in Value and Units (iv) Sales required to earn a profit of Rs.5,000 (v) Profit when Sales are Understand CAHS015.03

7 6 The Sales Turnover and profit during two years were given in the Table as follows: Years Sales 1,00,000 1,20,000 Profit 15,000 23,000 Compute the (i)p/v Ratio ( ii) Fixed Cost (iii) Break Even Point (Value) ( iv) Sales required to earn a profit of Rs.20,000 (v) Profit when Sales are Rs.1,25, The Sales Turnover and profit during two years were given in the table as follows: Understand CAHS Understand CAHS Years Sales 1,40,000 1,60,000 Profit 15,000 20,000 You are required to Compute the following: i)break Even Point (Value) ii) Sales required to earn a profit of Rs.40,000 iii) Profit when Sales are Rs.1,20, You are given the following information about two companies in the table for Particulars Company- X Company-Y Sales 50,00,000 50,00,000 Variable cost 35,00,000 30,00,000 Fixed cost 12,00,000 17,00,000 Profit 3,00,000 3,00,000 Compute the following i) P/V Ratio ii) B.E.P iii) Margin of Safety iv) MOS Ratio v) Profit at Desired Sales of Rs.80,00,000 vi) Sales at a profit of Rs,1,50,000 for each company. 9 You are given the following information about two companies given in the table for the year Particulars Company- A Company-B Sales 3,00,000 3,00,000 Variable cost 2,40,000 2,00,000 Fixed cost 30,000 70,000 Profit 30,000 30,000 You are required to show that i) P/V Ratio ii) B.E.P iii) Margin of Safety iv) MOS Ratio v) Profit at Desired Sales of Rs.80,00,000 vi) Sales at a profit of Rs,1,50,000 for each company from the above information. Remember Remember CAHS CAHS015.03

8 10 The following data are available from the records of a company in the following table: Understand CAHS Particulars Amount Sales 60,000 Variable cost.30,000 Fixed Cost 15,000 You are required to i) Compute the P/V Ratio, Break-Even Point and Margin of Safety at this level. ii) Compute the above with the effect of 10% increase in fixed cost. iii) Compute the above with the effect of 10% decrease in variable cost. UNIT-III MARKETS AND NEW ECONOMIC ENVIRONMENT Part - A (Short Answer Questions) 1. Write the meaning, definitions and concept of the perfect competition. Understand CAHS Explain the meaning, definitions and concept of product differentiation. Understand CAHS State the meaning, definitions and concept of equilibrium price. Remember CAHS List out the concept and essential features of Perfect Market. Remember CAHS Describe the meaning, definitions and concept of monopolistic competition. Remember CAHS Write the meaning, definitions and concept of monopoly competition. Understand CAHS Demonstrate the meaning, definitions and concept of the market. Remember CAHS Discuss the meaning, definitions and concept of Duopoly market with suitable Remember CAHS examples. 9 Examine the meaning, definitions and concept and features of monopolistic Understand CAHS competition market. 10 Elucidate the meaning, definitions, concept and features of monopoly market. Understand CAHS List out the features of monopolistic competition market in the real world. Remember CAHS Illustrate the meaning, definitions and concept of price discrimination. Understand CAHS Write the meaning, definitions and concept of price maker. Understand CAHS Write the meaning, definitions and concept of price taker. Understand CAHS State equilibrium price determination under the perfect competition market. Remember CAHS Discuss the meaning, definitions and concept of promotional pricing Understand CAHS Explain the meaning, definitions and concept of target pricing. Remember CAHS Write the meaning, definitions and concept of cost plus pricing. Understand CAHS Discuss the meaning, definitions and concept of marginal cost pricing. Understand CAHS Discuss the meaning, definitions, features and concept of oligopoly. Remember CAHS Identify the meaning, definitions and concept of market skimming. Understand CAHS Describe the meaning, definitions and concept of Block Pricing. Understand CAHS Explain the meaning, definitions and concept of promotional pricing Remember CAHS Explain the meaning, definitions and concept of Group Equilibrium. Understand CAHS015.04

