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Section A: Short Answer Questions
1. Journal Entries
|
Transaction |
Debit (₹) |
Credit (₹) |
|---|---|---|
|
a. Paid salary of 1000 by cheque |
Salary A/c 1000 |
Bank A/c 1000 |
|
b. Sold goods to ABC Ltd on credit 4000 |
Accounts Receivable A/c 4000 |
Sales A/c 4000 |
|
c. Purchased goods from Bond Ltd on credit, 6000 |
Purchases A/c 6000 |
Accounts Payable A/c 6000 |
Explanation
-
Salary is an expense; paying by cheque reduces the bank balance.
-
Sales on credit create a receivable asset.
-
Purchasing on credit increases liabilities and inventory/assets.
2. Depreciation Calculation (Straight Line Method)
-
Cost of Vehicle: ₹50,000
-
Useful Life: 8 years
-
Scrap Value: ₹5,000
Annual Depreciation=Cost-Scrap ValueUseful Life=50,000-5,0008=45,0008=₹5,625 per year
Explanation
Depreciation allocates cost evenly; scrap value is deducted because it is recovered at the end-of-life.
3. Break-Even and Contribution (ABC Ltd Toy Robots)
-
Fixed Cost = ₹40,000/period
-
Variable: Material = ₹30, Labour = ₹10; Total Variable/robot = ₹40
-
Selling Price/robot = ₹120
a. Contribution per Toy Robot
Contribution=Selling Price-Variable Cost=120-40=₹80
b. Break-Even Point
Break-Even (units)=Fixed CostContribution/Unit=40,00080=500 units
Break-Even (value)=500×120=₹60,000
|
Calculation |
Value |
|---|---|
|
Contribution/unit |
₹80 |
|
Break-Even (units) |
500 |
|
Break-Even (value) |
₹60,000 |
Explanation
Break-even is where total revenue covers all costs; contribution covers fixed costs first, then profit.
4. Inventory Valuation (LIFO Method, Intel Ltd)
-
Purchases:
-
Day 1: 200 units @ ₹67
-
Day 2: 500 units @ ₹90
-
Day 3: 800 units @ ₹88
-
-
Day 4: Sold 1,000 units
Closing Inventory Calculation:
-
Total Purchased = 200 + 500 + 800 = 1,500 units
-
Sold = 1,000 units (LIFO: sold from the latest stock first)
-
Last: 800 units @ ₹88 → all sold
-
Next: Need 200 more units from the previous batch (500 units @ ₹90)
-
-
Remaining (Closing):
-
300 units left from Day 2 @ ₹90
-
200 units from Day 1 @ ₹67 remain
-
|
Inventory |
Units |
Rate |
Total Value |
|---|---|---|---|
|
Day 2 |
300 |
₹90 |
₹27,000 |
|
Day 1 |
200 |
₹67 |
₹13,400 |
|
Total |
500 |
₹40,400 |
Explanation
LIFO sells the latest items first, so earlier batches make up the closing inventory (Ching, Mutuc, and Jose, 2019).
5. Job Costing (Printing Ltd)
-
Direct Labour/Job: ₹90; Time/job: 6 hours
-
Material Cost: ₹40/job
-
Overhead: ₹32,000/month
-
Total Labour Hrs: 4,000
Overhead Absorption Rate:
OAR=OverheadsTotal Labour Hours=32,0004,000=₹8/hour
Overhead per Job:
6 hours₹8=₹48
Full Job Cost:
Direct Labour+Material+Overhead=90+40+48=₹178
|
Cost Component |
Amount |
|---|---|
|
Direct Labour |
₹90 |
|
Direct Material |
₹40 |
|
Overhead |
₹48 |
|
Total Cost |
₹178 |
6. Flexed Cost of Sales and Variance
-
Budget Sales = 200 units, Cost = ₹50,000
-
Actual Sales = 180 units, Cost = ₹32,000
Flexed Cost of Sales:
Cost per unit (Budgeted)=50,000200=₹250Flexed Cost for 180 units=180×₹250=₹45,000
Cost of Sales Variance:
Variance=Flexed Cost-Actual Cost=₹45,000-₹32,000=₹13,000 Favourable
|
Type |
Amount |
|---|---|
|
Flexed Cost of Sales |
₹45,000 |
|
Actual Cost |
₹32,000 |
|
Variance |
₹13,000 Favourable |
7. Accounting Equation
-
Shareholders' Equity = ₹80,000
-
Current Liabilities = ₹20,000
-
Long-term Liabilities = ₹50,000
-
Current Assets = ₹5,000
Total Assets Calculation:
Accounting Equation:
Assets=Liabilities+Equity
Total Liabilities:
20,000+50,000=₹70,000
Total Assets:
80,000+70,000=₹150,000
8. Sources of Finance
-
Short-term: Overdrafts, trade credit
-
Advantage: Fast access, flexible.
-
Disadvantage: Higher cost, risk of withdrawal (Kim, 2021).
-
-
Long-term: Bank loans, equity, venture capital
-
Advantage: Larger amounts, supportive investors.
-
Disadvantage: Collateral, ownership dilution.
-
-
Example: Small retail startups often begin with overdraft and trade credits for inventory, but may seek longer-term loans for expansion.
