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Scanner Appendix
CA Final Gr. I
Questions of May - 2013
INDEX
Paper
Paper
Paper
Paper

1
2
3
4

Financial Reporting
Strategic Financial Management
Advanced Auditing and Professional Ethics
Corporate and Allied Laws

I-1
I-8
I-14
I-18

PAPER'S

Paper - 1 : Financial Reporting

Chapter :- 1 Accounting Standards & Guidance Notes
2013 - May [1] {C} (a) J Ltd. purchased a machinery from K Ltd. on 31-08-2012. Quoted
price was ` 275 lakhs. The vendor offers 2% trade discount. Sales tax on quoted price
is 6%. J Ltd. spent ` 60,000 for transportation and ` 45,000 for architects fees. They
borrowed money from HDFC Bank of ` 250 lakhs for acquisition of asset @ 15% p.a.
They also spent ` 15,000 for material, ` 10,000 for labour and ` 4,000 as overheads
during trial run of the machine. The machine was ready for use on 15-01-2013 but it was
put to use on 15-3-2013. Find out the original cost of the machine. Also suggest the
accounting treatment for between the date, the machine was ready for use and the date
at which it was actually put to use.
(5 marks)
(b) A Ltd. had acquired 80% shares in the B Ltd. for ` 15 lakhs. The net assets of B
Ltd. on the day are ` 22 lakhs. During the year A Ltd. sold the investment for ` 30
lakhs and net assets of B Ltd. on the date of disposal was ` 35 lakhs. Calculate the
profit or loss on disposal of this investment to be recognized in Consolidated
Financial Statem ent.
(5 marks)
(c) On 1 st January, 2011 Santa Ltd. sold equipm ent for ` 6,14,460. The carrying
amount of the equipment on that date was ` 1,00,000. The sale was a part of the
package under which Banta Ltd. leased the asset to Santa Ltd. for Ten Year term.
The economic life of the asset is estimated at 10 years. The minimum lease rents
payable by the leaser has been fixed at ` 1,00,000 payable annually beginning 31 st
December, 2011. The incremental borrowing interest rate of Santa Ltd. is
estim ated at 10% p.a. Calculate the net effect on the profit and loss account.
(5 marks)
I-1

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I-2

(d) X Ltd. purchased a fixed asset four years ago for ` 150 lakhs and depreciates it at
10% p.a. on straight line method. At the end of the fourth year it has revalued the
asset at ` 75 lakhs and has written off the loss on revaluation to the profit and loss
account. However on the date of revaluation, the market price is ` 67.50 lakhs and
expected disposal costs are ` 3 lakhs. W hat will be the treatment in respect of
impairment loss on the basis that fair value for revaluation purpose is determined
by market value and the value in use is estimated at ` 60 lakhs?
(5 marks)
st
2013 - May [5] (b) On 1 April, 2011, the fair value of plan assets were ` 2,50,000 in
respect of a pension plan of Q Ltd.
On 30 th September, the plan paid out benefits of ` 47,500 and received further
contribution of ` 1,22,500.
On 31 st March, 2012, the fair value of plan asset was ` 3,75,000 and the present value
of the benefit obligation was ` 3,69,800. Actuarial losses on the obligation for 2011-12
were ` 1,500.
On 1 st April, 2011, the company had made the following estimates:
Particulars
%
(i) Interest and dividend income after tax payable by the fund
9.25
(ii) Realised and un-realised gain on plan asset (after tax)
2.00
(iii) Fund expenses.
(1.00)
Expected rate of return
10.25
Find out the expected and unexpected return on plan assets.
(6 marks)
2013 - May [7] Answer the following:
(b) From the following information relating to W Ltd., calculate diluted earnings per
share as per AS-20.
(i) Net profit for the current year
` 5,00,00,000
(ii) Number of equity shares outstanding
1,00,00,000
(iii) 11% convertible debentures of ` 100 each (Nos.)
1,25,000
(iv) Interest expenses for current year
` 13,75,000
(v) Tax saving relating to interest expense
30%
(vi) Each debenture is convertible into eight equity shares.
(4 marks)
(c) W Ltd. purchased machinery for ` 80 lakhs from X Ltd. during 2010-11 and
installed the same immediately. Price includes excise duty of ` 8 lakhs. During the
year 2010-11, the company produced exciseable goods on which excise duty of
` 7.20 lakhs was charged.
Give necessary entries explaining the treatm ent of Cenvat Credit.
(4 marks)
(d) W rite short notes on Disclosure of carrying amounts of financial assets and
financial liabilities in balance sheet.
(4 marks)
(e) Vishnu Company has at its financial year ended 31st March, 2013, fifteen law suits
outstanding none of which has been settled by the time the accounts are approved
by the directors. The directors have estimated that the possible outcomes as
below:

Scanner Appendix CA Final Gr. I

Result
For first ten cases:
W in
Loss-low damages
Loss-high damages
For remaining five cases:
W in
Loss-low damages
Loss-high damages

I-3
Probability

Amount of loss

0.6
0.3
0.1

90,000
1,60,000

0.5
0.3
0.2

60,000
95,000

The directors believe that the outcome of each case is independent of the outcome
of all the others.
Estimate the amount of contingent loss and state the accounting treatment of such
contingent loss.
(4 marks)
Chapter :- 4 Accounting for Corporate Restructuring
2013 - May [3] Sun Limited agreed to absorb Moon Limited on 31st March 2012 whose
Summ arized Balance Sheet stood as follows:
`
`
Equity and Liabilities
Assets
Share Capital
1,20,000 shares of ` 10 each
fully paid
Reserve & Surplus
General reserve
Secured Loan
Unsecured Loan
Current Liabilities & Provisions
Sundry Creditors

12,00,000

1,50,000

1,50,000
15,00,000

Fixed Assets
Investments
Current Assets,
Loans &
Advances
Stock in Trade
Sundry Debtors

10,50,000

1,50,000
3,00,000

15,00,000

The consideration was agreed to be paid as follows:

(a) A payment in cash of ` 5 per share in Moon Ltd. and
(b) The issue of shares of ` 10 each in Sun Ltd. on the basis of two equity shares
(valued at ` 15) and one 10% cum. preference share (valued at ` 10) for every five
shares held in Moon Ltd.

