IAS Mains Commerce Papers 1980

IAS Mains Commerce 1980

Paper I

Part I

  1. The following figures were worked out at the close of the Accounting Year 1979 − 80, in respect of three limited companies, Alpha, Beta and Gamma, which are of comparable size and in the same line of business. Make a comparative analysis of their performance and policies as revealed by these figures: Alpha Ltd. Beta Ltd. Gamma Ltd.

    1. Ratio of Net Block to Net Worth 1.08 0.85 0.92

    2. Ratio of Current Assets to Current Liabilities 0.95 1.35 1.04

    3. Ratio of Quick Assets to Current Liabilities 0.75 0.68 0.22

    4. Percentage of Gross Profit to Sales 20 15 12

    5. Percentage of Net Profit to Sales 8 6 3

    6. Ratio of Net Sales to Capital 1.50 2.50 3.50

    7. Dividend as Percentage of Profits Earned 40 25 50

  2. The value of the firm can be increased or the cost of capital can be reduced by the judicious mix of debt and equity capital. Discuss this statement giving appropriate imaginary illustrations.

  3. Explain the DCF technique of Capital Budgeting and its superiority over Pay-Back Method.

  4. Analyse the important features of the Indian Income-tax Act, which aim at controlling the direction, volume and timing of the demand for investment so as to induce goal-directed behaviour vis-a-vis Governments economic policy objectives.

  5. How may optimum level of working cash balance be determined How does uncertainty affect this problem

Part II

  1. Discuss the significance of Bill Market from the point of view of Reserve Banks control, the lending banker, the borrower and other institutions. Bring out the problems of enlarging the use of Bills of Exchange for providing credit and appraise the Rediscounting Scheme introduced by the Reserve Bank of India in 1970.

  2. The two basic functions of the Capital Market are the allocation of a periods current saving among users and uses and the facilitation of the transfer of existing assets among individual economic units, groups of them, sectors and countries. Elucidate this statement and in the light of this examine the position of the Indian Capital Market.

  3. Critically examine the liquidity and lending policy of the Reserve Bank of India since 1975.

  4. Chart out what you think would be the most appropriate organisational structure for a nationailsed bank in India and elaborate its levels of organisation, the pattern of departmentalisation and the linestaff authority relationship.

Part III

  1. According is essentially a process not of valuation but of allocation of historical costs to current and succeeding periods. Discuss this statement and bring out its implications with respect to accounting estimates of profit in periods of rapid price fluctuations.

  2. In the light of the provisions of the Companies Act, 1956 and the leading cases, examine the status of an auditor as an agent of the shareholders and as an officer of the Company.

  3. From the following Income Statement of a merchant for the year 1978 − 79, Compute his taxable income from business and provide the necessary explanations: Income Statement Jar the Year Ending 31st March, 1979

    • Rs. Rs.
    • Establishment 86, 000 Gross Profit 1, 85, 000
    • Rent, Rates and Taxes 2, 500 Dividend Received:
    • Advertising Expenses 1, 800 District Cooperative
    • Bad Debts 6, 000 Bank Ltd. 10, 000
    • Unit Trust
    • Add New of India 5, 000 15, 000
    • Reserve 10, 000 Interest on Bank 16, 000 Deposits 4, 000
    • Less Old Interest on Government
    • Reserve 8.000 8, 000 Securities 11, 000
    • Charities and Rent from House
    • Donations 2, 500 Property 5, 000
    • Insurance:
    • Life Insurance including premium of Rs. 2, 500 on a marriage policy 5, 600
    • Fire Insurance 1, 050 6, 650
    • Interest: On Loan 3, 000 on Capital 6, 000 9, 000
    • Discounts 1, 800
    • Audit Fee 750
    • Miscellaneous Expenses 4, 600
    • Reserve for Sates Tax 7, 200
    • Reserve for Income Tax 20, 000
    • Legal Expenses 450
    • Depreciation (Admissible under Income-tax Act) 15, 800
    • Net Profit 52, 950 220, 000 220, 000
  4. The following are the Balance Sheets of Deena Co. Ltd. and its subsidiary Cheena Co Ltd. As on 30th June, 1980 (in 000 rupees).

    • Demo Cheerio Deena Cheena
    • Co. Ltd. Co. Ltd. Co. Ltd. Co. Ltd.
    • Capital 1, 00, 00 30, 00 Goodwill 20, 00 4, 40
    • General Land and Building 24, 00 10, 00
    • Reserve 24, 00 5, 00 Plant and Machinery 52, 00 19, 00
    • Profit and Investments 28, 80
    • Loss A/c 12, 90 4, 40 Stocks 14, 00 5, 00
    • Bills Payable 1, 50. Debtors 24, 00 5, 60
    • Sundry Bills Receivable. 1, 00
    • Creditors 3, 50 8, 00 Case and Bank
    • Balances 9, 10 2, 40
    • Rs. 1, 71, 90 47, 40 Rs. 1, 71, 90 47, 40

    The following information is available:

    1. The share Capital of Deena Co. Ltd. Consists of 29, 000 6% Preference Shares of Rs. 100 each and 800, 000. Ordinary Shares of Rs. 100 each, all fully paid up. Capital of Cheena Co. Ltd. Consists of 300, 000 Ordinary Shares of Rs. 10 each, fully paid up:

    2. The Profit and Loss Account balance has been arrived at as follows:

      • Deena Co. Ltd Cheena Co. Ltd.
      • Rs. Rs.
      • Balance as on July 1, 1979 1, 60, 000 1, 20, 000
      • Profit during 1979 − 80 (after transfer to General Reserve and adjustment for dividend declared) 9, 50, 000 3, 20, 000 11, 10, 000 4, 40, 000
      • Add Dividend from
      • Cheena Co. Ltd. 2, 40, 000____13, 0, 000 4, 40, 000
      • Less: Interim Dividend on Preference Shares 60, 000____12, 90, 006 4, 40, 000
    3. General Reserve of Cheena Co. Ltd. On 1st July, 1979 stood at Rs. 4, 00, 000.

