UPSC Mains 2018 Commerce & Accountancy Optional Paper I questions

27 questions from the Civil Services (Main) Examination 2018. Official UPSC paper (PDF) · All Commerce & Accountancy Optional PYQs

1. Explain the concept and nature of accounting standards. Why are these needed?

2. What are the costs used in managerial decision-making? Explain, in brief, their characteristics.

3. In what way does the liability of tax of a "not ordinarily resident" person differ from that of a "resident" person under the Income Tax Act?

4. Explain the major provisions of compulsory tax audit for claiming deduction under

5. Explain, in brief, the functions of cost accounting.

   10 marks

6. The following is the Balance Sheet of XYZ Ltd, as at 31st March 207, 20,000 Equity shares 20,00,000 Goodwill 25,000 of #I00 each Land & Buildings,50,000 Plant & Machinery 3,00,000 Outstanding Stock 2,70,000 debentures interest 20,000) Debtors 60,000 Cash at Bank 35,000 Creditors 3,00,000 Preliminary expenses 20,000 Profit & Loss A/c. 9,80,000 3 The following is the scheme of reconstruction: (i) Equity shares are reduced by ₹95 per share. They are, then, consolidated into 0,000 equity shares of $]0 each. (ii) Debenture holders agree to forego outstanding debenture interest. As a compensation, |2% debentures are converted into 4% debentures, the amount remaining *5,00,000. (iii) Creditors are given the option to either accept 50% of their claim in cash in full settlement or to convert their claim into equity shares of each. Creditors for #2,00,000 opt for shares in satisfaction of their claims. (iv) To make payment to creditors opting for cash payment and to augment working capital, the company issues 50,000 equity shares ]0 cach at par, the entire amount being payable along with applications. The issue was fully subscribed, (v) Land and Buildings are revalued at ¥2,00,000 whereas plant and machinery ts to be written down to #2,0,000. A provision amounting to #5,000 is to be made for doubtful debts. Pass necessary journal entries and prepare the company's balance sheet immediately after the reconstruction.

   20 marks

7. The product of a company passes through three distinct processes to completion., From past experience, it is ascertained that the normal wastage in each process ts as under + Wastage Sale value of wastage A 2% 25 paise per unit B 4% 50 paise per unit Cc 25% 60 pase per unit The expenses were as follows: = Process A Process B Process C Materials 12,000 L0,000 9,000 Direct labour L6,000 §,000 4.900 Manufacturing expenses 2,000 3,400 3,590 Other factory expenses 3,500 2,003 2,004 4,000 units were initially introduced in process A at a cost of %3,560. The output of each process was as under: A 3,850 units B 3,600 units Cc 3,500 units Prepare process accounts and also work out the sale price per unit of finished stock so as to realize 20% profit on selling price.

8. What are the provisions of inclusion of the income of a minor child and the wife of an assessce in his total income?

   5 marks

9. Compute the taxable income of X (40 years) for the assessment year 20] 8-9, ¥ Net income from trading business §,00,000 Long-term capital gain on transfer of debentures (if computed without indexation) 600,000 Long-term capital gain on transfer of listed debentures (computed after indexation) (X wants to pay tax at the rate of 20% of $2,50,000 and not at the rate of 0% of *6,00,000) 250,000 Share of income from HUF in which he is a member 82,000 Winning from horse races (net of TDS of 30 per cent) 70,000 Interest on bank fixed deposits: — Deposit in his own name L,. 7,000 — In the name of minor son,450 — In the name of minor daughter 8.000 — In the name of major unmarried daughter 70,000 Expenditure incurred for medical treatment of his 67 years old elder brother (dependent of X, being a person with disability) 8,000 Repayment of loan taken for part-time studies of major daughter for graduate course in management (loan is taken from a notified charitable institute) 690,000 Payment of interest from the aforesaid loan 76,000 Donation to the aforesaid notified charitable institute 5,000 Brought forward loss of a discontinued business pertaining to the assessment year 20]4-I5 26,000 Purchase of a work of art on Novermber 20/7 from a friend for (market value is, however, I,/5,000 Deposit in Public Provident Fund account and purchase of State TX issue,63,000

   25 marks

10. State the points to be considered while determining divisible profits in case of a company. What are the auditor's duties in regard to payment of dividends by a company '?

11. Explain, in brief, the main provisions of Indian Accounting Standards regarding cash flow statement.

12. "The audit of banks is the audit of balance sheet and advances." Explain. Distinguish between performing and non-performing assets.

