AMIT TALDA MENTORSHIP

CS EXECUTIVE
NEW SYLLABUS

CORPORATE ACCOUNTING &

FINANCIAL MANAGEMENT
(CAFM)

FULL SYLLABUS
TEST PAPER

BY
AMIT TALDA SIR
Question 1
(a) Karur Ltd. invited applications for issuing 2,40,000 equity shares of `10 each at a
premium of `4 per share. The amount was payable as under:
On application - `4per share (including premium `2)
On allotment - `4 pre share,
On first and final call - `6 per share (including premium `2)

Applications for 3,00,000 shares were received and pro-rata allotment was made to all
the applicants. Excess application money received on application was adjusted towards
sums due on allotment. All calls were made and were duly received except from Rohini,
who failed to pay allotment and first and final call on 7,500 shares applied by her. These
shares were forfeited. Afterwards, 40% of the forfeited shares were re-issued at `11 per
share as fully paid-up.

Pass the necessary Journal entries in the books of Karur Ltd. (12 Marks)

(b) Discuss the points to be considered while projecting the Profitability. (3 Marks)

Question 2
(a) Gaurav Ltd. had issued 12%, ` 10,00,000 debentures @ ` 100 each in the past. For
the purpose of redemption, it maintains a debenture redemption fund with an annual
contribution of ` 90,000. On 1st April, 2008, the fund stood at ` 4,50,000 represented
by 6%, ` 5,00,000 government loan.

On 31st March, 2009, ` 2,00,000 government loan was sold @ ` 93.50 and the proceeds
were utilized to purpose debentures for cancellation @ ` 85 each. Assume that ` 20,000
debentures have been redeemed out of capital and the balance with face value of `
1,80,000 has been redeemed out of debenture redemption fund account.

Prepare debenture account, debenture redemption fund account and debenture

redemption fund investment account. (5 Marks)

(b) MNP Limited has made plans for the next year 2015-16. It is estimated that the
company will employ total assets of `25,00,000; 30% of assets being financed by debt
at an interest cost of 9% p.a. The direct costs for the year are estimated at `15,00,000
and all other operating expenses are estimated at `2,40,000. The sales revenue are
estimated at `22,50,000. Tax rate is assumed to be 40%. Required to calculate:
(i) Net profit margin (After tax);
(ii) Return on Assets (After tax);
(iii) Asset turnover; and
(iv) Return on Equity (5 Marks)

(c) At the end of last year, X ltd reported the following income statement (Rs in Cr.)
Sales 3000
Operating cost excluding depreciation 2450
EBITDA 550
Depreciation 250
EBIT 300
Interest 125
EBT 175
Taxes@40% 70
EAT(Net Income) 105
Looking ahead to the following year, the company management has assembled the
following information.
❖ Year-end sales are expected to be 10% higher than last year.
❖ Year-end Operating Cost excluding depreciation are expected to equal 80% of year-
end sales.
❖ Depreciation is expected to increase at the same rate as sales.
❖ Interest costs are expected to remain unchanged.
❖ Interest costs are expected to remain unchanged.
❖ Tax rate is expected to remain at 40%.
Based on the above information, what will be the forecast for year-end net income? (5
Marks)

Question 3
(a) Extract of ledger balances of Kalpana Ltd. as on 31st March, 2015 includes the
following:
`
2,000, 12% Preference shares of ` 100 each, fully paid 2,00,000
Surplus 40,000
Securities premium 12,000

Under the terms of issue, the preference shares are redeemable on 31st March, 2015 at
a premium of 10%. The directors desire to make a minimum fresh issue of equity shares
of ` 10 each at a premium of 5% for redemption purpose.

You are required to ascertain the amount of fresh issue to be made and pass necessary
journal entries in the books of the company. (5 marks)

(b) Sun Ltd. issued 1,00,000 equity shares. The whole of the issue was underwritten as
follows:
Marigold 35%
Lotus 25%
Tulip 30%
Lily 10%
Applications for 80,000 shares were received in all; out of which applications for 20,000
shares had the stamp of Marigold; 15,000 that of Lotus; 22,000 that of Tulip and 8,000
of Lily. The remaining 15,000 applications did not bear any stamp. Determine the
liability of each underwriter. (5 Marks)

(c) Following is the extract of the Balance Sheet of Preet Ltd. as at 31st March, 2015
Authorized capital: `
15,000 12% Preference shares of `10 each 1,50,000
1,50,000 Equity shares of `10 each 15,00,000
16,50,000
Issued and Subscribed capital:
12,000 12% Preference shares of `10 each fully paid 1,20,000
1,35,000 Equity shares of `10 each, `8 paid up 10,80,000
Reserves and surplus:
General Reserve 1,80,000
Capital Reserve (profit realized on sale of plant) 60,000
Securities premium 37,500
 Profit and Loss Account 3,00,000
On 1st April, 2015, the Company has made final call @ `2 each on 1,35,000 equity
shares.

The call money was received by 20th April, 2015. Thereafter, the company decided to
capitalize its reserves by way of bonus at the rate of one share for every four shares
held.

Company decides to use Capital Reserve for bonus issue as it has been realized in cash.

Show necessary journal entries in the books of the company and prepare the extract of
the balance sheet as on 30th April, 2015 after bonus issue. (5 Marks)

Attempt all parts of Either Q4 or 4A

Question 4
(a) Cost of Control From the following Balance Sheets of H Ltd. and its subsidiary S Ltd.
as on 31 Dec 2017, prepare Consolidated Balance Sheet.
Liabilities ` ` Assets ` `
Share Capital: Sundry Assets: 3,50,000 2,60,000
Shares of 50 each 5,00,000 2,00,000 Investment in the 3,00,000
shares of S Ltd.
4,000 shares (at
cost)
Creditors 1,00,000 20,000
Reserves -- 10,000
Profit & Loss A/c 50,000 30,000
6,50,000 2,60,000 6,50,000 2,60,000
H Ltd. purchase shares in S Ltd. on the balance sheet date. (5 Marks)

(b) Mars. Ltd. obtained an overdraft of `5,00,000 on 31st March, 2022 from a bank by
issuing and securing 6,000, 12% debentures of `100 each as collateral security.

