Ql.
Discuss the provisions of Indian Accounting Standards regarding the accounting treatment of Research and Development costs.

Distinguish between the techniques of Cost Control and Cost Reduction and also explain their implications on decision-making.

Explain Pooling of Interest method of amalgamation of companies.

What are the various deductions made from Gross Total Income?

"Audit of divisible profits enables the stakeholders to judge the philosophy of majority shareholders." Comment.

Q2.
RS Ltd. issued a prospectus inviting applications for 20,000 shares of Rs10 each at a premium of Rs2 per share payable as under:

On Application Rs 2
On Allotment Rs 5 (including premium)
On First call Rs 3
On Second and Final call Rs 2
Applications were received for 30,000 shares and pro-rata allotment was made on the applications for 24,000 shares. Excess money paid on applications was utilised towards allotment money.
Kherwa, to whom 400 shares were allotted, failed to pay the allotment money. On her subsequent failure to pay the first call, her shares were
forfeited.
Suri, the holder of 600 shares, failed to pay the two calls, and her shares were forfeited after the second call.
Out of these forfeited shares, 800 shares were reissued to Gopal,credited as fully paid for Rs 9 per share, the whole of Kherwa's shares being included.
Pass the necessary Journal entries in the books of RS Ltd.


Two manufacturing companies, which have the following operating details, decided to merge
Company Company
No.1 No.2
Capacity Utilization (in 90 60
Sales (Rs lakhs) 540 300
Variable Cost (Rs lakhs) 396 225
Fixed Cost (Rs lakhs) 80 50
Assuming that the proposal is implemented, calculate:
Break-even sales of the merged plant and the capacity utilization at that stage.
Profitability of the merged plant at 80% capacity utilization.
Sales turnover of the merged plant to earn a profit of Rs 75lakhs.

"An assessee not only pays tax on his own incomes but also on others' incomes." Explain this statement.

Q3.
The Cost Accountant of a company was given the following information regarding the overheads for February, 2016

Overhead cost variance Rs 1,400 adverse
Overhead volume variance Rs 1,000 adverse
Budgeted hours for February, 2016 Rs 1,200 hours
Budgeted overheads for February, 2016 Rs 6,000
Actual rate of recovery of overheads Rs 8 per hour
You are required to assist him in computing the following for February, 2016
Overhead expenditure variance
Actual overheads incurred
Actual hours for actual production
Overhead capacity variance
Overhead efficiency variance
Standard hours for actual production

State four items which are not to be included in determining the cost of inventories in accordance with Paragraph 6 of Accounting Standards 2 (Revised).

An NGO operating in Delhi had collected large scale donations for flood victims. The donations so collected were sent to different NGOs operating in Bihar for relief operations. The NGO operating in Delhi has appointed you to audit its accounts for the year in which it collected and remitted donations for flood victims. Draft a programme for audit of receipts of donations and remittance of the collected amount to different NGOs. Mention five points each, peculiar to the situation, which you would like to incorporate in your audit programme tor audit of the said receipts and remittances of donations.


Q4.
Dr. Sharma is a Chief Medical Officer. He receives a salary of RS 15,000 per month and Dearness Allowance 25%. He contributes 15% of his salary to a Recognised Provident Fund. The employer also contributes an equal amount. He is provided with a Rent Free House in a city with a population of 5 lakhs. Fair rental value of the house is RS 6,000 per month. He receives Hostel Allowance of RS 500 per month for his child. He has let out his own house at RS 500 per month and paid RS 2,000 for
Municipal tax of the house. He has the following incomes too
Dividend from a domestic company RS 5,000
Interest on debentures of a cooperative society RS 3,000
Dividend from a foreign company RS 1,000
Share in the profits of A.O.P. RS 2,000
He paid RS 12,000 for his own medical health insurance by cheque. He donated RS 1,500 to a national fund and RS 1,500 for promoting family planning programmes.
Compute the total income for the Assessment Year 2016-17

The information given below has been taken from the costing records of a company in respect of Job No. 303 Materials 4,010
Wages: Dept. A 60 hours 3 per hour
Dept. B 40 hours 2 per hour
Dept. C 20 hours 5 per hour
Overhead expenses for these departments were estimated as follows: Variable overheads
Dept. A 5,000 for 5000 labour hours
Dept. B 3,000 for 1500 labour hours
Dept. C 2,000 for 500 labour hours
Fixed overheads Estimated at RS 20,000 for 10,000 normal working hours.
You are required to calculate the cost of Job No. 303 and also calculate the selling price to earn a profit of 25%.


Enumerate the steps to be taken by an auditor before declaring an account as Non-Performing Asset in a bank audit.

Q5.
Explain the relevance of time value of money in financial decisions.

Diagrammatically present the Du Pont chart to calculate return on equity.

Explain briefly the propositions made in Modigliani and Miller approach on cost of capital.

Explain the current Monetary Policy.

Evaluate the role of Credit Rating Agencies.

Q6. Using the following information, prepare the Balance Sheet:
Total debt to net worth 1:2

Total assets turnover 2

Gross profit on sales 30%

Average collection period 40 days
(Assume 360 days year)

Inventory turnover ratio based on
cost of goods sold and year-end inventory 3

Acid test ratio 0.75

Equity share capital RS 4,00,000

(viii) Reserves and Surplus RS 6,00,000


X Ltd. and Y Ltd. have the same level of business risk and their market values and earnings are given below.
Particulars X Ltd. Y Ltd.
RS RS
Equity 6,00,000 3,00,000
Debt 2,50,000

6,00,000 5,50,000

Earnings 90,000 90,000
Less:Interest 22,000

90,000 68,000


Calculate the post-tax cost of equity, cost of debt and weighted average cost of capital of both the companies. Assume that the income-tax rate on the company is 35% and the additional tax on dividend distribution is 20%.

Write the important reforms that have taken place in the following sectors after 1991
Banking Sector
Primary and Secondary Stock Market
External Financial Market

Q7.
XY Ltd. wants to install a new machine in place of an existing old one which has become obsolete. The company made extensive enquiries and from the proposals received, short-listed two offers. The two models differ in cost, output and anticipated net revenue. The estimated life of
both the machines is five years. There will be only negligible salvage value at the end of the fifth year. Further details are as follows;

Anticipated after-tax cash flow
Machine Cost Year 1 Year 2 Year 3 Year 4 Year 5
A 25 5 20 14 6
B 40 10 14 16 17 8

The company's cost of capital is 16%. You are required to make an appraisal of the two offers and advise the firm by using the following:

Payback Period
Net Present Value
Profitability Index
Internal Rate of Return

Shree Ltd. has current sales of RS 20,00,000. The company is planning to introduce a cash discount policy of net 30. As a result, the company expects the average collection period to go down by 10 days and 80% of the sales to opt for the cash discount facility. If the company's required return on investment in receivables is should it introduce the new discount policy?
Examine various measures taken by SEBI for the development of Foreign Institutional Investors and Venture Capitalists.

Q8.
The share capital of a company is RS 10,00,000 with shares of face value of RS 10. The company has debt capital of RS 6,00,000 10% rate of interest. The sales of the firm are 3,00,000 units per annum at a selling price of RS 5 per unit and variable cost is RS 3 per unit. The fixed cost amounts to RS 2,00,000. The company pays tax at 35%. If the sales increase by calculate:
Percentage increase in EPS
Degree of financial leverage at the two levels

Explain the Modigliani and Miller approach for corporate dividend policy.

at-are-the vario11s insurance sector reforms that have taken place in India during the period of liberalisation