UPSC Mains 2025 Commerce & Accountancy Optional Paper I questions

31 questions from the Civil Services (Main) Examination 2025. Official UPSC paper (PDF) · All Commerce & Accountancy Optional PYQs

1. Answer each of the following questions in about 750 words

2. Discuss the key points that an Auditor would take into consideration while auditing the books of accounts of an insurance company.

3. What role does accounting play in a financial information system? What type of information can be derived from it?

4. What is Cost Accounting? What are its objectives? How does it differ from Financial Accounting?.

5. Discuss the various variances in standard costing system. How are the material, labour and overhead variances different from one another?

6. Distinguish between VAT and Service Tax. How do they apply to goods and services, and what are the administrative challenges in these taxes?

7. [ P.T.O. ( From the following Trial Balance and other additional information furnished by AGN Ltd., prepare the Balance Sheet as at 31st March, 2025 as required by Schedule-III Division-I of the Companies Act, 2013 and show the Notes to Accounts below the Balance Sheet: Trial Balance Particulars Credit (₹) (₹) Equity Capital (Face Value of 00) 20,00,000 Calls-in-Arrears 2,000 General Reserve 4,60,000 Loan from SBI (Long-term) 3,00,000 Land 4,00,000 Building 8,00,000 Plant & Machinery,00,000, Furniture,20,000 Raw Materials,00,000 Finished Goods 4,00,000 Trade Receivables 3,80,000 Advances (Short-term) 90,000 Provision for Taxation,38,000 Dividend Payable,20,000 Profit & Loss A/c,80,000 Loans (Unsecured) 2,590,000 Trade Payables 4,00,000 Cash at Bank 3,86,000 Cash in Hand 70,000 38,48,000 Additional Information:, (i) 6000 Equity Shares were issued for consideration other than cash (ii) Loan from SBI includes € 8,000 for interest accrued but not due. The loan is secured by hypothecation of building (iti) The cost of assets: Building 9,60,000 Plant & Machinery 4,00,000 Furniture,80,000 (iv) Trade Receivables of £,80,000 are due for 8 months 0+l0=20 oh

8. It is observed that at a monthly sale of €,20,000, a firm suffers an operating loss of © 30,000. The management apprehends that any increase in sale will further rise the loss. However, the Accountant of the firm analyzed the situation based on cost, volume and profit, and showed that the firm may earn € 30,000 operating profit by doubling the sale. Based on the above information, you are required to measure— 9 P/V ratio; (ii) monthly fixed costs; (iii) BEP; MOS for profit of * 40,000; (v) profit for monthly sale of €3,00,000.

   5 marks

9. Explain in brief the principles of inventory valuation based on AS

10. Describe in brief the permissible methods of depreciation based on the relevant Accounting Standard.

    5 marks

11. Explain in brief the deductions that are expressly allowed in computing the income from business under the Income-tax Act, 96l.

    5 marks

12. Harish sold jewellery on 15th June, 2023 for €0,0,000 (cost of jewellery to Harish on 25th May, 2002 was 94,500 and brokerage paid on the sale of jewellery was 0,000). On 5th December, 2023, he purchased a residential house for €5,00,000. On 15th June, 2023, he did not own any residential house. The cost inflation index for 2002-03 was 05 and for 2023-24, it was 348. Compute the amount of capital gains chargeable to tax for the Assessment Year 2024-25. () Assuming that Harish sells the new residential house before 5th December, 2026, what will be the taxable capital gains and for which year? (i) Assuming that Harish purchases any other residential house before 15th June, 2025 or constructs any other residential house before 5th June, 2026, what will be the taxable capital gains and for which year?

    5 marks

13. Sky Ltd. invited application for issuing 200000 Equity Shares of € 0 each at a premium of €2 per share, payable as follows: £6 per share (including premium) on application and allotment Balance on the first and final call Applications for 600000 Equity Shares were received. Applications for 300000 shares were rejected and money refunded. Shares were allotted on pro rata basis to the remaining applicants. The first and final call was made and all the amount was received except on 2000 shares, which were forfeited and reissued at ©7 per share. Pass necessary Journal Entries in the books of Sky Ltd.

    20 marks

14. State the duties of an Auditor with regard to payment of dividend. Discuss the audit procedure to be followed by the Auditor in respect of checking of payment of dividend.

    5 marks

15. Discuss the important points that an Investigator must consider in the beginning and during the conduct of an Investigation. How should an investigator draft his report?