Show necessary journal entries and the entry in the balance sheet as on 31st March,
2022. (5 Marks)

(c) The following summary cash account has been extracted from the company’s
accounting records:
Summary Cash Account
(`‘000)
Balance at 1.3.20X1 35
Receipts from customers 2,783
Issue of shares 300
Sale of fixed assets 128
3,246
Payments to suppliers 2,047
Payments for property, plant & equipment 230
Payments for overheads 115
Wages and salaries 69
Taxation 243
Dividends 80
 Repayments of bank loan 250 (3,034)
Balance at 31.3.20X2 212
Prepare Cash Flow Statement of this company Hills Ltd. for the year ended 31st
March, 20X2 in accordance with AS-3 (Revised). The company does not have any cash
equivalents. (5 Marks)

OR (alternative to Q 4)
Question 4A
(i) Explain the advantages of using Double Entry System? (5 Marks)

(ii) Explain True & Fair View of Financial Statements. (5 Marks)

(iii) Explain the advantages of IFRS. (5 Marks)

 PART II
Question 5
(a) XYZ Co. Ltd. is a pipe manufacturing company. Its production cycle indicates that
materials, are introduced in the beginning of the production cycle; wages and overhead
accrue evenly throughout the period of the cycle. Wages are paid in the next month
following the month of accrual. (Time Lag = 1 month). Work in process includes full
units of raw materials used in the beginning of the production process and 50% of wages
and overheads are supposed to be conversion costs.

Details of production process and the components of working capital are as follows:
Production of pipes 12,00,000 units
Duration of the production cycle One month
Raw material inventory help One month consumption
Finished goods inventory help for Two month
Credit allowed by creditors One month
Credit given to debtors Two month
Cost price of raw materials `60 per unit
Direct wages `10 per unit
Overheads `20 per unit
Selling price of finished pipes `100 per unit

Required to calculate the amount of working capital required for the company. (10
Marks)

(b) SHA Limited provides the following trading results:

Year Sale Profit
2012-13 `25,00,000 10% of Sale
2013-14 `20,00,000 8% of Sale

You are required to calculate:

(i) Fixed Cost
(ii) Break Even Point
(iii) Amount of profit, if sale is `30,00,000
(iv) Sale, when desired profit is `4,75,000
(v) Margin of Safety at a profit of `2,70,000 (10 Marks)

Answer all parts of either Q6 or Q6A

Question 6
(a) SK & ABC Company Ltd. is considering the purchase of a new investment. Two
alternative investments are available (A and B) each costing Rs. 1,00,000. Cash inflows
are expected to be as follows:

Cash Inflows Investments A Investment B

Years Rs. Rs.
1 40,000 50,000
2 35,000 40,000
3 25,000 30,000
4 20,000 30,000

The company has a target return on capital of 10%. Risk premium rates are 2% and 8%
respectively for investments A and B. Which investment should be preferred? (5 marks)
(b) X Ltd., has 8 lakhs equity shares outstanding at the beginning of the year. The
current market price per share is ` 120. The Board of Directors of the company is
contemplating ` 6.4 per share as dividend. The rate of capitalisation, appropriate to the
risk-class to which the company belongs, is 9.6%:

(i) Based on M-M Approach, calculate the market price of the share of the company,
when the dividend is – (a) declared; and (b) not declared.

(ii) How many new shares are to be issued by the company, if the company desires to
fund an investment budget of ` 3.20 crores by the end of the year assuming net income
for the year will be ` 1.60 crores? (5 Marks)

(c) A publishing house purchases 72,000 rims of a special type paper per annum at cost
` 90 per rim. Ordering cost per order is ` 500 and the carrying cost is 5 per cent per
year of the inventory cost. Normal lead time is 20 days and safety stock is NIL. Assume
300 working days in a year:
You are required:
(i) Calculate the Economic Order Quantity (E.O.Q).
(ii) Calculate the Reorder Inventory Level.
(iii) If a 1 per cent quantity discount is offered by the supplier for purchases in lots of
18,000 rims or more, should the publishing house accept the proposal? (5 Marks)

(d) A firm has a current sales of ` 2,56,48,750. The firm has unutilised capacity. In
order to boost its sales, it is considering the relaxation in its credit policy. The proposed
terms of credit will be 60 days credit against the present policy of 45 days. As a result,
the bad debts will increase from 1.5% to 2% of sales. The firm’s sales are expected to
increase by 10%. The variable operating costs are 72% of the sales. The Firm’s corporate
tax rate is 35%, and it requires an after-tax return of 15% on its investment. Should the
firm change its credit period? (5 Marks)

Or alternative to Q6
Question 6A
(i) What do you mean by Common Size Statements? Explain its advantages & limitation.
(5 Marks)

(ii) Explain the factors which the finance manager should keep in mind while taking
Financing Decisions? (5 Marks)

(iii) Explain the various categories of Investment Decisions? (5 Marks)

(iv) A doctor is planning to buy an X-Ray machine for his hospital. He has two options.
He can either purchase it by making a cash payment of ` 5 lakhs or ` 6,15,000 are to
be paid in six equal annual installments. Which option do you suggest to the doctor
assuming the rate of return is 12 percent? Present value of annuity of Re. 1 at 12 percent
rate of discount for six years is 4.111. (5 Marks)