9. Blockchain for Financial Data Veracity
-
Blockchain provides immutable records and decentralised verification, minimising the risk of data tampering.
-
Distributed ledgers increase transparency and auditability, enhancing trust in financial information.
-
Supported by business research—major banks and auditors now trial blockchain for secure record-keeping (Ahmed, 2025).
10. Beyond Budgeting Concept
-
Beyond Budgeting replaces fixed annual budgets with adaptive, decentralised systems.
-
Empowers managers with real-time decision-making, responds to market changes more rapidly.
-
Supported by academic research, this model increases organisational agility and employee engagement.
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Section B: Case Studies
Q1. Reliance Ltd Financial Ratios (Values from file)
A. Calculations
|
Ratio |
Formula |
Calculation |
Value |
|---|---|---|---|
|
Gross Profit Margin (%) |
Gross ProfitNet Sales×100 |
185,000500,000×100 |
37% |
|
Net Profit Margin (%) |
Net ProfitNet Sales×100 |
49,000500,000×100 |
9.8% |
|
Current Ratio |
Current AssetsCurrent Liabilities |
165,000105,000 |
1.57 |
|
Quick Ratio |
CA-InventoryCurrent Liabilities |
165,000-35,000105,000 |
1.24 |
|
Trade Receivable Days |
TRNet Sales×365 |
30,000500,000×365 |
21.9 days |
|
Trade Payable Days |
TPCost of Sales×365 |
35,000315,000×365 |
40.6 days |
|
Inventory Turnover Days |
I..I.InventoryCost of Sales×365 |
35,000315,000×365 |
40.6 days |
B. Commentary and Recommendations
-
Profitability: Gross margin is strong (37% vs 20% industry), net profit is also solid (9.8%), indicating good cost management; strive to maintain or improve.
-
Liquidity: Current (1.57) and quick (1.24) ratios suggest moderate liquidity, near industry standards. To improve the quick ratio, better inventory turnover is advised.
-
Activity: Trade receivable and payable days (22 and 41) show slower collections and payments than the industry (≤30 days); inventory turnover (41) is higher than the industry standard (20–25). Focus on faster inventory cycles and collections.
Q2. Investment Appraisal (Press Ltd)
A. Detailed Calculations
1. Average Rate of Return (ARR)
ARR=Average Annual Net ProfitInitial Investment×100
-
Net Profit = Total Cash Inflows Incl. Scrap - Depreciation - Initial
-
Depreciation (Straight Line):
-
Printer 2: 170,000-10,0005=32,000
-
Printer 3: 210,000-10,0005=40,000
-
|
Printer |
Total Cash Inflow (5 yrs + Scrap) |
Total Net Profit (Total Inflow – Initial Investment) |
Avg. Annual Net Profit |
ARR (%) |
|---|---|---|---|---|
|
2 |
50+45+50+35+50+10=240,000 |
240,000–170,000=70,000 |
14,000 |
14,000170,000×100=8.24% |
|
3 |
58+60+55+65+45+10=293,000 |
293,000–210,000=83,000 |
16,600 |
16,600210,000×100=7.9% |
2. Payback Period
For each, sum the cumulative cash flows until the investment is recovered.
-
Printer 2: Cumulative after 1st yr: 50,000; 2nd: 95,000; 3rd: 145,000; 4th: 180,000 (crossed 170,000 within 4th year).
-
Payback = 3 years + (170,000–145,000)/35,000 = 3+0.71 = 3 years 8.5 months.
-
Printer 3: 1st: 58,000; 2nd: 118,000; 3rd: 173,000; 4th: 238,000 (crossed 210,000 in 4th year).
-
Payback = 3+(210,000–173,000)/65,000 = 3+0.57 = 3 years 7 months.
3. Net Present Value (NPV)
Use the 10% cost of capital to discount flows.
-
Discount factors: Year 1 = 0.909, 2 = 0.826, 3 = 0.751, 4 = 0.683, 5 = 0.621
Printer 2 NPV:
(50,000×0.909)+(45,000×0.826)+(50,000×0.751)+(35,000×0.683)+(60,000×0.621)=45,450+37,170+37,550+23,905+37,260=181,335
-
Initial Outlay: 170,000
-
NPV = 181,335 – 170,000 = 11,335
Printer 3 NPV:
(58,000×0.909)+(60,000×0.826)+(55,000×0.751)+(65,000×0.683)+(55,000×0.621)=52,722+49,560+41,305+44,395+34,155=222,137
-
Initial Outlay: 210,000
-
NPV = 222,137 – 210,000 = 12,137
B. Commentary
-
Both machines have positive NPVs; Printer 3 is better by all measures—NPV, shorter payback, higher ARR.
-
Recommendation: Printer 3 is preferred due to higher returns and faster investment recovery.
2. iii FinTech Applications
-
Mobile Banking Apps: Allow real-time account access, payments, transfers; benefit: convenience; risk: cybersecurity (Riasat, Shah, and Gonul, 2025).
-
Peer-to-Peer Payment Platforms: Direct money transfers between users; benefit: speed, low cost; risk: fraud, regulation.
-
Both reduce transaction costs for consumers and institutions but require strong digital security.
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