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CORPORATE ACCOUNTING & FINANCIAL MANAGEMENT
TEST PAPER
100 MARKS – 3 HOURS
PART I (60 MARKS) CORPORATE ACCOUNTING
Question 1:
(a) Sarvottam Ltd. invited applications for 40,000 Equity Shares of `10 each. The amount
was payable as follows; on applications `3 per share; on allotment `4 per share and on
first and final call `3 per share. Application were received for 37,500 shares. Ashok to
whom 1,000 shares were allotted did not pay the allotment money and also final and final
call. Sohan who had applied for 500 shares did not pay the first and final call.
Pass Journal Entries. (6 Marks)
(b) Himalayas Ltd. had ` 10,00,000, 8% Debentures of ` 100 each as on 31st March, 2012.
The company purchased in the open market following debentures for immediate
cancellation:
On 01-07-2012 – 1,000 debentures @ ` 97 (cum interest)
On 29-02-2013 – 1,800 debentures @ ` 99 (ex-interest)
Debenture interest due date is 30th September and 31st March.
Give Journal Entries in the books of the company for the year ended 31st March, 2013. (6
Marks)
(c) D Ltd. furnished the following summarized Balance Sheet as at 31st March, 2020:
Balance Sheet of D Ltd. as at 31st March, 2020.
Particulars (` 000)
I. EQUITY AND LIABILITIES
(1) Shareholders Funds:
(a) Share Capital:
Authorized Share Capital:
2,50,000 Equity Shares of `10 each 2,500
5,000 Preference Shares of `100 each 500
3,000
Issued & Subscribed Capital:
2,50,000 Equity Shares of `10 each fully paid-up 2,500
2,000, 10% Preference Shares 200
(`100 each fully paid-up; issued for the purpose of buy-back)
(b) Reserves and Surplus:
Capital Reserve 1,000
General Reserve 3,000
Securities Premium 2,200
Profit & Loss Account 3,500
(2) Current Liabilities:
Other Current Liabilities 1,400
Total 13,800
II. ASSETS
(1) Non-Current Assets:
(a) Fixed Assets
Tangible Assets 9,300
(2) Current Assets:
(a) Current Investment 3,000
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(b) Cash and Cash Equivalents 1,500
Total 13,800
The Company passed a resolution to buy-back 20% of its equity capital @ `50 per share.
For this purpose, it sold all of its investment for `22,00,000. You are required to pass
necessary journal entries and prepare the Balance Sheet after buy-back. (6 Marks)
(d) “XBRL offers major benefits at all stages of business reporting and analysis.” Discuss
(6 Marks)
Attempt Question 2 or 2A
Question 2:
(a) Beta Ltd. is a subsidiary of Alpha Ltd. Following is the Balance Sheet of Beta Limited
as at 31st March, 2019:
Particulars (` in lakh)
EQUITY AND LIABILITIES
1. Shareholders Funds
(a) Share Capital: Equity Shares of ` 10 each 300
(b) Reserves and Surplus (Statement of Profit and Loss) 250
2. Non-current Liabilities: 8% Debentures 200
3. Current Liabilities 160
Total Equity and Liabilities 910
ASSETS
1. Non-Current Assets:
Tangible Assets:
Land and Building 270
Plant and Machinery 350
2. Current Assets
Total Assets 910
On 1st April, 2018, Alpha Ltd. acquired 24 lakh equity shares of Beta Ltd. at a cost of `460
lakh. On that date, Statement of profit and Loss of Beta Ltd. showed a credit balance of
`180 lakh and land & Building was revalued by Alpha Ltd. at 20% above book value of `300
lakh (but no such adjustments are shown in the books of Beta Ltd.)
You are required to calculate:
(1) Cost of Control
(2) Minority Interest. (6 Marks)
(b) X ltd recently reported the following 2022 income statement (Rs in cr.)
Sales 1528
Operating Cost 933
EBIT 595
Interest 95
EBT 500
Taxes@40% 200
EAT (Net Income) 300
Dividend (25%) 75
Retained Earnings 225
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This year company is forecasting 20% increase in sales and it expects that its year end
operating cost will be around 60% of sales. It is expected that tax rate, interest and
dividend pay-out ratio will be constant. You are required to compute projected Net Income
and expected growth rate in dividend. (6 Marks)
Question 2A:
(a) Discuss the roadmap for implementation of Indian Accounting Standards (Ind AS) to
achieve convergence with IFRS. (6 Marks)
(b) Explain the advantages of using Double Entry System? (6 Marks)
Question 3:
The following are the summarized Balance Sheets of ‘X’ Ltd. as on March 31, 2014 and
2015:
Liabilities As on 31.3.2014 (`) As on 31.3.2015 (`)
Equity share capital 15,00,000 16,50,000
Capital Reserve --- 10,000
General Reserve 2,50,000 3,00,000
Profit and Loss A/c 1,50,000 1,80,000
Trade payables 5,00,000 4,00,000
Provision for Taxation 50,000 60,000
Outstanding Expenses 1,00,000 1,25,000
25,50,000 27,25,000
Assets Year 2014 (`) Year 2015 (`)
Land and Building 5,00,000 4,80,000
Machinery 7,50,000 9,20,000
Investment 1,00,000 50,000
Inventory 3,00,000 2,80,000
Trade receivables 4,00,000 4,20,000
Cash in Hand 2,00,000 1,65,000
Cash at Bank 3,00,000 4,10,000
25,50,000 27,75,000
Additional Information:
(i) Dividend of `1,00,000 was paid during the year ended March 31, 2015.
(ii) Machinery during the year purchased for `1,25,000.
(iii) Machinery of another company was purchased for a consideration of `1,00,000 payable
in equity shares.