9 25 List out the meaning, definitions, concept and features of Sole Trading Remember CAHS List out the meaning, definitions, concept and features of Partnership Remember CAHS List out the meaning, definitions and concept and features of joint stock Understand CAHS company 28 List out the meaning, definitions and concept and features of public Understand CAHS enterprises 29 List out the meaning, concept, advantages of sole trading concern. Understand CAHS List out the meaning, definitions, concept and advantages of Partnership Remember CAHS List out the meaning, definitions, concept and advantages of company Understand CAHS List out the meaning, definitions, concept and demerits of Sole Trading Understand CAHS List out the meaning, definitions, concept and demerits of Partnership Remember CAHS List out the meaning, definitions, concept and demerits of Company Remember CAHS Write a short note on Common Seal, unlimited liability. Understand CAHS Demonstrate the meaning, definitions and concept of the Business. Remember CAHS Illustrate the meaning, definitions, concept and features of business. Remember CAHS Describe the meaning, definitions, concept of sole trading. Understand CAHS Explain the meaning, definitions, concept of Partnership Understand CAHS Express the meaning, definitions, concept of Company. Understand CAHS Examine the meaning, definitions, concept and characteristics of company. Understand CAHS Describe the meaning, definitions and concept of Public Enterprise. Remember CAHS State the meaning of unlimited Liability, limited managerial abilities and lack Remember CAHS of continuity in view of sole trading. 45 Demonstrate the meaning of Active Partner, Minor partner and partner by Remember CAHS Estoppel. 46 Write any two differences between Public Company and Private company. Understand CAHS Part B (Long Answer Questions) 1 Define Perfect Competition. List out the features of Perfect Competition. Remember CAHS What is the meaning of Monopoly market. Discuss the features of Monopoly. Understand CAHS How to determine price under Perfect Competition? Illustrate. Remember CAHS Discuss price-output determination in case of Monopoly. Remember CAHS Write differences between Perfect competition and Monopoly. Understand CAHS Write differences between perfect and imperfect market. Explain different Understand CAHS types of Pricing. 7 Define Monopolistic Competition. Explain the features of Monopolistic Remember CAHS Competition. 8 How to determine price- output in case of Monopolistic Competition? Discuss. Understand CAHS Define Business. Explain the meaning, definitions, concept and characteristics of business. Remember CAHS Define Sole Trading. Describe the features, merits and demerits of Sole Understand CAHS Trading? 11 Define Partnership. State the features, merits and demerits of Partnership? Remember CAHS Define Joint Stock Company. Illustrate the features, merits and demerits of Understand CAHS Joint Stock Company. 13 Distinguish between public company and private company. Understand CAHS015.05

10 14 State the merits & demerits of different types of Public Enterprises. Remember CAHS Explain the meaning, definitions, concept of different types of Partners. Understand CAHS List out the meaning, definitions, concept of different types of companies. Remember CAHS Part C (Problem Solving and Critical Thinking) 1 How to determine price under Perfect Competition? Illustrate. Understand CAHS Discuss price-output determination in case of Monopoly. Understand CAHS Write differences between Perfect competition and Monopoly. Understand CAHS Write differences between perfect and imperfect market. Explain different Understand CAHS types of Pricing. 5 Define Monopolistic Competition. Explain the features of Monopolistic Remember CAHS Competition. 6 How to determine price- output in case of Monopolistic Competition? Discuss. Understand CAHS Define Business. Explain its the meaning, definitions, concept and characteristics of business. Remember CAHS Define Sole Trading. Describe the features, merits and demerits of Sole Understand CAHS Trading? 9 Define Partnership. State the features, merits and demerits of Partnership. Remember CAHS Define Joint Stock Company. Illustrate the features, merits and demerits of Understand CAHS Joint Stock Company. 11 Distinguish between Public company and private company. Understand CAHS Explain the meaning, concept and characteristics and different types of partners. UNIT-IV CAPITAL AND CAPITAL BUDGETING Part A (Short Answer Questions) Understand CAHS Write the meaning, definitions, concept of and features of fixed capital. Understand CAHS Sketch the meaning, definitions, concept of significance of capital. Understand CAHS Discuss the meaning, definitions, concept of components of working capital.. Understand CAHS Sketch the meaning, definitions, concept of working capital cycle. Understand CAHS Explain the meaning, definitions, concept of Debt Factoring. Understand CAHS Describe the meaning, definitions, concept of different types of shares. Understand CAHS Elucidate the meaning, definitions, concept of commercial paper. Remember CAHS Examine the meaning, definitions, concept of Pay- back period Remember CAHS Write the meaning, definitions, concept of and formula of Average Rate of Understand CAHS Return. 10 Illustrate the meaning, definitions, concept of and formula of Net Present Understand CAHS Value 11 Explain the meaning, definitions and concept of Profitability Index Understand CAHS Write the meaning, definitions and concept of Internal Rate of Return Understand CAHS Explain the meaning, definitions and concept of payback period. Understand CAHS Write the meaning, definitions, concept of profitability index. Remember CAHS State the calculation procedure and concept of Net Present Value Remember CAHS Demonstrate the meaning, definitions, concept of Capital Budgeting Remember CAHS List out the meaning, definitions, and Significance of Capital Budgeting Remember CAHS Discuss the meaning, definitions and limitations of Capital Budgeting Remember CAHS015.06

