1. Explain the following Accounting concepts
a) Business entity concept
b) Accrual concept
c) Money measurement concept
d) Periodicity concept
2. Compute cash generated from Operations during the year 2021-22, from the following data:
Particulars April 1, 2021 March 31, 2022
Sundry debtors R. 30,000 R. 40,000
Sundry creditors 48,000 30,000
Outstanding expenses 3,000 6,000
Outstanding income 1,000 1,000
Stock in trade 55,000 60,000
Prepaid expenses 3,000 2,000
Accumulated depreciation
(no retirements during the year) 50,000 60,000
Provision for doubtful accounts 1,500 2,000
Dividends payable — 3,000
Bills receivable 10,000 12,000
Bills payable 8,000 6,000
Net income before taxes (as per profit and loss account) — 80,000
3. The Colour Flow Ltd’s income statement for the preceding year is presented below. Except as noted, the cost/revenue relationship for the coming year is expected to follow the same pattern as in the preceding year. Income statement for the year ending March 31 is as follows:
Sales (20,000 bottles @ R. 25 each) R5,00,000
Variable costs R3,00,000
Fixed costs 1,00,000 4,00,000
Pre-tax profit 1,00,000
Less: Taxes (0.35) 35,000
Profit after tax 65,000
1. What is the break-even point in amount and units?
2. Suppose that a plant expansion will add R 50,000 to fixed costs and increase capacity by 60 per cent. How many bottles would have to be sold after the addition to break-even?
3. At what level of sales will be company be able to maintain its present pre-tax profit position even after expansion?
4. The company’s management feels that is should earn at least R 10,000 (pre-tax per annum) on the new investment. What sales volume is required to enable the company to maintain existing profits and earn the minimum required return on new investments?
5. Suppose the plant operates at full capacity after the expansion, what profit after tax will be earned?
4. What are the various types of investment proposals? Explain the various discounted cash flow techniques used to evaluate investment proposals.
5. What is ‘Capital Structure’? Explain the features of an appropriate capital structure and discuss factors determining capital structure of a firm.
