CS Executive June 2024 Question Paper Corporate Accounting and Financial Management

FOR CS EXECUTIVE EXAM PREPARATION

CS Executive 2024
Question Paper ·
Corporate Accounting
and Financial
Management
EXAM YEAR TYPE

CS Executive 2024 Question Paper
SUBJECT DATE

Corporate Accounting and Financial Management June 2024

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 : 6 Total number of printed pages : 16
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a Answer

PART–I

1. Prabhuji is a first-generation entrepreneur engaged in the bakery business. Prabhuji is the

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proprietor of B & Sons – a Mumbai based concern manufacturing bakery products,

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confectioneries and sweets. The products are manufactured and sold in wholesale to retailers

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under a brand name ‘‘Bread & More’’.
a Products

ag the year 2020 – the next generation of Prabhuji’s family
then sell the final customer. Since

started participating in the business. The new generation is technologically aware and suggested

direct sales to customers through omni channel (online sales). The bakery brand was only

known locally. However, due to sales online and due to the good quality of the products

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– the bakery product’s started gaining traction nationally. Demand for the products increased.

c. o As a result, there was a need to increase manufacturing capacity.sem
em a Vehicle for the new
The new members in

s the business suggested borrowing or setting up a Special g l
gla a Purpose

a manufacturing unit. Private Equity players can then invest in the Special Purpose Vehicle.

Prabhuji is a conservative businessman. While not being average to expansion – Prabhuji

suggests minimizing the need for external finance while relying more on internal accruals.

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Following are some financial details :

Particulars Amount (`)

Inventory at 1st April 2022 1,00,000

Inventory at 31st March, 2023 2,00,000

Revenues 25,00,000

Credit Sales 80% of sales

Purchases 9,50,000

Wages 7,00,000

Carriage inwards 1,50,000

Receivables 1st April, 2022 2,50,000

Receivables 31st March, 2023 3,00,000

Total assets 24,00,000

Admin. Expenses 2,50,000

Depreciation 2,00,000

Finance charges 50,000

Total debt 4,00,000

Total equity 20,00,000

Tax 30%

Jimsha is a financial expert and consultant and is a school friend of Prabhuji. One of the

key questions was on improvement in cash flows. Jimsha made a suggestion regarding study

of working capital management. A number of firms ignore funds blocked in working capital.

Prabhuji was also concerned about the return on funds invested in business as capital. Jimsha

advised Prabhuji to use Du Pont Analysis to check whether funds are used efficiently.

1/2024/CAFM/NS Contd. ........

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Prabhuji mentions the increase in demand and possible need to increase capacity. There are

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various options available to meet the demand.
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e the production capacity by incurring certain capital expenditure.
Outsource the production to third party.
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• Expand

There are concerns around manufacturing quality if production is outsourced. The cost of
the additional capacity is likely to be substantial. A capex of ` 5,00,000 financed 80%
by debt raiseed at 10% and remaining through new equity is required. Financial projections
are given below :

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Information for 2023-24 Current New

c.24,00,000
Revenues 25,00,000 Increase by 30%
Total assets
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Admin. Expenses 2,50,000 2,75,000
Depreciation 2,00,000 3,00,000
Financial charges 50,000 50,000 + Interest on new debt
Total equity 20,00,000 New Equity amount
Tatal debt 4,00,000
Tax 30% 30%

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Gross profit ratio remains same as provious year.

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On the basis of above information, answer the following questions :

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Calculate inventory turnover, average collection period and interpret the ratios.

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(b) Calculate Return on Equity by using Du Pont Analysis. Comment on how can Return
on Equity be improved.
(c) Prepare the estimate of Profit & Loss A/c for 2023-24. What will be the Owner’s
capital as on 31st March, 2024 ?
(5 marks each)
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2. (a) Following information is provided for X Ltd :

Balance Sheet of X Ltd.