11 19 Describe the factors which are influenced on working capital requirements. Understand CAHS State the meaning,, definitions, concept of Average Rate of Return. Understand CAHS Write the meaning, definitions, concept of fixed capital. Understand CAHS Illustrate the meaning, definitions, concept of Working capital. Understand CAHS State the meaning, definitions and concept of capital Understand CAHS Explain the meaning, definitions, concept of Gross Working Capital Remember CAHS State the meaning, definitions and concept of Net Working Capital Remember CAHS Write the meaning, definitions, concept and examples of Fixed Assets Understand CAHS Describe the meaning, definitions, concept and examples of Current Assets Understand CAHS Explain the meaning, definitions and concept of Equity Share Remember CAHS Examine the meaning, definitions and concept of Preference Share Remember CAHS Express the meaning, definitions and concept of Debenture Remember CAHS Part B (Long Answer Questions) 1 Define Capital. Explain the meaning and concept of significance of capital. Remember CAHS Describe the meaning, definitions and different types of capital. Understand CAHS Discuss the factors which are influenced on working capital requirement. Understand CAHS Describe the meaning, definitions, concept advantages and Disadvantages of Understand CAHS Pay-back Period. 5 State the meaning, definitions, concept advantages and Disadvantages of Remember CAHS ARR Method. 6 Illustrate the meaning, definitions, concept, advantages and Disadvantages of Understand CAHS NPV Method. 7 Write the meaning, definitions, concept, advantages and Disadvantages of Understand CAHS IRR Method. 8 Explain the advantages and Disadvantages of Profitability Index Method. Remember CAHS Define Capital Budgeting. Illustrate the significance and limitations of Understand CAHS Capital Budgeting. 10 Illustrate the meaning,, concept and limitations of Capital Budgeting. Understand CAHS Part C (Problem Solving and Critical Thinking) 1 The cost of a project is Rs.50,000 and annual cash inflows for the next five years are given as follows: Years Cash Inflows After Tax Before Depreciation 1 st year 25,000 2 nd year 25,000 3 rd year 25,000 4 th year 25,000 5 th year 25,000 Total 1,25,000 What is the pay-back period for the project? Remember CAHS015.06

