Commerce and Accountancy Paper-1
2012


SECTION-A
1. Answer the above question within 150 words: 12

Discuss how the money value of non-monetary
consideration is determined for purpose of Service
Tax.
What is revaluation reserve and how it is
created Discuss also the merits and demerits of
such action.
Discuss contingent liabilities with examples.
Where would these items feature in the
financial statements of a firm? What
happens when bills are discounted by a firm
Show the journal entries for such transactions.
Discuss how the following streams of
revenues are recognised in an IT service
company:

Software services
Time and materials contracts
Sale of user's licenses.
Explain the financial parameters to be used to
evaluate post-merger performance.

2. Following are the balances and other accounting
information of SME and Co. as on 31st March 2012

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Other Information

Rates of depreciation on Plant and
Machinery, Patents, Furniture and Fixtures
and Buildings are 10% and
respectively.

Unexpired insurance Rs. 3,060.
Salaries accrued but unpaid Rs. 7,000.
of Debtors may not pay.
Wages include Rs. 36,000 spent on
construction of an annexe to Buildings
completed on 30th June 201l .
Prepare a Trial Balance as on 31st March
2012 and draw up a Manufacturing and Profit
and Loss Account for the year ended 31st March
2012. 40
M/s Anant Kumar are a registered dealer in
West Bengal. During the year ending on
31st March 2012 the firm's local purchases
from registered dealers of West Bengal amounted
to Rs. 12 lakh. The firm had also made purchases
from local unregistered dealers amounting to
Rs. 2 lakh. During the period the firm's
sales within West Bengal amounted to Rs. 8 Jakh
and outside West Bengal Rs. 1·50 lakh. Applicable
rates for VAT (both for purchases and sales) and
CST are 13·5% and respectively.
Pass necessary journal entries to record the
above transactions. 20

3. PET Limited manufactures household foodgrade
containers of different sizes. It uses a
special type of polyethylene sheet for making
the body of the containers. The sheets are
purchased in large sizes. A particular size of
container requires 60 square inches of the
polyethyiene sheet. The cost of 1 square inch
is Re. 0·50.
While running a batch of 10,000
containers it is found that 6,50,000 square
inches of sheets were consumed at Re. 0·60
per square inch.
Show detailed calculations of Total
variance, Price variance, Quantity
variance, Pure price variance, and
Joint Price-quantity variance. 25
On the basis of your findings prepare a report
for top management who shall soon be
deciding on bonuses for operating executives.
Your report must contain evaluation of each
vanance. 15
"To arrive at a comprehensive opinion, the auditor
reviews evidence that may be classified into three
major groups." What are these groups and how
do you relate the components of the groups to
the purposes of the audit? 20

4. A HUF consists of Mr. A Mrs. A
and a minor child. On 18th December 2011,
the Karta sets apart Rs. 5 lakh out of the
family fund for maintenance of his wife.
Mrs. A deposits the money in her name with
a bank at an interest rate of p.a.
Discuss whether the interest income
will be clubbed with the income of HUF or
Mr. A or none. Justify your answer. 15
Mrs. who is an Arts graduate, holds
2,200 out of 10,000 equity shares of a
private limited company in which her husband
Mr. who is also an Arts graduate, is working
as Chief Accountant at an annual salary of
Rs. 12 lakh. The ITO claims that the salary
income of Mr. Y shall be clubbed together
with the income of Mrs. X. Is the ITO correct?
Justify your answer. 15

XYZ Ltd. offered for subscription 1 lakh shares of Rs. 1O each at a discount of Rs. 1 per share. The subscription money shall be payable as follows

Application Rs. 2·50
Allotment Rs. 4·00
First and Final call Rs. 2·50
12

The issue was fully subscribed. The entire amount
of allotment money was received. When the
company made the first and finanl call. amount
from l00 shares was not received. Despite notices
and reminders under Articles of Association no
amount was forthcoming from the allottees. The
company finally decided to forfeit these shares.
Subsequently, the company reissued these shares
at Rs. 9 per share, fully paid.
Pass necessary journal entries to record
the above transactions. Show also an extract of
Balance Sheet. 30

SECTION-B
5. Answer the following in about 150 words each
12x5=60
What is contingent capital Discuss the various
instruments used to generate it.
Define and distinguish between gross working
capital and net working capital. Can a firm survive
with zero net working capital
Discuss in brief the techniques of assets-liability
management in a commercial bank.
Discuss Sharpe's ratio and Treynor's ratio for
evaluation of risk-return performance of Mutual
Fund's portfolio.

Explain the effect of absorption costing
and marginal costing on net profit of a business
firm.
6. A company's annual demand of materials is 10,000
units. Presently, the company is procuring these
materials at Rs. 10 per unit. A group of suppliers
are now willing to offer the following quantity
discounts

Order size Discount
1-999 units No discount
1,000 units and above 10%


Ordering cost of the company is Rs. 50 per
order and the holding cost is 20% p.a.

Find out the particular order size where the
total cost is at its lowest. 30

Why do companies resort to 'managing
earnings' Illustrate the techniques employed for
this purpose. 30
7. Illustrate Operating Leverage and Financial
Leverage. What insights you get from these two
leverages What are their limitations 30

''Higher capital requirements might induce banks
to seek higher returns in areas that are high risk
or outside their core business". Do you agree
with this observation Justify your answer with
suitable examples. 30

8. From the information given below you are required
to value the business under Residual Operating
Income method

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Required return of the bussiness is 10.10%. Net operating assets are expected to grow at p.a.

As on date the business has net outside
liabilities of Rs. 1728 lakh. 40


Critically examine with illustrations the role of
Credit Rating Agencies with particular reference
to their ownership structure and corporate
governance. 20