(As on 31st March, 2023)

I. Equity and Liability Amount Amount

(` in lakh) (` in lakh)

1. Shareholders’ Funds

(a) Share Capital

Equity Capital

Divided in shares of face value ` 10/- XX

Preference Capital

Divided in shares of face value ` 1,000/- XX XX

(b) Reserves and Surplus

General Reserve 7,800

P & L A/c 15,000 22,800

2. Non-Current Liabilities

(a) Long-term Borrowings XX

3. Current Liabilities

Short-term Borrowings 5,000

Trade Payables 3,000

Short-term Provisions 500

Outstanding Expenses 100 8,600

1/2024/CAFM/NS Contd. ........

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II. Assets

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1. Non-Current Assets

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(a) Property, Plant and Equipment

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and Intengible Assets

(i) Property, Plant and

Equipment 30,000

(ii) Intangible Assets 1,000

(iii) Capital Work in Progress 2,500 33,500

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2. Non-Current Assets XX

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3. Current Assets

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(a) Inventories XX

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(b) Trade Receivables 5,000

(c) Cash and Cash Equivalents 300 XX

Complete the above balance sheet. Other relevant information is given below :

(i) The investments are in fixed income securities and have an interest rate of

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8%. The payout of interest is ` 100 lakh. (ignore tax or TDS).

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(ii) Inventory turnover ratio is 5. The Cost of Goods sold is ` 15,000 lakh.

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Opening and Closing inventory figures are same.

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(iii) Issued equity share capital of ` 10 each is twice of preference share capital.

(v) Long-term borrowings have an interest payout of ` 1,000 lakh and rate of

interest is 10%.

(7 marks)

1/2024/CAFM/NS P.T.O.

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(b) Calculate net profit margin from the following given information :
Particulars Amount (`)
Revenue from operations 17,00,000
Cost of Revenue from operations 10,00,000
Selling Expenses 2,00,000
Administrative Expenses 1,00,000
Depreciation 2,00,000
Interest expenses 50,000
Other Income 45,000
Tax Rate 30%
(3 marks)
(c) M2 Ltd. is a company and has an ESOP programme, for the following ESOP related
exercise :
Date
1st Apirl 2018 10,000 options were granted at ` 400 each when market
price was ` 1,000.
Vesting period was three years
Maximum exercise period was one year
31st March, 2021 2,000 unvested options lapsed
31st March, 2021 7,000 options were exercised
31st March, 2022 1,000 options lapsed.
Assume face value of share is ` 10. Company follows April-March year end.
You are required to pass necessary journal entries.
(5 marks)
1/2024/CAFM/NS Contd. ........

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3. (a) New Ltd. issued 1,00,000 shares which were underwritten as under :

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Number of Applications Marked

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shares for firm applications

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underwritten underwriting

a Underwriter A 60,000 8,000 10,000

Underwriter B 25,000 3,000 20,000

Underwriter C 15,000 10,000 5,000

Total subscriptions excluding firm underwriting (including market applications) were 50,000

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shares. Prepare a statement calculating net underwriter liability. Consider firm underwriting

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shares are treated as unmarked applications.

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(5 marks)

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(b) The summarized balance sheet of H Ltd. and S Ltd. as on 31 March, 2023 are

given below :

Equity and Liabilities H Ltd. (`) S Ltd. (`)

Share Capital :

Shares of Rs. 10 each 1,00,00,000 20,00,000

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Reserves 16,00,000 6,00,000

c. o Profit & Loss A/c 12,00,000
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Total 1,28,00,000 34,00,000

ag Assets

Sundry Assets 1,00,00,000 34,00,000

Equity in S Ltd. 1,60,000 shares 28,00,000

1,28,00,000 34,00,000
1/2024/CAFM/NS P.T.O.

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S Ltd. had reserves of ` 6,00,000 when H Ltd. acquired shares in S Ltd. but

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

S Ltd. decided to issue bonus shares out of the post-acquisition profits in the ratio

of 1 share for every 5 shares held.

(i) Calculate cost of control before issue of bonus shares and after issue of bonus

shares.

(ii) What will be the journal entry passed in the books of S Ltd. and H Ltd.

on issue of bonus shares by S Ltd ?