12 2 There are two projects X and Y. Each project requires an investment of Rs.20,000. You are required to Rank these two projects according to payback period method from the following information: Net Profits Before Depreciation and After Tax (NPBDAT) for Two projects were given below: Years Project-X Project-Y 1 1,000 2, ,000 4, ,000 6, ,000 8, ,000 Nil 3 A firm is considering two projects each with an initial investment of Rs.20,000 and a life of 4 years. The following is the list of estimated cash inflows after taxes and depreciation. Years Proposal-I Proposal-II Proposal-III 1 12,500 11,750 13, ,500 12,250 12, ,500 12,500 12, ,500 13,500 11,750 Total 50,000 50,000 50,000 Predict Accounting Rate of Return on (i) Average Capital (ii) Original Capital Employed. 4 Company has an investment opportunity costing Rs.50,000 with the following expected net cash flows after taxes and before depreciation. Years Net Cash Flows P.V. of D.f 1 20, , , , Using 10% as the cost of capital determine Years P.V. of Rs D.f i)pay-back Period (ii) Net Present D.f. and (iii) Profitability D.f. Understand Understand Remember CAHS CAHS CAHS015.06

13 5 No project is acceptable unless the yield is 10%. Cash Inflows of a certain project along with Cash outflows are given below: Years Cash Outflows Cash Inflows 0 1,50, ,000 20, , , , ,000 The salvage value at the end of the 5 th year is Rs.40,000. Predict (i) Net Present Value. P.V. of as per Present Value Tables given below: Years P.V. of D.f Understand CAHS A Company has an estimated Life of 4 years and an investment opportunity costing Rs.2,50,000 with the following expected Net Cash flow After Taxes and Before Depreciation. Years Net Cash Flows P.V. of D.f 1 1,20, , ,60, , Using 24% as the cost of capital predict the following: (i)net Present D.f. (ii)profitability (iii)pay-back Period 7 A project requires an investment of Rs.11,11,111 and is expected to generate cash inflows of Rs.3,33,333, Rs.4,44,444, Rs.5,55,555 Rs.4,44,444 and Rs.3,33,333 for the next 5 years. The Risk free cost of capital is 11%. Evaluate the project by using IRR Method with the help of 25% and 26% D.f. If a Risk premium of 9% is considered, how do you evaluate the project and do you observe any change in your earlier decision? Compute (i) Payback period and( ii) IRR with the help of 25% and 26% D.f. Years P.V.Factor@ % P.V.Factor@26 % A project requires an investment of Rs.1,44,000 and is expected to generate cash inflows of Rs.54,000, Rs.63,000, Rs.72,000, Rs.63,000 and Rs.54,000 per annum for the next 5 years. Compute (i) IRR with the help of 31% and 32% D.f. Years P.V.Factor@ % P.V.Factor@32 % Remember CAHS Understand CAHS Remember CAHS015.06

14 9 A Company has an investment opportunity costing Rs.40,000 with the following expected net cash flow after taxes and before depreciation. Understand CAHS Years Net Cash Flows P.V. of D.f P.V. of D.f 1 7, , , , , , , , , , Using 10% as the cost of capital, Compute i) Pay- back period. (ii)net Present D.f. and 15% D.f. iii) Profitability D.f.and iv) IRR with the help of 10% and 15% D.f. 10 Compute the Accounting /Average Rate of Return (ARR) for the projects A and B on (i) Original Investment (ii) Average Investment from the following information. Remember Particulars Project-A Project-B Original Investment Rs.20,000 Rs.30,000 Expected Life (No salvage 4 Years 5 Years Value) Projected Net Income (PAT) 1 st Year Rs. 2,000 Rs.3,000 2 nd Year 1,500 3,000 3 rd Year 1,500 2,000 4 th Year 1,000 1,000 5 th Year Nil 1,000 Total PAT 6,000 10,000 UNIT-V INTRODUCTION TO FINANCIAL ACCOUNTING AND RATIO ANALYSIS Part - A (Short Answer Questions) CAHS Explain the meaning, definitions and concept of Financial Accounting. Remember CAHS Discuss the meaning, definitions and concept of Journal Proper. Understand CAHS List out the meaning, definitions and concept of different types of Remember CAHS Accounting Concepts. 4 Explain the meaning, definitions and concept of Double Entry System. Understand CAHS State the meaning, definitions and concept of purchase book. Remember CAHS Write the meaning, definitions and concept of subsidiary books Remember CAHS Identify the meaning, definitions and concept of trial balance. Understand CAHS State the meaning, definitions and concept of errors of principle Remember CAHS Describe the meaning, definitions and concept of Errors of Omission Understand CAHS Write the meaning, definitions and concept of provisions for doubtful debts. Understand CAHS State the meaning, definitions and concept of Revenue Receipt Remember CAHS Explain the meaning, definitions and concept of Contra Entry. Understand CAHS Illustrate the meaning, definitions and concept of ledger account. Understand CAHS015.07

