C. S. (Main) Exam 2011
COMMERCE AND ACCOUNTANCY
Paper I
Time Allowed Three Hours I I Maximum Marks 300 I
INSTRUCTIONS
Each question is printed both in Hindi and
in English.
Answers must be .written in the medium
specified in the Admission Certificate issued
to you, which must be stated clearly on the
cover of the in the space
pr:ovided for the purpose. No marks will be
given for the answers written in a medium
other than that specified in the Admission
Certificate.
Candidates should attempt Questions no. 1
and 5 which are compulsory, and any three
of the remaining questions selecting at least
one question from each Section.
Assume suitable data if considered necessary
and indicate the same clearly.
The number of "'marks carried by each
question is indicated at the end of the
question.

SECTION A
1. Answer the following in about 150 words each 15x4=60
How do you use the concept of revenue recognition in the determination of income of a business concern Explain, giving examples.
Discuss the effectiveness of monetary policy of a Central Bank to control Inflation, and Recession, citing. examples from Indian expenences.
"SEBI has failed to effectively control the capital • market m India." Critically examine this statement.
How will you segregate fixed cost element from the semi-variable cost Explain with examples.

Pass necessary journal entries in the account books
of a company from the following
Also mention the im;act of each transaction on the Balance Sheet of the company. 5x6=30
(i)Issue of Bonus shares in the ratio of 1 1. The share capital at the beginning of the year stood at 12,50;000. Adequate retainea earnings in the form of general reserve and Profit Loss were present on the date of Bonus issue.
Company bought back its own 25,000 shares 135 each. Such shares have not been cancelled. Face value of each share is rs 10.
Company's net block amounted 7,25,750. Management decide to revalue it at 9,50,000 and show it at revised value.
An asset 62,500 was lost in fire and the company could realize 45,000 only from the insurance company.
Bad debts amounting to 15,500 were recovered during the year.
Issue of 10,00,000 shares 10 each at a premium of 65. (Money received by the company).

Do you agke with the view that Activity Based Costing is not very practical ahd useful Discuss its limitations. 30

3. The ledger balances extracted from the books
of Prefect Public Ltd. for the year ended on
31st March, 2011 are as follows
Share Capital 50,00,000
12% Debentures 37,50,000
Land Building 38,40,000
Profit Loss 3,28,125
Stock-in-trade 9,37,500
Sundry Debtors 20,25,000
Cash Balances 3,12,500
Purchases 23,12,500
Preiiminary Expenses 62,500
Bills Payable 4,62,500
Interim ,Dividend 4,90,000
Wages 12,50,000
General Expenses 1,05,000
Salaries 2,27,000
Creditors 5,00,000
Sales 50,50,000
General Reserve 2,75,000
Bad debts provision 55,000
Bad debts 35,000
Interest on debentures 2,25,000
Capital loss written off 4,00,000
Calls in Arrears 95,000
Dividend Equalization Fund. 10,50,000
Debenture Redemption . 20,00,000
Reserve .
Unclaimed dividend 5,625

Make adjustments for the following and prepare
Balance Sheet, as per requirements of the
Companies Act, 1956

Depreciate Land Building by 10%.
Provide Bad debts Reserve 5%.
Write off preliminary expenses, 50,000.
Debenture interest for half-year due.
Unsold stock, 12;50,000.
Provision for Tax 40%.
Contingent liability, 10,50,000. 45

Give your sugges.tions related to accounting
standards on depreciation and inventories. 15

4. On 31st March. 2011, the Balance Sheet of ABC
Ltd. stood as follows

Authorised Share
Capital :2,50,000 Net Block 9,50,000
Shares of 10 each 25,00,000

Issued, called up and
paid up Capital Investments 8,50,000
1,30,000 Equity Shares at cost
10 each, 8 called
up paid up 10,40;000