    4. Remittance of Rs. 50, 000 by Cheena Co. Ltd. In payment of a loan from Deena Co. Ltd. Has not yet been received by the latter Company though the same has been taken into account by Cheena Co. Ltd.

    5. Deena Cos investments comprise 240, 000 shares of Cheena Co. Ltd. Acquired on 1st October, 1979.

    6. On revalution, Cheena Cos Land and Building is found to be worth Rs. 11, 60, 000 and Plant and Machinery worth Rs. 20, 40, 000.

    7. Goods costing Rs. 4, 41, 600 received from Cheena Co. Ltd. Were included in its Stock by Deena Co. Ltd. At Rs. 4, 80, 000.

    8. Deena Cos Debtors include Loan to Cheena Co. Ltd. Rs. 60, 000 and Dividend due from Cheena Co. Ltd. Rs. 2, 40, 000. Cheena Cos Bills Receivables were the bills drawn on and accepted by Deena Co. Ltd. Bills for another Rs. 50, 000 had been accepted by. Deena Co. Ltd. Which Cheena Co. Ltd. Got discounted at the Bank. These had, however, not yet matured. Prepare a Consolidated Balance Sheet of Deena Co. Ltd. And its subsidiary Cheena Co. Ltd. As on 30th June, 1980, after taking into account the above information and show detailed working with respect to Capital Profit and Current Profit.

Paper II

  1. In spite of the fact that many good persons are prepared to give up their goodness in a bid to survive, there is a strong undercurrent in many organisations prompting bad persons to drive the good ones out. Discuss this statement and put forward your own views with regard to the control of personnel turnover. Or As an organisation becomes bigger and more complex, the distinction between members and employees tends to assume greater prominence, until, through some sort of workers control or participative management, this distinction gets blurred. Discuss this statement and show how corporate objectives and social responsibility of business units may be harmonised.

Section A

  1. What are the factors governing the optimal size of industrial units Explain and illustrate.

  2. Define span of supervision and comment on the significant phenomena influencing the same.

  3. Briefly examine the principal types of communication and their relevance to modern management.

  4. In case of public enterprises, the general rule that every tub must stand on its own water is excessively conservative. Critically examine this statement and suggest an ideal pricing policy for public enterprises in India.

Section B

  1. The following information is furnished to you with regard to a manufacturing concern for the year 1979 − 80.

    • Rs.
    • Direct Materials 1, 75, 000
    • Direct Labour 50, 000
    • Fixed Overheads 55, 000
    • Semi-Variable Overheads 70, 000
    • Variable Overheads 65, 000
    • Sales (at Rs. 800 per unit) 4, 00, 000

    It was estimated that, at the existing level of capacity utilisation (1979 − 80), half the Semi-variable

    Overheads were in the nature of Fixed Overheads, whereas Variable Overheads accounted for the other half.

    You are required to make necessary calculations to answer the following queries

    1. At what level of output is the break-even point likely to be reached during the year 1980 − 81 if there is no change in the price level

    2. What price per unit should be quoted in respect of a tender to be executed during 1981 − 82 if fixed costs are likely to go up by 10% variable costs by 20%, and a 12% profit margin is sought to be attained on the total cost

  2. A firm operating at 65% capacity puts forward the following details with regard to various types of expenses:

    • Semi-Variable Expenses Rs.
    • Selling Expenses 1, 56, 000
    • Indirect Labour 2, 40, 000
    • Maintenance and Repairs 1, 50, 000
    • Sundry Overheads 78, 000
    • Variable Expenses
    • Material 11, 70, 000
    • Labour 15, 60, 000
    • Other Expenses 2, 34, 000
    • Fixed Expenses
    • Rent and Rates 3, 60, 000
    • Salaries 4, 80, 000
    • Depreciation 2, 00, 000 46, 28, 000
    1. You are required to prepare a Flexible Budget at 75%. 90%, and 105% capacity if the sales are estimated at Rs. 45 lakhs, Rs. 63 lakhs and Rs. 84 lakhs respectively. Fixed expenses remain fixed up to 100% capacity operation, rising thereafter by 25%. Semi-variable Expenses are constant between 60% and 80% capacity, increasing by 10% between 80% and 100% capacity and by 20% thereafter.

    2. After preparing the Flexible Budget, comment in about 100 words, on the most favourable alternative as between the given operating capacities.

  3. What do you mean by engineered costs and managed costs Indicate, with the help of suitable examples, their relevance for managerial decisions.

  4. Write short notes on any three of the following

    1. Material Usage Variance

    2. Calendar Variance

    3. Control of Product Cost

    4. Financial Control

    5. Responsibility Accounting