15 14 Explain the meaning, definitions and concept of Capital Expenditure. Understand CAHS List out definitions and different types of Accounting Conventions. Remember CAHS Explain the meaning, definitions and concept of current ratio Understand CAHS Identify the meaning, definitions, concept and formula of Operating ratio. Understand CAHS Write the meaning, definitions, concept of Debt Equity Ratio Remember CAHS Indicate the meaning, definitions, concept and limitations of ratio analysis. Remember CAHS Discuss the meaning, definitions, concept of Return on Capital Employed Understand CAHS Indicate the meaning, definitions, concept and formula of debt collection Understand CAHS period. 22 Demonstrate the meaning, definitions, concept of Ratio Analysis. Remember CAHS State the meaning, definitions, concept of Price-Earnings Ratio. Remember CAHS Write the meaning, definitions, concept of Earnings per share. Remember CAHS Describe the meaning, definitions, concept of two types of capital structure Understand CAHS ratios. 26 Identify the meaning, definitions, concept and different types of Activity Understand CAHS Ratios. 27 State the meaning, definitions, concept of Interest Coverage Ratio. Remember CAHS Explain the meaning and computing procedure of Return on Capital Employed. 29 Identify the meaning, definitions, concept and the formulas of liquidity ratios. 30 Discuss the meaning, definitions, concept and formula of Interest Coverage Ratio. Part - B (Long Answer Questions) Understand CAHS Understand CAHS Understand CAHS Define Financial Accounting. Explain the importance and Limitations of Financial Accounting. Remember CAHS Define Account. Illustrate different types and principles of Accounts (Rules Understand CAHS of Debit and Credit). 3. Define Double Entry System. Describe the advantages and Disadvantages of Understand CAHS Double Entry System. 4. Elucidate the meaning, definitions, concept and different types of Understand CAHS Accounting Concepts. 5. Examine the meaning, definitions, concept and different types of Accounting Understand CAHS Conventions. 6. State the meaning, definitions, concept and advantages of the Journal. Remember CAHS Illustrate the meaning, definitions, concept and importance of the Ledger. Understand CAHS Write the meaning, definitions, concept and significance of Trial Balance. Understand CAHS Sketch the meaning, definitions, concept and different methods of preparing Trial Balance. Understand CAHS Explain the meaning, definitions, concept and importance of Trading Remember CAHS Account. 11. Illustrate the meaning, definitions, concept and significance of Profit & Loss Remember CAHS Account. 12. Discuss the meaning, definitions, concept and importance of Balance Sheet. Understand CAHS Define Ratio Analysis. Describe the advantages/ significance and limitations of Ratio Analysis. 14. Discuss the meaning, definitions, concept and different types of Liquidity Ratios. 15. State the meaning, definitions, concept and different types of Activity Ratios. Remember CAHS Understand CAHS Remember CAHS015.08