(iv) Income-tax provided during the year `55,000.
(v) Company sold some investment at a profit of `10,000, which was credited to Capital
reserve.
(vi) There was no sale of machinery during the year.
(vii) Depreciation written off on Land and Building `20,000.
From the above particulars, prepare a cash flow statement for the year ended March, 2015
as per AS 3 (Indirect method). (12 Marks)
Question 4:
(a) From the final accounts of Prudent Ltd. given below, calculate the following:
(i) gross profit ratio; (ii) current ratio; (iii) liquid ratio;
Trading and Profit & Loss Account
for the year ended 31st March, 2014
` `
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To Material By Sales 8,50,000
consumed:
Opening stock 90,500 By Profit 6,000
(non-
operating)
Purchases 5,45,250 By Interest 3,000
on
investment
6,35,750
Less: Closing 1,40,000 4,95,750
stock
To Carriage 14,250
inwards
To Office 1,50,000
expenses
To Sales 30,000
expenses
To Financial 15,000
expenses
To Loss on sales 4,000
of fixed assets
To Net profit 1,50,000 -
8,59,000 8,59,000
Balance Sheet as on 31st March, 2014
Liabilities ` Assets `
Share Fixed
capital: assets:
20,000 equity 2,00,000 Buildings 1,50,000
shares of 10
each, fully
paid
General 90,000 Plant 80,000 2,30,000
reserve
Profit & Loss 60,000
Account
Bank 30,000 Current
overdraft assets:
Sundry Stock-in- 1,40,000
creditors trade
For Expenses 20,000 Debtors 70,000
For others 80,000 1,00,000 Bills 10,000
receivable
Bank 30,000 2,50,000
balance
4,80,000 4,80,000
(6 Marks)
(b) Aarvi Ltd. 20,000 shares which were underwritten as follows:
X: 12,000 shares; Y: 5,000 shares and Z: 3,000 shares.
The underwriters made applications for firm underwriting as under:
X: 1,600 shares; Y: 600 shares and Z: 2,000 shares.
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The total subscription excluding firm underwriting (including marked applications) were,
10,000 shares.
The marked applications were X: 2,000 shares; Y: 4,000 shares and Z: 1,000 shares.
Prepare a statement showing the net liability of underwriters assuming Firm underwriting
as Unmarked Applications. (6 Marks)
PART II (40 Marks) FINANCIAL MANAGEMENT
Question 5:
(a) Calculate the level of Earnings Before Interest and Tax (EBIT) at which the EPS
indifference point between the following financing alternative will occur:
(a) Equity share capital of `12,00,000 and 12% debentures of `8,00,000.
(b) Equity share capital of `8,00,000, 14% preference share capital of `4,00,000 and 12%
debentures of `8,00,000.
Assume corporate tax is 35% and par value of equity share, preference shares and
debentures are `100 in each case. (6 Marks)
(b) PQR Ltd. has the following capital structure on October 31, 2015:
Sources of capital (`)
Equity Share Capital (2,00,000 Shares of ` 10 each) 20,00,000
Reserves & Surplus 20,00,000
12% Preference Shares 10,00,000
9% Debentures 30,00,000
80,00,000
The market price of equity share is ` 30. It is expected that the company will pay next year
a dividend of ` 3 per share, which will grow at 7% forever. Assume 40% income tax rate.
You are required to compute weighted average cost of capital using market value weights.
(6 Marks)
(c) Find the future value of `100,000 for 15 years. The current five-year rate is 6%. Rates
for the second and third five-year periods and expected to be 6.5% and 7.5%,
respectively.(4 Marks)
Question 6:
(a) RST Ltd. has a capital of `10,00,000 in equity shares of `100 each. The shares are
currently quoted at par. The company proposes to declare a dividend of `10 per share at
the end of the current financial year. The capitalization rate for the risk class of which the
company belongs is 12%. What will be the market price of the share at the end of the year,
if:
(i) A dividend is not declared?
(ii) A dividend is declared?
(iii) Assuming that the company pays the dividend and has net profits of `5,00,000 and
makes new investments of `10,00,000 during the period, how many new shares must be
issued? Use the MM model. (6 Marks)
(b) The management of a company has two alternative projects under consideration.
Project A requires a capital outlay of `1,20,000 but Project B needs ` 1,80,000. Both are
estimated to provide a cash flow for five years:
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A – `40,000 per year and B – `58,000 per year. The cost of capital is 10%. Show which of
the two projects is preferable from the viewpoint of (i) Net Present Value; and (ii) Internal
rate of Return. (6 Marks)
Attempt Question 7 or 7A
Question 7:
(a) MFN Limited started its operation in 2012 with the total production capacity of 2,00,000
units. The following data for two years is made available to you:
2012 2013
Sales units 80,000 1,20,000
Total cost (`) 34,40,000 45,60,000
There has been no change in the cost structure and selling price and it is expected to
continue in 2014 as well. Selling price is `40 per unit.
You are required to calculate:
(i) Break-Even Point (in units)
(ii) Profit at 75% of the total capacity in 2014 (6 Marks)
(b) Two components X and Y are used as follows:
Normal usage 300 units per week
Maximum usage 450 units per week
Minimum usage 150 units per week
Reorder Quantity X – 2,000 units and Y – 4,000 units
Re-order Period X – 4 to 6 weeks and Y – 2 to 4 weeks
Calculate for each component —
(1) Re-order Level, (2) Maximum Level, (3) Minimum Level (4) Average Inventory. (6
Marks)
Question 7A:
(a) Explain the advantages & disadvantages of Wealth Maximization as an Objective of
Financial management. (6 Marks)
(b) What do you mean by Systematic Risk? Explain various types of Systematic Risks. (6
Marks)
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