CS (Main) Eiam:2015 commerce and accountancy
Paper I

Maximum Marks: 250

Ql.Answer the following questions in about 150 words each 10x5=1

Explain in brief the concept of "Activity Based Costing*. Give a
num erical example.

“Cash from operations is not the same as profit after tax A T).
Do;you agree w ith this statem ent Give reasons using the Accounting
Standard 3.

W hat are the objectives and functions of A uditing and Assurance
Standards Board (AASB) Explain.

Explain1 the accounting for V A w ith examples.

W hat is inter-process profit Show the treatm ent of inter-process profit
w ith an example.

Q 2. Ltd. is considering the replacement of one of its machines. The existing
machine is in good operating condition, but the company is looking for a
bigger machine. The existing machine is 5 years old, and has remaining
depreciable life of 10 years. The machine was purchased for T 1,50,000
and is being depreciated at 10,000 per yearfor tax purposes.

The new machine will cost 2,20,000 or 1,70,000 if exchanged with
the existing machine. It will be depreciated on a straight line basis for
10 years with no salvage value. The management anticipates that, with
the increased operations, there will be a need for an additional net
working capital of W 30,000. The new machine will allow the company to
expand current operations thereby increasing annual revenue by
60,000 and variable operating costs from T 2,00,000 to 2,20,000.

The company's tax rate is 35% and its cost of capital is 10%.

Should the company replace its existing machine Assume that the loss
on exchange of existing machine can be claimed as short-term capital
loss in the current year itself.

Cost and revenue information of A Ltd. is as follows
Contribution to Sales Ratio Variable cost per unit;
Break-even point is equal to 10,000 units. Find the following:

• Company reduces the selling price by reduces the variable
cost to 6 and spends T 4,000 on advertisement. Find sales to
earn a profit of T 6,000.

• Company increases the selling price by reduces the variable
cost to 6 and spends 4,000 on advertisement. Find the
break-even volume of sales.

Explain the provisions of the Income Tax Act, 1961 with regard to set-off
arid carry forward of loss under the head Income from Business and
Profession and Capital Gains.

Q3. Mr. S is employed by A Ltd* at Delhi throughout the financial year
ended on 31st March, 2015. He furnishes the following particulars for
computation of his income for the assessment year 2015 16

Basic Salary 50,000 per month

Personal Pay W 30,000 per month

Conveyance Allowance 3,000 per month

Uniform Allowance 2,000 per month

Knowledge Update Allowance 2,500 per month

Medical Allowance T 5,000 per month

Entertainment Allowance 1,000 per month

(viii) He is provided with gift vouchers of 15,000 per year.

His employer contributes 15% of the basic salary to his recognised
provident fund account. Similar amount is deducted from his salary
as his contribution to the fund.

He gets house rent allowance 20,000 per month against a rent
of 25,000 per month paid by him for his residential
accommodation.

His employer paid electricity and telephone bills of his residential
house amounting to 70,000 and T 20,000 respectively for the
whole year.

During the year he made the following payments
I. Life insurance premium 1,20,000 (sum assured is 10 Lacs)
II. Life insurance premium on the life of his major son T 25,000
III. Mediclaim policy premium paid in cash 30,000
IV. Donation of 2,00,000 to an approved charitable trust

Compute his taxable income for the assessment year 2015 — 16.

4 Following table shows relevant financial items of X Ltd. as on 1st April,
2014:
Items
Intangible Assets 50,000
Inventories at cost 1,00,000
Share Capital (Face Value 2 per share) 50,000
Cash and Bank balances 1,50,000
10% Bonds 215,000
Receivables 30,000
Total Sources 3,60,000
Creditors 25,000
Plant (Net of depreciation) 30,000
Plant at cost 50,000

Transactions during the year are given below

Sold 60% of the inventories on credit for 2,00,000.
Salary for the period paid fully 20,000.
Rent per year 10,000. Paid rent for three years.
Intangible assets amortized over next four years equally .
Plajat is 4 years old. Depreciation is charged using the Straight
Line Method (for both tax and accounting purposes).
Purchased shares of Y Ltd. worth W 50,000 by issuing shares.
at 20 per share.
. Redeemed Bonds on 31st March, 2014 (after the payment of
interest) by issuing shares at the market price o f 25 per share.
(viii) Paid off 60% of the creditors.
Tax paid 30% of profits.

Prepare; Balance Sheets as at 1st April, 2014 and 31st March, 2015
along with Profit Loss a/c and Cash a/c for the year ended on
31st Mai*ch, 2015.

Distinguish between Divisible profits and Dividends.

Discuss j the mechanism of levy of Value Added Tax.

SECTION B

Q 5 Answer the following questions in about 150 words each: 10x5=50

Examine with an example the relationship between leverage and
profitability.

Write a note on the relevance of credit-rating for a power sector
company.

Explain iii brief the regulations of SEBI for Buy-back of shares by a
company.

Explain briefly the factors that determine the dividend policy of a
company.

“Retained earnings have no cost.” Comment.

Q6.

Calculate the degree of operating leverage, degree of financial leverage
and djegree of combined leverage for the following finns
N S D
Production (in units) 17,500 , 6,700 31,800
Fixeji costs 4,00,000 3,50,000 2,50,000
Interest i 1 on long-term loan 1,25,000 75,000 NIL
iSelling price per unit 85 130 37
Variable cost per unit 38 42-50 12

You are also required to interpret'the results of your calculation.

Explain the important ratios that will be used in each of the following
situations:

A bank is approached by a company for a working capital facility of
W 50 lacs.

A long-term creditor who is interested in knowing whether his
1 claim is adequately secured.

A shareholder who is examining his portfolio to decide whether to
hold or sell his holdings in the company.

A finance manager who is interested to know the effectiveness with
which the available resources are utilised.

Describe the nature of the following debt instruments

Deep Discount Bonds

Floating Rate Bonds

Extendable Notes

Junk Bonds

Q7.
The Balance Sheets of S Ltd. at 31st March, 2012 and 31st March, 2013
are as under:
31-3-2012 31-3-2013
Particulars

Equity and Liabilities

Shareholder’s Funds

Share Capital 50,000 70,000
General Reserve 5,000 8,000
Profit and Loss A/c 10,000 15,000

Current Liabilities

Creditors 15,000 19,000
Bills Payable 4,000 5,000
Outstanding Expenses 1,000 500
85,000 1,17,500
Assets

Non-Current Assets

Building 50,000 80,000
Machinery 8,000 12,000
Current Assets
Stock in Trade 5,000 7,500
Debtors 20,000 15,000
Cash and Bank Balance 2,000 3,000
85,000 1,17,500

Following further information is available

Depreciation of 5,000 on building and T 2,000 on machinery has
been charged for the year 2012 2013.

A machine costing W 1,200 was sold on 1st April, 2012 for
800. Depreciation of 700 was provided on the same upto
31st March, 2012.

Prepare classified cash flow statement for the year ended on
31st March, 2013. 20

Explain briefly the factors influencing the working capital requirement.

Discuss the utility and limitations of Internal Rate of Return
method of appraising a capital investment decision,

Q 8 . Explain the role of IRDA in regulating insurance business in India.

Give a critical appraisal of the Modigliani-Miller approach to the
theory of capital structure.

What is corporate restructuring State the major forms in which it can
be carried out.