16 16. Explain the meaning, definitions, concept and different types of Capital Understand CAHS Structure Ratios. 17. Express the meaning, definitions, concept and different types of Profitability Ratios. Remember CAHS Write the meaning, definitions, concept and formulas of Liquidity Ratios. Understand CAHS State the meaning, definitions, concept and formulas of Activity Ratios. Understand CAHS Explain the meaning, definitions, concept and formulas of Capital Structure Ratios. Understand CAHS Write the meaning, definitions, concept and formulas of Profitability Ratios. Understand CAHS Part C (Problem Solving and Critical Thinking) 1 Write Journal Entries in the books of Mr. Sukumar from the following transactions Date Particulars of Transactions Amount 2008 Jan 1 st Goods purchased from Raju on credit 10,000 Jan 2 nd Goods purchased from Ramu 20,000 Jan 3 rd Goods returned to Raju 1,000 Jan 4 th Goods returned to Ramu 2,000 Jan 5 th Goods sold to Suresh on credit 30,000 Jan 6 th Goods sold to Mahesh 40,000 Jan 7 th Goods returned from Mahesh 4,000 Jan 8 th Goods returned by Suresh 3,000 Jan 9 th Building sold to Venkat 50,000 Jan 31 st Furniture purchased from Kishore on credit 5,000 Understand CAHS Write Journal Entries in the books of Mr. Bhavani Sankar from the following transactions Date Particulars of Transactions Amount 2002 March 1 st Business commenced with cash 15,000 March 2 nd Cash paid into bank 10,000 March 3 rd Sold goods for cash 7,000 March 4 th Purchased goods from Vijay 3,000 March 5 th Machinery Purchased on cash 5,000 March 6 th Rent paid to Mohan 2,000 March 31 th Depreciation charged on Machinery 3,000 March 31 th Depreciation charged on Furniture 500 Understand CAHS015.07

17 3 Write Journal Entries in the books of Mr. Bhavani Sankar from the following transactions Date Particulars of Transactions Amount 2002 July 1 st Business commenced with cash 50,000 Remember CAHS July 1 st Business commenced with stock 30,000 July 1 st Business commenced with cheque 10,000 July 1 st Business commenced with Machinery 20,000 July 3 rd Telephone charges paid in cash 5,000 July 4 th Transport charges paid by cheque 3,000 July 5 th Advertisements charges paid to Naga Raju 4,000 July 6 th Dividend received from Ashok company 2,000 Pvt.Ltd. July 30 th Furniture purchased for personal use 5,000 July 31 st Rent paid to Landlord Ramana 8,000 4 Write Journal Entries in the books of Mr.Kiran from the following transactions Date Particulars of Transactions Amount 2013 May 1 st Business stated with cash 20,000 May 1 st Business stated with cheque 30,000 May 9 th Insurance paid by cheque 3,000 May 10 th Telephone Rent Paid in cash 2,000 May 11 th Stationery Purchased 1,000 May 12 th Telegrams sent to New Delhi 2,500 May 13 th Advertisement charges paid in cash 5,000 May14 th Machinery Purchased on cash 90,000 May15 th Furniture purchased for personal use 30,000 May 18 th Depreciation charged on Machinery 9,000 May19 th Depreciation charged on Furniture 3,000 May30 th Repairs Paid on Buildings 15,000 May 31 st Rent received from Rajesh 6,000 Understand CAHS015.07

18 5 Write Journal Entries in the books of Mr. Siva Kumar from the following transactions. Date Particulars of Transactions Amount 2010 June 1 st Business stated with Cash 50,000 June 1 st Business stated with Cheque 30,000 June1st Business stated with Furniture 20,000 June1st Business stated with Stock 20,000 June 9 th Goods sold to Arjun on credit 3,500 June 10 th Goods returned from Arjun 500 June 11 th Arjun settled his account with cash 2,900 June 12 th Goods taken by proprietor for his personal use 5,000 June 13 th Cash taken by proprietor for his domestic use 2,000 June 14 th Telephone purchased for Domestic use 10,000 June 15 th Rent Paid for personal use 5,000 Understand CAHS Record the following transactions in the books of Mr.Bharat Kumar Date Particulars of Transactions Amount 2010 July 1 st Cheque Issued to Charan 7,000 July 9 th Machinery Purchased on cash 12,000 July 10 th Furniture sold for cash 8,000 July 11 th Salaries paid 15,000 July 12 th Rent received 5,000 July 28 th Rent paid to Landlord Rama Rao 13,000 July 29 th Commission received from Sujatha 10,000 July 30 th Goods purchased from Krishna on cash 20,000 July 31 st Goods sold to Gopal for cash 30,000 July 31 st th Wages paid by cheque 50,000 July 15 th Insurance Paid for personal use 5,000 Understand CAHS Record /consider the following transactions in the books of Mr.Kiran Date Particulars of Transactions Amount 2009 Business stated with Cash 50,000 July 1 st July 2 nd Cash deposited in the bank 20,000 July 3 rd Cash Withdrawn from Bank 10,000 July 4 th Cash taken from bank for personal use 5,000 July 5 th Cash Paid to Mohan 15,000 July 6 th Cash received from Amar 8,000 July 7 th Cheque received from Bharat.2,000 July 24 th Furniture purchased for personal use 1,000 Understand CAHS015.07

