Answer 3.

a
The master budget is a summary of company's plans that sets
specific targets for sales, production, distribution and financing
activities. It generally culminates in cash budget, a budgeted
income statement a budgeted balance sheet. In short, this budget
represents a comprehensive expression of management's plans
for future and how these plans are to be accomplished. It usually
consists of a number of separate but interdependent budgets.
One budget may be necessary before the other can be initiated.
More one budget estimate effect other budget estimates because
the figures of one budget is usually used in the preparation of
other budget. This is the reason why these budgets are called
interdependent budgets.
The master budget is a comprehensive planning document that
incorporates several other individual budgets. A master budget is
usually classified into two individual budgets: the Operational
budget and the Financial budget. The operation budget consists of
eight individual budgets: Sales Budget, Production Budget, Direct
Material Budget, Direct Labour Budget, Factory overhead
Budget, Ending inventory budget, Selling and administrative
expenses budget, Budgeted income statement.
The second part of the master budget will include the financial
budget. The financial budget consists of two individual budgets
Cash Budget and Budgeted Balance Sheet.
Thus, cash budget is a part of Master budget. The Cash budget
will show the effects of all the budgeted activities on cash. By
preparing a cash budget your business management will be able
to ensure that they have sufficient cash on hand to carry out
activities. It will also allow them enough time to plan for any
additional financing they might need during the budget period,
and plan for investments of excess cash. A cash budget should
include all items that affect the business cash flow and should

also include three major sections; cash available, cash

disbursements, and financing.
Answer 3 b)
The various methods of inventory valuation are:
i)
FIFO(first-in-first-out) method
ii)
LIFO(last-in-first-out)method
iii)
Weighted average method
iv)
Moving average method
v)
Lower of cost or market value(LCM)
vi)
Dollar value-LIFO
vii)
Gross Profit method
viii) Retail method
During times of inflation, different methods have different effect on
inflation. FIFO gives the highest amount of gross profit because the lower
unit costs of the first units purchased are matched against revenues,
especially in times of inflation. LIFO gives the lowest amount of net
income during inflationary times. Average costs approach tends to give
profit which lies in between that given by FIFO and LIFO method.AS per
Accounting Standard of ICAI (AS-2), inventory cost should comprise of all
cost of purchases, cost of conversion and other costs incurred in bringing
the inventories to the present location and condition. Cost of purchases
should be exclusive of duties which are recoverable from the taxing
authorities. (e.g. Cenvat).
Inventory should be valued at lower of cost or net reliable value.
Inventory should be valued on FIFO (First in First Out) method or weighted
average method. [LIFO is not permitted]. According to AS-2, inventory of
raw materials should be valued at cost, without considering excise duty,
as manufacturer has availed credit of the same. However, this reduces
value of stock and hence profits are lower.