Financial and management accounting assignment

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FALL 2016 EXAM JAN 2016
MASTER OF BUSINESS ADMINISTRATION
SEMESTER - I
SUBJECT CODE& NAME - MBA104 & FINANCIAL AND MANAGEMENT
ACCOUNTING ASSIGNMENT
Q.1. Based on the following information prepare the Balance Sheet of Star Enterprises Ltd. as on 31st
March 2016. Show workings and assumptions, if any.
Current Ratio 2.5
Liquidity Ratio 1.5
Net working Capital Rs. 6,00,000
Inventory turnoverRatio 5
Ratio of gross profit to Sales 20 %
Turnover Ratio to net fixed assets 2
Average Debt collection period 2.4 months
Fixed Assets to net worth 0.8
Long term debt to capital and reserve 7/25
Based on the above information prepare the Balance Sheet of Star Enterprises Ltd. as on 31st March 2016.
Show workings and assumptions, if any.
Answer:

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Balance Sheet of Star Enterprises Ltd. as on 31st March 2016
Liabilities Amount Assets Amount
Share Capital & reserves (h)
Long term debt
(i)
Current Liabilities (b)
12,50,000
3,50,000
4,00,000
Fixed Assets (f)
Current Assets
Stock (c)
Debtors (g)
Bank (10,00,000 –
9,00,000) (b/f)
10,00,000
4,00,000
5,00,000
1,00,000
20,00,000 20,00,000
Workings
a. Current ratio : Current Assets / Current Liabilities
Therefore Current Assets = 2.5 Current Liabilities = 2.5 Times
b. Net Working capital = current Assets – Current Liabilities
= 2.5 Times Current Liabilities – Current Liabilities
Current Liabilities = 6,00,000 / 1.5 = 4,00,000
Therefore Current Assets = 4,00,000 X 2.5 = 10,00,000
c. Quick Ratio = Current Assets - Stock / Current Liabilities =10,00,000-(1.5X4,00,000)
Therefore Stock= 4,00,000
d. Stock turnover ratio = Cost of goods sold / average stock = 5 Times
Cost of goods sold = 4,00,000 X 5 = 20,00,000
e. Gross profit = 20% of sales = Cost of goods sold = 80% of sales = 20,00,000, therefore, gross profit is
(20/80) X 20,00,000 = 5,00,000
Therefore Sales =(cost of Sales+Gross profit) = (20,00,000+5,00,000)= 25,00,000
f. Cost of goods sold / net fixed assets = 2 Times
Net Fixed Assets= 20,00,000 / 2 = 10,00,000
g. Average Collection Period = 2.4 months
Therefore Debtors = 25,00,000 X 2.4 /12 = 5,00,000

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h. Fixed Assets / Net worth = 0.80 Times
Therefore Net worth = 10,00,000 / 0.80 = 12,50,000
i. Long term Debt / capital & reserves = 7 / 25
Therefore Long term Debt = 12,50,000 X 7 / 25 = 3,50,000
Q2. Explain Balance Scorecard. Give an illustration of Balance Score Card.
Answer:
A balanced scorecard is a performance metric used in strategic management to identify and improve various
internal functions of a business and their resulting external outcomes. It is used to measure and provide
feedback to organizations. Data collection is crucial to providing quantitative results, as the information
gathered is interpreted by managers and executives, and used to make better decisions for the organization.
Purpose behind the Balanced Scorecard:
The balanced scorecard is used to reinforce good behaviors in an organization by isolating four separate areas
that need to be analyzed. These four areas, also called legs, involve learning and growth, business processes,
customers, and finance. The balanced scorecard is used to attain objectives, measurements, initiatives and
goals that result from these four primary functions of a business. Companies can easily identify factors
hindering company performance and outline strategic changes tracked by future scorecards. With the
balanced scorecard, they look at the company as a whole when viewing company objectives. An organization
may use the balanced scorecard to implement strategy mapping to see where value is added within an
organization. A company also utilizes the balanced scorecard to develop strategic initiatives and strategy
objectives.
The Four Legs of the Balanced Scorecard:
Information is collected and analyzed from four aspects of a business. First, learning and growth are analyzed
through the investigation of training and knowledge resources. This first leg handles how well information is
captured and how effectively employees utilize the information to convert it to a competitive advantage over
the industry. Second, business processes are evaluated by investigating how well products are manufactured.
Operational management is analyzed to track any gaps, delays, bottlenecks, shortages or waste.