19 8 Write Journal Entries in the books of Mr.Gopal from the following transactions. Date Particulars of Transactions Amount 2008 Business stated with Cash 60,000 May 1 st May 2 nd Cash deposited in the bank 30,000 May 6 th Sale of Typewriter 1,000 May 11 th Salaries paid to staff by cheque 5,000 May 12 th Wages paid to Labour 15,000 May 14 th Rent paid to Landlord Raja Rao.8,000 May 23 th Interest received from Rajani.2,000 May 24 th Commission received from Kamala 3,000 Remember CAHS Write Journal Entries in the books of Mr. Siva Kumar from the following transactions. Date Particulars of Transactions Amount 2010 Machinery purchased 1,00,000 Dec 1 st Dec 5 th Building purchased 15,000 Dec 6 th Purchase of Computer by cheque for Personal 20,000 use Dec 8 th Investments sold 25,000 Dec 9 th Sale of Machinery.30,000 Dec 10 th Sale of Furniture 10,000 Dec 11 th Sale of Building for cash 1,50,000 Dec 12 th Computer Sold by cheque 15,000 Dec 13 th Purchase of Investments 35,000 Dec 14 th Raju sold goods to us 22,000 Dec 15 th Praveen purchased goods from us 25,000 Remember CAHS Record the following transactions in the books of Krishna Mohan. Understand CAHS Date Particulars of Transactions Amount 2007 Business stated with Cash 25,000 Oct 1 st Oct 2 nd Cash deposited in the bank 20,000 Oct 6 th Interest paid 2,000 Oct 11 th Salaries paid 5,000 Oct 12 th Machinery purchased 6,000 Oct 14 th Rent received 20,000 Oct 23 th Bad Debts recovered from Murali 6,000 Oct 24 th Depreciation charged on Machinery 8,000

20 11 Prepare Trial Balance as on under balances method from the following information: Remember CAHS S.No. Particulars Amount Rs. S.No Particulars Amount Rs Capital 6,000 6 Sales 8,000 2 Cash in hand,500 7 Debtors 3,300 3 Bills Receivable 4 Land& Building 4,550 8 Creditors 600 6,000 9 Bills Payable 2,750 5 Purchases 7, Bank Overdraft 4,000 Prepare Trial Balance of Mr.Ravikumar as on from the following balances: S.No Particulars Amount Rs. S.No Particulars Amount 1 Capital 32, Repairs Creditors 12, Trade expenses Machinery 30, Fuel & Power 2,500 4 Returns 2, Bills Payable 6,500 Outwards(P/ R) 5 Opening 16, Buildings 40,000 6 Returns Stock 3, Bills 5,000 Inwards (S/R) Receivable 7 Wages 50, Sundry 20,000 Debtors 8 Drawings 2, Cash in Hand 2,400 9 Carriage inwards Sales 2,03, Discount Cash at Bank 15,400 Allowed 11 Salaries 5, Purchases 1,22, Discount Received Office Rent 1, Factory Rent 2, Bank O.D 2, Office Expenses 1, Suspense A/c (Cr) Rs. 59,300 Understand CAHS015.07

