CIVILS MAINS 2013 COMMERCE AND ACCOUNTANCY PAPER I
Time allowed: Three Hours

Maximum Marks: 250

Question Paper Specific Instructions

Please read each ofthe following instntctions carefully before attempting questions:
There are EIGHT questions divided in two SECTIONS and printed both in HINDI and In ENGLISH.
Candidate has to attempt FIVE questions in all.
Questions no. 1 and 5 are compulsory and out of the remaining, THREE are to be attempted choosing at least ONE from each section.
The number of marks carried by a question I part is indicated against it.
Answers must be written in the medium authorized in the Admission Certificate which must be stated clearly on the cover of this Question-cum-Answer Booklet in the space provided. No marks will be given for answers written in a medium other than the authorized one. Word limit in questions, wherever specified, should be adhered to.
Assume suitable data, ifconsidered necessary, and indicate the same clearly.
Attempts of questions shall be counted in chronological order. Unless struck off, attempt of a question shall be counted even if attempted partly. Any page or portion of the page left blank in the answer book must be clearly struck off.

SECTION A

Ql.Write short notes on the following in about 150 words each: lOx 5=50
Conditions for availing of CENVAT credit under various categories of goods and services. 10
Intangible assets and their treatment in the books of accounts of a firm. 10
Assumptions and limitations of Cost-Volume-Profit analysis. 10
Provisions of Indian Accounting Standards regarding treatment of depreciation when an asset is revalued. 10
Audit procedures to detect cash defalcations. 10

Q2.(a) Arvind Enterprises Ltd. had issued Debentures amounting to rs100 lakh on 1st January 2008. The Debentures are to be redeemed on 31St December 2012. In terms of the issue the company is required to create a Debenture Redemption Reserve Fund. The Trustees of the issue expect to earn a net return of 10% p.a. on investment of the fund.
Ascertain the amount to be appropriated from profit every year to ensure full redemption of Debentures at the appropriate time. 10
Draw up Debenture Redemption Fund Account for 5 years. 15

Define and distinguish between marginal and absorption costing with examples. What are their uses and limitations? 15

Explain whether services provided by a Veterinary clinic and Yoga establishment are exempt from service tax. 10

Q3. Mr. Asoke and his wife are partners in a trading firm. Their respective shares of profit for the financial year 2011- 12 were rs50,000 and rs30,000 respectively.
Their minor son has been admitted to the benefits of another firm manufacturing toys from which he received rs45,000 as share of profit and rs1,20,000'as interest on capital. The capital was invested out of the minor's own fund gifted to him by his uncle amounting to rs10,00,000.
A house in the name of Mr. Asoke was transferred to his wife on 01.12.2011 for adequate consideration. The property has been let out throughout the financial year 2011 12 at a monthly rent of rs 50,000.
Non-convertible debentures of a limited company of rs 2,00,000 and rs2,64,000 were purchased three years ago in the names of Mr. Asoke and his wife respectively, on which interest is payable at 10% p.a. Mrs. Asoke had in the past transferred rs1,00,000 out of her income to Mr. Asoke for purchase of debentures in Mr. Asoke's name.
Mr. Asoke had transferred rs 1,50,000 to Mrs. Asoke in the year 2008 09 without any consideration, which she lent out to one Mr. X. Mrs. Asoke earned rs 60,000 as consolidated interest during earlier financial years, which was also given on loan to Mr. X. During the financial year 2011-12 Mrs. Asoke received interest 10% p.a. on the loan amounting to rs 2,10,000.
Mr. Asoke transferred rs 1,50,000 to a Trust. The income accruing from its investment amounted to rs 15,000, out of which rs 10,000 shall be utilised for the benefit of his elder son's wife and rs 5,000 for the benefit of his minor grandchildren.
Calculate Gross Taxable Income of Mr. Asoke and Mrs. Asoke for the
financial year 2011 12. 35

Mention the cases where valuation of house property for purpose of income tax shall be NIL. Also mention the exceptions to such rules. 15

Q4. KKC Limited is engaged in manufacturing and selling components of television sets. After drawing up Trial Balance and making necessary adjustments the following account heads are finalised for drawing up Profit and Loss Account for the year ended 31.03.2012
(rs in thousands)
Accountlleads Amount
Sales 26681
Cost of materials 14872
Salaries and Wages (factory) 480

Contribution to PF and Welfare Expenses

For workers 96
For office staff 218

Repairs and Maintenance

Office premises 5
Plant and Machinery 90
Provision for gratuities 26
Interest 6
Consumables 77
Printing and Stationeries 26
Travelling expenses 47
Import and Transportation Costs 1027
Power, Electricity and Oil 1361
Opening Stock 883
Closing Stock 2054

Depreciation
Plant and Machinery 901
Building and other office assets 60
Wastages 281
Packing materials 3868
Salaries and allowances 1125

Rent, Rates, Taxes and Insurance
For factory 100
For office 94
Advertisement and Publicity 39
Postage and Telephones 10
Bank charges 9
Miscellaneous expenses 92
Scrap sales 8
Rent received 12
Interest earned on investments 60
Profit on sale of assets 20
Miscellaneous receipts 39
Calculate the following with your comments:
Gross profit ratio
Operating profit ratio
Interest coverage ratio
30

"An auditor expresses an opinion on a company's fmancial statements taken as a whole, not on individual items on the statements." Explain the above statement with examples. 10

How should an auditor evaluate cost of gathering evidences for purpose of audit 10

SECTION B

5.Write short notes on the following in about 150 words each: 10x5=50
Risks associated with variation between loan maturities and liability maturities of commercial banks and minimisation of these risks without affecting profitability. 10
Distinction between Baumol's Cash-EOQ Model, Miller Orr Model and Stone Model pertaining to cash management of firms. 10
Checks and balances in Algorithmic Trading as provided by SEBI. 10
Information ratio as developed1ry-Treynor and Black. 10
Trade-off theory in capital structure decisions. 10

"Rapid financial innovations have led to the emergence of several new near substitutes for money." Discuss at least two such instruments and analyse their impact on the monetary policy of RBI. 15
"Asset-based reserve requirement of fmancial institutions as against deposit-based reserve requirement of banks can go a long way in preventing slippage in monetary policy transmission." Critically analyse the statement and discuss the mechanism and modalities of the two systems. 15
Classify various securities investment of commercial banks. Also mention how these are valued. Under what circumstances is migration of securities from one category to another allowed? 10
Define and distinguish between ROA and ROI. Decompose these two ratios into other ratios and interpret each of them. 10

Q7. What is a Credit Forward Contract 5
An investor thinks that the credit spread will widen to more than the current 250 basis points for an issue.
Assume the notional amount is rs 10 lakh and the risk factor is 5. What shall be the amount receivable/payable by the investor if credit spread on settlement date rises to 325 basis points or goes down to 190 basis points? 20
Explain 'Security Market Line' with illustration under the assumptions ofCAPM. 10
"An analysis of the performance of IPOs post-listing in the last three years shows that two-thirds of the public issues were trading below their listing price even after adjusting for the general decline in the market. This has resulted in investors losing money on their IPO investments."
Discuss the reasons behind such a state of affairs and critically analyse various steps taken by SEEI to remedy the situation. 15

Prof. James C. Van Horne, by way of example, used the following data to arrive at a Beta of 0·53.
<img src='./qimages/95-8a.jpg'>
Show the model and make detailed calculations to arrive at the Beta. 30
Interpret the Beta so arrived at. 5
What is Exchangeable Debt When and why <10 companIes Issue Exchangeable Debt What is the likely impact on the price of underlying assets when such an issue is made? 15