(5 marks)

(c) The summarized information of CBA Limited is given below :

Balance Sheet of CBA Ltd. on 1st April 2022 to 31st March, 2023

Amount (in `)

Particulars 1st April 2022 31st March, 2023

I. Equities and Liabilities

Equity Share Capital 9,00,000 10,50,000

Share Premium — 90,000

General Reserve 1,35,000 1,95,000

Profit and Loss Account 90,000 2,42,400

10% debentures — 2,10,000

1/2024/CAFM/NS Contd. ........

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Sundry Creditors 2,55,000 2,72,100

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Provision for Taxation 67,500 1,21,500
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90,000 1,05,000

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Total 15,37,500

II. Assets

Land and Building 6,90,000 11,70,000

Plant and Machinery 2,56,200 4,20,000

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Furniture 16,500 19,500

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Stock 2,47,200 2,87,100

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Sundry Debtors 2,25,000 2,56,500

Bank a 1,02,600 1,32,900

15,37,500 22,86,000

Depreciation during the year : Amount (in `)

Land and Building 1,80,000

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Plant and Machinery

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Furniture 3,600

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Debentures were issued on 1st October, 2022.

a Prepare Cash Flow Statement of CBA Limited for the financial year ended 31st March,

2023.

(5 marks)

1/2024/CAFM/NS P.T.O.

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Attempt all parts of either Q. No. 4 or Q. No. 4A

4. (a) Rainbow Ltd. has issued 10,000, 12% redeemable preference shares (Face value

` 1,000 each).

The shares are to be redeemed at a premium of 20%. The redemption proceeds

will be raised through issue of equity share capital. Number of equity shares to be

issued are 50,000 shares of 10 each at ` 240 a share.

The whole amount is received and paid out towards redemption of preference share

capital.

Pass the necessary journal entries.

(5 marks)

(b) An unlisted company – other than AIFI, Bank, NBFC and HFC – has debentures

on its balance sheet as on 31st March, 2022. Balances are as follows :

Particulars Amount (`)

10% mortgage debentures of ` 10 each

Number 25,00,000 2,50,00,000

Debenture Redemption Reserve (DRR) 1,25,00,000

Unencumbered Investments in Fixed deposits of Scheduled

Commercial Banks (Interest @ 7%) 37,50,000

Bank Balance 3,25,00,000

1/2024/CAFM/NS Contd. ........

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The interest on debentures is paid until 31st March, 2022.

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The debentures were repaid on 30th June, 2022 at 10% premium. The investments

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were realized at par.

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a • Debenture Account, Debenture Interest Account and Debentures Redemption
Prepare the following ledgers :

Reserve Investment Account.

• Debenture Redemption Reserve Account.

• Extract of bank account relating to above transactions.

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(5 marks)

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(c) Zedux Ltd. decided to issue 60,000
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per share. The amount onl shares was payable as follows :

On application
ag ` 2.00

On allotment ` 5.00

(Including premium)

First Call ` 2.00

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Final Call 3.00

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em lapay the allotment money
Applications were received for 1,00,000 shares. Shares were allotted on a pro rata

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basis. Walter was allotted 1,000 shares. Walter did not

a and subsequent calls. Walter’s shares were forfeited.

Pass the necessary journal entries.

(5 marks)

1/2024/CAFM/NS P.T.O.

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OR (Alternate question to Q. No. 4)

4A. (i) Define Small and Medium Companies. Describe applicability of Accounting Standards

to Small and Medium Companies.

(ii) Define Leverage. What is ‘‘Trading on Equity’’ ?

(iii) Mention the records of Accounts to be maintained by a Company. Can a Company

maintain accounts in electronic form ?

(5 marks each)

PART–II

5. Magma Ltd. is a manufacturing industry which has a mix of equity and debt to finance

its business. The company is growing at a considerable rate prompting the management to

go for expansion. The company is considering various alternatives to raise funds for the same.

The capital structure of Magma Ltd. is as follows :

Particulars Amount (`)

12% Debentures (first issue) 3,00,000

13% Debentures (second issue) 2,00,000

10% Cumulative Preference Shares 2,50,000

Equity Shares (Face Value of ` 10 per share) 6,00,000

Retained Earnings 1,50,000

1/2024/CAFM/NS Contd. ........