21 13 Prepare the correct trial balance from the following wrong trial balance Debit Balances Rs. Credit Balances Rs. Rent &Taxes Travelling Expenses Opening Stock Machinery Furniture Sundry Debtors 6,800 1,600 75,000 28,400 12,000 50,500 Commission received Sundry Creditors Bank O.D Capital Discount Allowed 4,000 40,000 10,000 1,00,000 1,600 Cash in Hand 2,200 Returns Inwards 2,000 Cash at Bank Office Expenses Wages Carriage inwards Insurance Sales Discount Received 10,400 2,500 30,000 4, ,80,800 3,000 (S/R) Drawings Purchases Salaries 12,000 1,80,000 18,000 Remember CAHS ,08,000 3,67,600 Prepare Trial Balance as on under balances method from the following information Understand CAHS S.No. Particulars Amount Rs. S.No Particulars Amount Rs. 1 Drawings 4,000; 15 Bharat 2,00,000 Capital 2 Discount Allowed 1, Machinery 60,000 3 Discount Received 4 Office Expenses Stock as on 32, , Wages 1,00,000 5 Manufacturin 1, Carriage 1,000 g Expenses Inwards 6 Bills Payable 17, Salaries 10,000 7 Bills Receivable 10, Factory Rent 4,800 8 Cash in Hand 4, Repairs Cash at Bank 30, Fuel &Power 5, Office Rent 3, ; Furniture 11, Buildings 80, Purchases 2,44, Sundry 40, Creditors 25,000 Debtors 13 Sales 4,07, Returns Inwards 7, Returns Outwards 4,000.

22 15 Prepare Trial Balance of Mr.Rajaram as on from the following balances: Understand CAHS S.No. Particulars Amount Rs. S.No Particulars Amount Rs. 1 Sundry 32,000 9 Carriage 400 Debtors Outwards 2 Stock as on 22, Salaries 2, Cash in Hand Rent Cash at Bank 10. 1, Bills Payable 7,500 5 Plant &Machinery 6 Sundry Creditors 7 Trade expenses 17, Purchases 10, Discount Allowed 2,18,870 1,100 1, Capital 79,500 8 Sales 2,34, Business Premises 34, You are required to show that Trial Balance as on from the following Information: Remember CAHS S.No. Particulars Amount Rs. S.No Particulars Amount Rs. 1 Land & 2, Creditors 2,429 Buildings 2 Plant & 1, Discount 763 Machinery Received 3 Stock on 4, Discount Sales 20, Allowed Furniture Purchases 12, Capital 10,659 6 Carriage inwards General Expenses 1,338 7 Bad Debts Cash at Bank 1,874 8 Wages 1, Rent &Rates Debtors 5, Drawings 1,855

23 17 Prepare Trading and Profit & Loss A/c and Balance Sheet of Mr. Mukharjee as at from the following Trial Balance Debit Balances Rs. Credit Balances Rs. Drawings Purchases Salaries Rent &Taxes Travelling Expenses Opening Stock Machinery Furniture Sundry Debtors Cash in Hand Cash at Bank Office Expenses Wages 12,000 1,80,000 18,000 6,800 1,600 75,000 28,400 12,000 50,500 2,200 10,400 2,500 30,000 Sales Discount Received Commission Sundry Creditors Loan Capital 2,80,800 3,000 4,000 40,000 10,000 1,00,000 Freight & Carriage 4,000 inwards Insurance Discount Allowed Returns Inwards (S/R) 800 1,600 2,000 4,37,800 4,37,800 Adjustments: 1) Closing stock Rs.68,500 Understand CAHS Prepare Trading and Profit & Loss A/c of Mr. Rama Raju for the year ending from the following Trial Balance Debit Balances Rs. Credit Balances Rs. Drawings Purchases Insurance Rent Postage Opening Stock Building Furniture Debtors Cash in Hand Stationery Wages Freight & Carriage inwards Miscellaneous Expenses Repairs Bad Debts Returns Inwards (S/R) 18,000 21,200 2, ,100 1,700 1,000 6,000 1, , ,020 Sales Returns Outwards Interest Creditors Loan Capital Suspense A/c (Cr) 41, ,120 3,000 12,000 2,700 Understand CAHS ,940 63,940 Adjustments: (1) Closing stock Rs.2,980 (2) Outstanding Wages Rs.200 (3) Outstanding Rent Rs.200 (4) Prepaid Insurance Rs.60 (5) Provide 5% for Doubtful Debts on Debtors. (6) Provide 10% Depreciation on Buildings.