13. "Standard costing is universally accepted as an effective instrument for controlling costs in industries." In the light of this statement, explain the objectives of standard costing.

14. Critically examine the relationship between the key financial decisions, return, risk and market value.

15. "ABC Analysis, FSN Analysis and Inventory Turnover Ratio are the most commonly used tools of inventory management." Explain each tool in bnef and state the reasons for their popularity.

16. Discuss the following ways of incorporating risk in the investment decision making process: The Risk-Adjusted Discount Method and The Certainty Equivalent Method, IO

17. "Financial markets can be classified based on types of financial claims, maturity of claims, claims representing new issues or outstanding issues, timing of delivery and nature of its organisation structure." Summiarise the classification m brief.

18. Explain the rating methodology used by CRISIL in debt rating. What symbols are used by CRISIL for determining the risk level of a debt instrument?

    10 marks

19. ABC Ltd. is considering the following credit policy alternatives: Existing Option Option Particulars Policy sar (A) Credit Sales (% in lakhs) L000) O60) 2-(M) (B) Credit Period (days) 30 45 60 (C) Bad Debt (% of sales) 5 4 6 (D) Cost of Credit Administration (¥ in lakhs) 0-40 0:25. 0-50 (E) Average Collection Period (days) 45 50) 70 The company expects to achieve a contribution of 40% on sales. It has the required rate of return on investment of 20% p.a. Assume 365 days in a year. You are required to suggest which credit period option is more suitable to the company.

    20 marks

20. The following information is available for KRISHIV Corporation: — Earning per share: 4-00 — Rate of return on investments: 36 per cent — Rate of retum required by shareholders +: per cent What will be the price per share as per the Walter Model if the payout ratio iS 40 per cent? 50 per cent? 60 per cent?

    15 marks

21. "The Weighted Average Cost of Capital (WACC) of a firm, depends on many factors: which are beyond the control on the investment and financing policies of 8 firm." Explain in brief.

22. Namya Ltd. wants to prepare the feasibility of manufacturing one of the components needed for its finished product. It has two options of purchasing from its present supplier or to manufacture it in-house. lis present supplier has shown the willingness to provide at [25 per unit for the company's requirement of 6000 units per year. If the component is manufactured in-house, it requires equipments costing ||) lakh and is expected to have salvage value of %2 lakh after the expiry of five years. Additional fixed cost (excluding depreciation) are estimated to increase by lakh per year. The variable cost of manufacturing each component will be 30 per unit. The company is subject to a 35 per cent tax rate. Its cost of capital is |5 per cent for this project. The company's projected annual needs is at 7500 units per year for 5 years. The tax relevant rate of depreciation is 25 per cent based on WDV method. Advise the company, whether it should continue buying from outside supplicr or start its own manufacturing. Will your answer be different if the requirement of the company is only 6000 units per year 7? Year = 2 3 4 5 The present value of 0-870 0-658 0-572 0497

23. Mayur Manufacturing Ltd. has equity share capital of &5,00,000 (face value ₹]0]), To meet the requirement of expansion plan, the company wishes to raise =3,00,000. The company is considering the following four alternative sources to raise the funds; Plan A: To have full money ftom the equity shares. Plan B: Toraise lakh from equity and #2 lakhs by borrowing from financial institution @ rate of interest per annum, Plan C: 'To raise full money of #3 lakhs from bank at |0% rate of interest per annum. Plan D: # lakh in equity and #2 lakhs issue of preference shares at 8% per annum dividend,: The company is expected to have earnings of ¥,50,000 after the expansion programme. The tax rate applicable to company is 35%. Suggest the suitable aa

24. Define and evaluate the following ratios used for analysis of financial statements:. (i) Acid-test ratio (ii) Interest coverage ratio (iil) Average collection period (iv) Return on capital employed (v) Price — earning ratio

    15 marks

25. What are the different bases for establishing the exchange ratio in case of a merger? How the boundaries for exchange rate is determined from the view point of acquiring, acquired and combined firm?

26. Discuss the state of the venture capital industry in India.

    15 marks

27. State the assumptions made in Modigliani and Miller Proposition-I that the capital structure is independent of capital mix. Explain with an example that how arbitrage process justifies the theory, using the following data. Shyam Ltd. and Ram Ltd. belong to same risk class. Ram Ltd. has no debt capital. Shyam Ltd. has both debt and equity capital. Other details are as under: Net Operating Income (®) 10,00,000 10,00,000 Debt Interest (¥ )