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Additional Information :

(1)
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Equity shares are sold in the market at ` 25 per share. The company is contemplating
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the declaration of dividend of ` 3 per share at the end of the current financial year.

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l company has a practice of paying all earnings in the form of dividend.
a ` 100 per debenture (first issue) redeemable at par has 2% floatation cost and 8
The

(2)

years of maturity. The market price per debenture is ` 120.

(3) The second issue of debentures (` 100 each) is redeemable after 5 years and are

currently selling at ` 90 per debenture.

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(4) ` 100 per preference share redeemable at par has 3% floatation cost and 10 years

e m preference share is ` 108.
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of maturity. The market price per

tol the company is 30%.
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(5)
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(6) The shareholder’s tax liability may be assumed as 25% whereas the capital gain tax

is 20%.

The CFO of the company is keen at understanding the cost of capital. Accordingly, you

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are appointed to complete the following tasks :

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(1) Find out the weighted average cost of capital using :

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(a) Book value weights.

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(b) Market value weights.

(2) Further the company also intends to know the market price of the equity shares

at the end of the current year using MM approach along with citing the assumptions

of the theory.

1/2024/CAFM/NS P.T.O.

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(3) Assuming the company has sales of ` 20 lakh, variable cost of ` 12 lakh and fixed

cost of ` 5 lakh (excluding of interest), calculate operating leverage, financial leverage

and combined leverage.

(10+5+5=20 marks)
Attempt all parts of either Q. No. 6 or Q. No. 6A

6. (a) An investor is considering purchase of a new investment for ` 15,00,000. The Investor
has two options – Option M and Option N and their expected cash inflow are as
below :
Year Option M Option N
(Amount in `) (Amount in `)
1 1,52,000 3,45,000
2 2,36,000 7,25,000
3 7,00,000 8,00,000
4 5,00,000 3,00,000
5 3,57,000 10,00,000
The investor has a target return of 12%. Risk premium rates are 3% for Investment
Option M and 7% for Investment Option N.
Discount
factors 10.00% 12.50% 15.00% 18.00% 19.00%
1 0.909 0.889 0.870 0.847 0.840
2 0.826 0.790 0.756 0.718 0.706
3 0.751 0.702 0.658 0.609 0.593
4 0.683 0.624 0.572 0.516 0.499
5 0.621 0.555 0.497 0.437 0.419
Which investment should be preferred ?
(5 marks)
1/2024/CAFM/NS Contd. ........

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(b) ABD Limited has provided the following information :

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Earnings per share = ` 25

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s e of capital = 12%
Dividend per share = ` 9
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a Internal rate of return (IRR) on investment = 16%.
Cost

You are required to compute the market price per share using :

(a) Gorden’s formula

(b) Walter’s formula.

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(5 marks)

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(c) Two components A and B are used

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Normal usage 3,000 units

Maximum usage 4,500 units

Minimum usage 1,500 units

Units A B

Re-order Quantity (units) 20,000 40,000

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Re-order Period 4 to 6 weeks 2 to 4 weeks

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Calculate :

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(i) Re-order Level

ag (ii) Maximum Level

(iii) Minimum Leval

(iv) Average Inventory.

(5 marks)
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(d) Share price of P Limited was trading at the following prices at NSE on various
trading sessions :
Trading Session Share Price of P Limited (`)
1 4344
2 4254
3 4211
4 4308
5 4487
6 4213
7 4240
8 4112
9 4061
10 4414
11 4030
12 4336
13 4230
14 4392
Calculate RSI from the above data. Comment if share is overbought.
(5 marks)
OR (Alternate question to Q. No. 6)

6A. (i) ‘‘The concept of negative working capital is a sign of strong bargaining power,’’ Comment
and explain with an example.
(ii) What is Systematic Risk ? Describe its types.
(iii) What is Price Rate of Change and Advance-Decline Ratio ?
(iv) What is Economic Value Added and Market Value Added ? Under what conditions
will EVA increase ?
(5 marks each)
1/2024/CAFM/NS ————— o ————— Contd. ........

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