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Third, customer perspectives are collected to gauge customer satisfaction with quality, price and availability of
products or services. Customers provide feedback regarding if their needs are being met with current
products. Finally, financial data such as sales, expenditures and income are used to understand financial
performance. These financial metrics may include dollar amounts, financial ratios, budget variances or income
targets. These four legs encompass the vision and strategy of an organization and require active
management to analyze the data collected. Therefore, the balanced scorecard is often referred to as a
management tool, not a measurement tool.
Illustration of Balance Score Card:
Balanced scorecard is an example of a closed-loop controller or cybernetic control applied to the management
of the implementation of a strategy. Closed-loop or cybernetic control is where actual performance is
measured, the measured value is compared to a reference value and based on the difference between the
two corrective interventions are made as required.
Initially, Balanced Scorecard emerged as a performance management system, over a period of time it has
come to be known as a strategy management system, with its ultimate aim being the achievement of long
term financial performance. Balanced scorecard is seen as a strategic management system enabling business
leaders to meet the challenge of strategy execution.
Two of the ideas that underpin modern balanced scorecard designs concern facilitating the creation of such a
control – through making it easier to select which data to observe, and ensuring that the choice of data is
consistent with the ability of the observer to intervene.
One such holistic performance measurement system was developed by Dr. Robert Kaplan and Dr. David
Norton. They called it the balanced scorecard.
It is a framework for integrating measures derived from strategy. While retaining financial measures of past
performance, the balanced scorecard introduces the drivers of future financial performance as shown in figure
1
The drivers (customer, internal business process, learning, and growth perspectives) are derived from the
organisation's strategy translated into objectives and measures.
Figure 1 depicts a balanced scorecard showing perspectives as developed by Dr. Robert Kaplan and Dr. David
Norton.

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For each of the above perspectives, a company must have its own stated objectives (goals) and specifically
defined units of measurements for each such objective.
Q3. From following Balance Sheet of ABC Ltd. as on 31. 03. 2015 and 31. 03. 2016, prepare
Cash Flow Statement as per AS-3 using the Indirect method:
Liabilities 31.03.2015 31.03.2016
Capital 50,00,000 50,00,000
Retained Earnings 26,50,000 36,90,000
Debentures - 9,00,000
Current liabilities
Creditors 8,80,000 8,20,000
Bank loan 1,50,000 3,00,000
Liability for Expenses 3,30,000 2,70,000
Dividend Payable 1,50,000 3,00,000
91,60,000 1,12,80,000
Assets

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Plant and Machinery 27,30,000 40,70,000
Less : Depreciation 6,10,000 7,90,000
21,20,000 32,80,000
Current Assets
Debtors 23,90,000 28,30,000
Less: Provision 1,50,000 1,90,000
22,40,000 26,40,000
Cash 15,20,000 18,20,000
Marketable Securities 11,80,000 15,00,000
Inventories 20,10,000 19,20,000
Prepaid Expenses 90,000 1,20,000
91,60,000 1,12,80,000
Additional Information:
1. Net profit for the year ended 31.03.2016, after charging depreciation Rs. 1,80,000 is
Rs. 22,40,000.
2. Debtors of Rs. 2,30,000 were determined to be worthless and were written off against the provisions
for doubtful debts account during the year.
3. ABC Ltd. declared dividend Rs. 12,00,000 for the year 2015-16.
(From the above Balance Sheet of ABC Ltd. as on 31. 03. 2015 and 31. 03. 2016, prepare Cash Flow
Statement as per AS-3 using the Indirect method.)

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Solution:
ABC Ltd.
Cash Flow Statement for the year ended 31 march 2016
Particulars rs rs
Cash flow from operating activities
Net profit 22,40,000
Add back:
Depreciation 1,80,000
Cash generated from operations before working capital changes 24,20,000
Increase in debtors 4,40,000
Increase in provision 40,000
Decrease in inventories 90,000
Increase in prepaid expenses 30,000
Decrease in creditors 60,000
Decrease in outstanding expenses 60,000
Net cash from operating activities 19,60,000
Cash flows from investing activities
Purchases of plant and machinery (40,7000-27,30,000) 13,40,000
Net cash from investing activities 13,40,000
Cash flows from financing activities

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Issue of debentures 9,00,000
Bank loan taken 1,50,000
Dividend paid (12,00,000-3,00,000+1,50,000) 10,50,000
Net cash from financing activities Nill
Net increase in cash and cash equivalents 6,20,000
Cash and cash equivalents at the beginning of the period (note 2) 23,00,000
Cash and cash equivalents at the end of the period (note 2) 33,20,000
Working Notes:
1) Adjustment for bad debts is to be ignored. Actual balance of debtors and provision for bad debts are to
be considered.
2) A marketable security is to be treated as cash equivalents. Cash and cash equivalent at the beginning of
the period will be: Rs 15,20,000 + Rs 11,80,000= Rs 27,00,000. Similarly, cash and cash equivalents at
the end of the period will be: Rs 18,20,000 + Rs 15,00,000= Rs 33,20,000.
3) Retained Earnings:
Opening balance 26,50,000
Add: Net profit for the year 22,40,000
48,90,000
Less: dividend declared 12,00,000
Balance as on 31.3.2016 36,90,000