CS Executive June 2025 Question Paper Corporate Accounting and Financial Management

FOR CS EXECUTIVE EXAM PREPARATION

CS Executive 2025
Question Paper ·
Corporate Accounting
and Financial
Management
EXAM YEAR TYPE

CS Executive 2025 Question Paper
SUBJECT DATE

Corporate Accounting and Financial Management June 2025

Notes · Sample Papers · Previous Year Papers · Mock Tests

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NEW SYLLABUS
524
Roll No. ..................................... : 1 :

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Time allowed : 3 hours Maximum marks : 100

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Total number of questions
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Total number of printed pages : 11
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NOTE : Answer ALL Questions.

PART–I

1. Aashna is a Mechanical Engineer from a premier institute based in Kolkata. After working

for a decade in the engineering industry, Aashna completes a management development programme

from a top-grade Business School. Subsequently, Aashna along with her three colleagues sets
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up a venture capital fund - GKJ & Co. The aim is to invest in companies that manufacture

e m the Government to manufacture in India to meet
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import substitutes. There is an impetus from
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domestic demand and for the world

manufacturing industry is likely to grow at an above average rate..

GKJ & Co. has raised an initial amount of ` 80 crore from investors and is scouting for

initial deployment opportunities. One such opportunity is investments in Royden & Co. Royden

& Co. is a manufacturer of equipment and tools which are used in dental clinics. This equipment

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.year end is given
is essentially an import substitute and has potential to be exported as well.

c. o The Balance Sheet of Royden & Co. as on the recent financial
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las below :
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(` Lakhs) (` Lakhs)

Share Premium

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The following additional details are hereunder :

(i) Plant costing ` 320 lakhs (accumulated depreciation ` 296 lakhs) was sold during

the year for ` 24 lakhs

(ii) Building was acquired during the year at cost of ` 420 lakhs. In addition to cash

payment of ` 20 lakhs mortgage of ` 400 lakhs was raised for balance.

(iii) Dividend of ` 160 lakhs was paid during the year.

(iv) A sum of ` 278 lakhs was transferred to Provision for tax account.
Royden & Co. wants to setup a plant to manufacture advanced dentistry equipment. The
said equipment is imported from USA. The Indian Government is giving benefits in terms
of tax holidays for such types of business. It is estimated that turnover of ` 800 lakhs
could be generated at a profit in the first year of operations. The new business setup requires

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a significant investment. Royden & Co. have reached out to GKJ & Co. for the first round

investing. Royden o&mCo. is requested to prepare profitability projections under different scenarios. .
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of funding. GKJ & Co. has requested Royden & Co. for some further information before

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The scenarios are

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(a) a
Prepare cash flow statement (indirect method) of Royden & Co. for the current financial
year with the available details.
(b) Calculate Return on Equity and Return on Assets of Royden & Co.
(c) Calculate profit under different scenarios.
(7+3+5=15 marks)

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2. (a) Oreon Ltd. grants 10,000 employee stock options on 1.4.2021 at ` 400. The market
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price of the share is ` 1,600. The vesting period is 2.5 years and the maximum exercise

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period is one year.
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• 3,000 unvested options lapses on 1.5.2023.

a • 6,000 options are exercised on 30.6.2024.
• 1,000 vested options lapses at end of exercise period.
Pass journal entries and show necessary working notes.
(7 marks)
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(b) Divya Ltd. purchased machinery worth ` 1,20,000 and building worth ` 2,00,000
from Tara Ltd. for consideration other than cash at an agreed purchase consideration
of ` 3,00,000 to be satisfied by the issue of 3,000, 12% debentures of ` 100
each.
Show the necessary journal entries in the books of Divya Ltd.
(3 marks)

(c) Shiv Shakti Ltd. issued 20,000, 13%, Convertible Debentures of ` 100 each on
1st April, 2024. The debentures are due for redemption on 1st July, 2024. The terms
of issue of debentures provided that they were redeemable at a premium of 5%
and also conferred an option to the debentureholders to convert 20% of their holding
into equity shares having a nominal value of ` 10 per share at a price of ` 15
per share. Debentureholders holding 2,500 debentures did not exercise the option.

Calculate the number of equity shares to be allotted to the Debentureholders exercising
the option to the maximum.

(5 marks)

3. (a) The summarised Balance Sheets of H Ltd. and S Ltd. as on 31st March, 2025
is given below :

`

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S Ltd. had reserves of ` 1,80,000 when H Ltd. acquired shares in S Ltd. The

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P & L balance of S Ltd. was fully earned after the acquisition of shares by H

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Ltd. S Ltd. decided to issue bonus shares out of post-acquisition profit in the ratio
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Calculate the cost of control before and after issue of bonus shares.

(5 marks)

(b) Sangam Ltd. came up with public issue of 3,00,000 Equity Shares of ` 10 each

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at ` 15 per share. P, Q and R took underwriting of the issue in the ratio of

e mfirm underwriting of 20,000, 14,000 and 10,000
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3 : 2 : 1 with the provisions of
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shares respectively.
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Applications were received for 2,40,000 shares excluding firm underwriting.