    5 marks

16. A by-product 'Beta' is derived in the course of manufacturing a product 'Alpha'. The by-product is further processed for sale. From the following data available from the records, prepare an account showing the cost per kg of product 'Alpha' and the by-product 'Beta'. The quantities produced during the period under consideration were—'Alpha' 00 kg and 'Beta' 50 kg. The selling price of 'Beta' was ©20 per kg on which the profit earned was estimated at 30%: 4 Separate Expenses Joint Expenses (=) Alpha Beta (₹) (₹) Materials 0,000 6,000 500 Labour 7,000 5,000 2,000 Overheads 2,500,500 600 20 each 7

17. Answer each of the following questions in about 750 words

18. Explain the concept of optimal capital structure. How does a company decide on the right mix of debt and equity?

19. Write about Miller and Orr model of cash management.

20. Differentiate between capital market and money market in the context of Indian financial system.

21. Explain the concept of dividend policy. Discuss the various types of dividend policies followed by the companies.

22. Explain the concept of financial services. Discuss the concept of credit rating and its growing importance in Indian financial services.

23. Define and explain the concept of merger, takeover and amalgamation. What leads to the failure of a merger or an acquisition? How should a company ensure that merger or acquisition is successful?

    20 marks

24. Rainbow Ltd. provides the following data for the year 2023-24: Sales—T 80 lakh Variable Cost—™ 56 lakh Fixed Operating Cost—%8 lakh Fixed Finance Cost—t 4 lakh Effective Tax Rate—25% EPS—T&9 () Compute the Degree of Operating Leverage (DOL), Degree of Financial Leverage (DFL) and Degree of Combined Leverage (DCL) for the company and interpret the results. (ti) If the company can increase its sales by 20%, by what amount will EPS change? Give your answer on the basis of your results obtained in (i).

    5 marks

25. A company provides the following information related to the capital structure planning: Leverage is measured as Debt/(Debt + Equity) At 20% leverage, cost of equity (K,) is measured at 8% () What will be the K, at 40% leverage, if Net Income (NI) model is followed? (i) If Net Operating Income (NOI) model is followed while overall cost of capital (K,) is 6%, what will be the K, at 40% leverage? Assume cost of debt capital (K,) to remain constant.

26. As a Financial Manager of an engineering company, you are required to compute the weighted average cost of capital of the company using () Book- value weights and (2) Market-value weights. The company's present capital structure is: t Equity Shares (€0 per share) 30,00,000 0% Preference Shares (€00 per share) 4,00,000 2% Debentures (© 00 per debenture) 4,00,000 48,00,000 All these securities are traded in the securities market. Their recent prices are: Debentures—% 0 per debenture Preference Shares—t 5 per share Equity Shares—t 40 per share Anticipated external financing opportunities are: (i) New ©00 Debentures can be sold at par at 9% coupon rate, reedeemable at 0% premium after 5 years. Flotation cost would be 2% (ii) New ©00 Preference Shares carrying 8% dividend can be sold at par, redeemable at premium of 5% after 0 years. Flotation cost would be €3 per share (tii) New © 0 Equity Shares can be sold at € 35. Flotation cost would be 2% of issue price. Expected dividend on Equity Shares is 20%. Anticipated growth rate in dividend is 8%. Corporate tax rate is 40%

    20 marks

27. Discuss the present state of Indian capital market. Illustrate the role of SEBI in regulating the markets in the changing international investment scenario.

    20 marks

28. How is Economic Order Quantity (EOQ) determined? How does quantity discount affect the EOQ?

29. Explain the structure of Indian financial system. Discuss the emerging role of RBI in the changing global scenario in this 21st century.

    5 marks

30. [ E:T... ( A plant with a life of 3 years has the following projected cash flows: Year Cash Flows (₹) 0 (-) 20,00,000 8,00,000 2 8,00,000 3 9,00,000 There is no residual value at the end of the life of the plant. Calculate the— (i) Internal Rate of Return (IRR); (ii) discounted payback period. Applicable discounting rate is 0% p.a. Present values of € at the discounting rate of 10% and 2% are given below for 3 years: Year: 0 ] 2 3 PV at 0% i ] 0-909 0-826 PV at 2% i 0:892 0:797 0-72

    20 marks

31. Discuss the role of insurance industry and IRDA in the economic development of the country.