MEFA Important Questions

Most Important Questions for Final Exam, MEFA (Unit Wise)

UNIT-I

1. Define Managerial Economics. Explain its Nature And Scope.
2. Discuss the importance of Managerial Economics in decision making.
3. What is Managerial Economics? Explain its focus areas.
4. Point out the importance of Managerial Economics in decision making.
5. Explain the role of a Managerial Economist in a Business Firm.
6. Define ‘Demand’ and explain the factors that influence the demand of a product.
7. State the ‘Law of Demand’. What are the various factors that determine the demand for a Mobile Phone?
8. Explain the various factors that influence the demand for computer.

UNIT-II

1. What is meant by ‘Elasticity of Demand’? How do you measure it? (very Imp)
2. What is cross Elasticity of Demand? Explain

OR

      Explain the concept of Cross Elasticity of Demand. Illustrate your answer with   

      Examples.

3. Why does the Law of Diminishing Returns operate? Explain with the help of assumed data and also represent in a diagram.
4. What are the needs for Demand Forecasting? Explain the various steps involved in demand forecasting.
5. What are the possible approaches to forecasting demand for new products? Illustrate all the methods of Demand Forecasting.
6. One problem from time series Method.

UNIT-III

1. Define production Function. Discuss in detail the different types of production functions.

2. Explain the following with reference to production function
• Marginal Rate of Technical Substitution(MRTS)
• Variable Proportions of Factors.

3. Define ‘Cost’. How are costs classified? Explain any five important cost concepts useful for managerial decisions.
4. Discuss the role and importance of cost analysis in managerial decisions.

5. a) State and explain Break-Even analysis and explain its importance.

b) What are its limitations? Use suitable diagrams.

6. 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

7. 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

8. 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.

9. 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.

10. 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
11. 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.

12. 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

1. a) Define Market and explain how markets are classified?

b) What are the important features in Market structure?

2. a) What is perfect competition? What are its features?

b) How is market price determined under conditions of Perfect Market    

    Competition?

3. a) Explain in detail, the important features of perfect competition

b) How can a competitor attain equation position under conditions of perfect  

    competition?

4. a) Explain the features of Monopoly.

b) How can a Monopolist attain equilibrium position under conditions of    

    monopoly?

5. What are the features of Monopolistic Competition? How can a firm attain equilibrium position?
6. Compare and contrast between Perfect competition and Monopoly.
7. a) What are the causes for the emergence of Monopoly?        

b) How is the equilibrium position attained by a monopolist under varying cost                   

                Conditions?

8. What do you understand by ‘price discrimination’ and on what basis price can be discriminated?

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UNIT-V

1. a) What are the different types of Business organizations?

b) What are the features of Sole trading form of Organization?

2. a) What are the characteristics of a Business Unit?

b) What are the characteristic features of a sole trader form of organization?

3. a) What are the salient features Partnership firm

b) Explain Different kinds of partners.

c) What are the advantages and limitations of partnership firm?

4. a) What do you mean by Joint Stock Company? What are the salient features?

b) Describe the advantages and disadvantages of Joint Stock Companies?

5. a) Analyses the Formation of Joint Stock Company?

b) What are the different types of companies?

6. Distinguish between the Joint Stock Company and Partnership.
7. What are the objectives behind starting public sector enterprises in the country? To what extent have they fulfilled these objectives?
8. Analyse the problems of the public sector enterprises and suggest remedial measures for their improvement.

UNIT-VI

1. What are the components of Working capital? Explain each of them.
2. a) What is the important of capital?

b) What factors determine the working capital requirements of company?

3. a) Describe the institutions providing long term finances.

b) What are the different market situations in imperfect competition?

4. a) What is the importance of Capital budgeting?

b) How do the discounting models differ from non-discounting models?

5. Explain the right procedure for Capital Budgeting decision

6. What are the merits and limitations of Pay Back Period? How does Discounting approach overcome the limitations of Pay back method?

7. What do you understand by time value of money? How is it helpful in Capital Budgeting?
8. 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

9. 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%

10. 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

11. 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?

12. 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?

13. 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 1^st year Rs. 28,000, 2^nd year Rs.12, 000, 3^rd year

Rs.10, 000  4th Rs.10, 000 and 5^th year Rs. 10,000. Determine IRR. Which project

do you recommend?

14. 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

1. Give a brief account on the important records of Accounting under Double Entry System and discuss briefly the scope of each?

2. 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

3. 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

4. Explain the following adjustments and illustrate suitably with assumed data.

a) Closing stock

            b) Outstanding expenses

            c) Prepaid Income

            d) Bad debts

5. (a) Define the concepts ‘Accounting’, Financial Accounting and Accounting System’.

(b) Explain the main objectives of Accounting and its important functions.

6. What is three columnar cash book? What is Contra Entry? Illustrate
7. What do you understand by Double Entry Book Keeping? What are its advantages?

8. What is Trial Balance? Why it is prepared?
9. 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 31^st 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

	Prepare Trading, Profit and loss account and Balance sheet after taking into consideration the following information. a)      Closing stock as on 31st March was Rs. 10000. b)   Salary of Rs. 2000 is yet to be paid to an employee.

 

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

1. Explain the meaning of the ‘Analysis of Financial Statements’. Discuss briefly the different type of analysis.
2. Discuss the importance of Ratio Analysis for inter firm and intra-firm comparison, including circumstances responsible for its limitations, if any.

3. How are ratios classified for the purpose of financial analysis? With assumed data, illustrate any two types of ratios under each category?

4. Write a brief note on the importance of ratio analysis to different category of users.
5. As a financial analyst, what precautions would you take while interpreting ratios meaningfully?

6. What are the limitations of Ratio Analysis? Does ratio analysis really measure the financial performance of a company?

7. 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

8. 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

9. 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

10. 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

11. 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

12. The following are the extracts from the financial statements of Blue and Red Ltd.; as on 31^st 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.

13. Following is the Balance Sheet of XYZ  company as on 31^st 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.

14. 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.