The number of applications from public were received as under :

P – 60,000
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Q – 50,000

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ag Compute the liability of each underwriter as regards the number of shares to be taken

up assuming that the benefit of firm underwriting is not given to individual underwriters.

(5 marks)
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(c) Calculate Trade Receivables turnover ratio and average collection period from the
following information :

`

`
`

Assume 365 days in the year for calculation of average collection period.

(5 marks)
Attempt all parts of either Q. No. 4 or Q. No. 4A

4 (a) A new process for development of Active Pharmaceutical ingredients (APIs) is developed
by Prof. Shastri. The process is subsequently patented. The APIs are used to manufacture
medicines for cure of cardiac diseases. The patent is bought by a pharmaceutical
company Ratna & Co. The patent was bought for a consideration of ` 45,00,00,000.
The deal involves payment of ` 15,00,00,000 to Prof. Shastri and allotment of shares
of ` 10 each at a discount of ` 2 per share for balance consideration of
` 30,00,00,000.
Prepare necessary journal entries in the books of Ratna & Co.
(5 marks)
(b) The following data is given for two similar companies :

(i) Calculate Return on Equity for A Ltd. and B Ltd.
(ii) Which company has higher Return on Equity ?
(iii) What is the reason for higher return on equity ?
(3+1+1=5 marks)
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(c) Calculate material consumed in production and payment for the inventory from the

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given figures. Assume entire purchase is on credit basis :
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(5 marks)
OR (Alternate question to Q. No. 4)

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m Account in buyback of shares".
4A. (i) Financial Forecasting is the start of budgeting process. Elucidate.

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(ii) Write a short note on "Role of Escrow

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(iii) What is the significance of debt service coverage ratio ?
(5 marks each)
PART–II
5. Vishal is a Mechanical Engineer with over three decades of experience. After completion
of his graduation, he has worked in the global oil and gas industry for various companies
as an employee. Given his vast experience in the energy sector; Vishal is often invited to
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various conferences on the oil and gas industry. One such conference was on ‘‘Areas of
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c. o opportunities common to all include the India growth story’’ given stheemdemographic dividend
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and energy independence.

ag Vishal recognizes the huge potential of the oil and gas sector in India and sets up an engineering
and construction company M/s. Mid-Stream & Co., based in Kolkata.
The first bid for the project is a gas pipeline for a Government Company. The initial outlay
for the project is ` 5,75,00,000.
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The duration of the project is five years. The expected cash inflows from the project are
given below :
`

The acceptable rate of return for M/s. Mid-Stream & Co. is 15%.
Anuja, CFO of M/s. Mid-Stream & Co. recommends a risk premium of 3% over and
above the acceptable rate of 15% given the risky nature of the project.
Vishal estimates duration to recover the initial cost of the project. Anuja mentions that it
would be prudent to use discounted cash flows for such calculations. A risk management
perspective also would involve a more conservative approach in terms of Cash Flow estimation.
Anuja mentions that the firm needs to make more conservative estimates of cash flow using
the Certainty Equivalent technique with a discount rate of 15% to be used.
Cash Flows from Government project with Certainty Coefficients :
`

Calculate :
(i) NPV of gas pipeline bid for the Government Company. Give your recommendation
regarding acceptability of the project.
(7 marks)

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(ii) Payback period, post payback profitability index and discounted payback period.

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(iii)
.co Government project, after application of Certainty Coefficients. sem
NPV of the

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a Value Factors are given below :
Present

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Attempt all parts of either Q. No. 6 or Q. No. 6A

Win Some Ltd. is contemplatingmissue of shares for an expansion project :
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6. (a)

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Assuming that Modigliani Miller’s approach (theory of irrelevance of dividend to market

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value) is followed, you are required to calculate :

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(i) Total number of shares at the end of FY.

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(ii) The market value of the shares at the end of FY.

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(3+2=5 marks)

ag (b) A new project requires outlay of ` 800 lakhs. The amount maybe raised through
issue of equity shares of ` 400 each or by issuing equity shares of value ` 600
lakhs and loan of ` 200 lakhs at 14% interest.
Assuming income tax rate at 25%, calculate EBIT levels that would keep equity investors
indifferent to the two options.
(5 marks)
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(c) Rita wants to invest her savings in certain annuity plans. Amount to be invested is

` 2,00,000 per annum for next five years. The investment is expected to compound

at 10% p.a. Calculate future value :

(i) Assuming investments are made at the end of year.

(ii) Assuming investments are made at the beginning of year.

(2+3=5 marks)

(d) Sun Star Ltd. is a listed company whose share prices for last 14 trading session

are given below. Calculate Relative Strength Index :

(`)

(5 marks)

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OR (Alternate to Q. No. 6)

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6A. (i) Write a short note on common size financial statements.

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e can financial leverage lead to an improvement in EPS ? l a
(ii) What is the rationale of stable dividend policy ?

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(iii) How
a What are the safety stocks in terms of working capital management ?
(iv)

(5 marks each)
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