General Reserve 6,50,000 CurrentAssets 4,27,000

Bank and
Profit Loss 2,50,000 Cash
Balances 1,11,000
Share Premium Nc 1,75,000
Assets Revaluation Nc 1,00,000
Investment Fluctuation
Fund 73,000
Statutory Reserve 25,000
Other liabilities 25,000
23,38,000 23,38,000

The company has passed necessary resolution and complied with other formalities to issue Bonus Shares to its shareholders in the ratio of 3 5. You are required to give effect to the Bonus scheme and show the Balance Sheet after issue of Bonus Shares. 25
Mr. Shan is a salaried employee. During the year ended on 31st March, 2011, the details of his income and other information were as follows

Annual salary 35,000 x 12 4,20,000
Pay Arrears 80,000
Leave travel concession provided
by employer 21,000



House Rent Allowance rs10,000 per month
·Dividend on Investment in Shares 1,500
LIC Premium paid on his life by 18,000
employer
Medical Allowance 1,200 per Mr. Shan invested in NSC 25,000
Investment in Mutual Fund (ELSS) 10,000
Deposit in Public Provident Fund 15,000

Admission fees of the child 6,000
Donation to a local private school 1,000



He Owns a house which has been let out on annual rent 96,000.
Paid Municipal Charges on House Property, 6,000
Determine the Total Income of Mr. Shan and the tax payable by him as per the rates applicable for 2011-2012 Assessment year. 35

SECTIONB

5. Answer the following in about 150 words each 15x4=60
"Dividend cannot be paid out of capital." Explain it. Is there any exception to this rule oflaw? How will you, as an auditor, ensure that the dividend has not been paid out of capital?
Can a company issue sweat equity shares? Discuss various regulations for issue of such shares.
Give a list of items of expenses whiCh are not . . allowed to be deducted from income in the determination of Profits and Gains from Business or Profession.
Critically examine MM-Thesis.
6. A company is contemplating to expand its business for which it will need a capital expenditure of( 1·50 crores and working capital of 0·50 crore. The existing capital of the company consists of 30,00,000 shares of rs 10 each.,
The additional investment may" be financed by issue of fresh share capital or borrowings 15% interest per annum from fimincial institutions or a combination of share capital and loan. The earnings before interest and taxes are likely to go up to 1,10,00,000 after the implementation of expansion plan. The company pays tax 35 per cent on earnings after paying interest.
Which source of financing should the company use for raising additional capital Advise the company keeping in mind the EPS and financial risk. 35

What is a Qualified Audit Report Prepare. a qualified audit report highlightiJ?-g atleast three qualifications. 25
7. Using· appropriate Accounting Ratios, comment on Liquidity, Current period solvency and Long-period financial risk of a company. Its Balance Sheet as on 31 5tMarch, 2011 is as follows:
Balance Sheet as on 3113/2011
<img src='./qimages/1016-7a.jpg'>

Notes:
Stock worth 50,000 is not saleable.
Debtors to the tune of< 1,50,000 are likely to become bad.
Debts not acknowledged as debts, 2,50,000.
A liability of< !JO,OOO left to be recorded. 40

How will you handle risk and uncertainty in Capital Budgeting Explain.

8. The financial record of a manufacturing company
has provided the following cost data
Material cost per unit rs45
Labour cost rs 12
Overheads rs 20

rs 77 per unit
Profit rs 23
Selling Price rs 100 per unit

Additional Information
The average storage period for raw is one month.
(ii)Production cycle lasts for 1/2 month.

(iii)Average storage period for finished goods is
one month.
Company sells goods on 2 month's credit whereas it avails only one month's credit facility. 80% of the stock is ,sold for credit.
Time lag for payment of wages is month and for payment of overheads the time lag is one month.
Cash is expected to remain at< 20,000. The company proposes to manufacture 2000 units for the next year and asks you to determine working capital needs for this level of output. Calculate it. 35

How is Gordon's model an improvement over other . dividend models Discuss its limitations. 25