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The whole of the share capital consists of shareholdings in exact multiple of five
except the following holding:
P
174
Q
114
R
108
S
42
Other Individuals
12 (Twelve members holding one share each)
It was agreed that Sun Ltd. will pay in cash for fractional shares equivalent at
agreed value of shares in Moon Ltd. i.e. ` 65 for five shares of ` 50 paid.
Prepare a statement showing the purchase consideration receivables in shares
and cash.
(16 marks)
Chapter :- 5 Consolidated Financial Statements of Group Companies
2013 - May [2] The summarized balance sheets of two companies, Major Ltd. and
Minor Ltd. as at 31 st December, 2012 are given below:
Particulars
Assets:
Plant and Machinery
Furniture
18,000, ordinary shares in Minor Ltd.
4,000 ordinary shares in Major Ltd.
Stock in Trade
Sundry Debtors
Cash at Bank
Liabilities:
Ordinary shares of ` 10 each
7.5% preference shares of ` 10 each
Reserves
Sundry Creditors
Profit and Loss account

Major Ltd.
4,14,000
14,000
2,40,000

96,000
1,40,000
34,000
9,38,000

Minor Ltd.
1,00,800
9,200

48,000
2,28,000
1,70,000
26,000
5,82,000

3,60,000
2,00,000
3,00,000
1,60,000
52,000
60,000
1,06,000
1,22,000
1,20,000
40,000
9,38,000
5,82,000
Major Ltd. acquired the shares of Minor Ltd. on 1st July, 2012. As on 31st December,
2011, the plant & machinery stood in the books at ` 1,12,000, the reserve at ` 60,000
and the profit and loss account at ` 16,000. The plant and machinery was revalued by
Major Ltd. on the date of acquisition of shares of Minor Ltd. at ` 1,20,000 but no
adjustments were made in the books of Minor Ltd.
On 31 st December, 2011, the debit balance of profit and loss account was ` 45,500
in the books of Major Ltd.

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Both the companies have provided depreciation on all their fixed assets at 10% p.a.
You are required to prepare a Consolidated Balance Sheet as on 31st December
2012 as per Revised Schedule-VI and Supporting Schedule for Computation.
(16 marks)
Chapter :- 7 Share Based Payments
2013 - May [4] (b) On 1st April 2012, A company offered 100 shares to each of its
employees at ` 40 per share. The employees are given a month to decide whether or
not to accept the offer. The shares issued under this plan will be subject to each in
transfer for three years from the grant date. The market price on the grant date is ` 50
per share. However the fair value of shares issued under this plan is estim ated at ` 48
per share. On 30-04-2012, 400 employees accepted the offer and paid ` 40 per share.
Nominal value of each share is ` 10.
Record the issue of shares in the books of the company under the aforesaid plan.
(4 marks)
Chapter :- 8 Financial Reporting for Financial Institutions
2013 - May [6] (b) The investment portfolio of a mutual fund scheme includes 5,000
shares of X Ltd. and 4,000 shares of Y Ltd. acquired on 31-12-2010. The cost of X Ltd.
shares is ` 40 while that of Y Ltd. shares is ` 60. The market value of these shares at the
end of 2010-11 were ` 38 and ` 64 respectively. On 30-06-2011, shares of both the
companies were disposed off realizing ` 37 per X Ltd. shares and ` 67 per Y Ltd. shares.
Show important accounting entries in the books of the fund for the accounting year
2010-11 and 2011-12.
(8 marks)
2013 - May [7] Answer the following:
(a) W hile closing its books of account on 31st March, 2012 a non-banking finance
company has its advances classified as follows:
Particulars

` in Lakhs

Standard Assets
16,800
Sub-Standard Assets
1,340
Secured portion of doubtful debts:
Upto one year
320
One year to three years
90
More than three years
30
Unsecured portion of doubtful debts
97
Loss Assets
48
Calculate the amount of provision, which must be made against the advances.
(4 marks)
Chapter :- 10 Valuation of Intangibles & Liabilities
2013 - May [5] (a) The Balance Sheet of Domestic Ltd. as on 31st March, 2013 is as
under:

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(` in Lacs)
Liabilities
Equity Shares ` 10 each
Reserves (including provision for
taxation of ` 300 lacs)
5% Debentures
Secured Loans
Sundry Creditors
Profit & Loss a/c:
Balance from previous year ` 32
Profit for the year
(after taxation)
` 1,100

Assets
3,000
1,000
2,000
200
300

1,132

7,632
1.
2.
3.
4.
5.
6.
7.

8.

Goodwill
Premises and Land at cost
Plant and Machinery
Motor vehicles
(Purchased on 1.10.12)
Raw materials at cost
W ork-in-progress at cost
Finished goods at cost
Book Debts
Inves tment (meant for replacement of Plant & Machinery)
Cash at Bank & Cash in Hand
Discount on Debentures
Underwriting Commission

744
400
3,000
40
920
130
180
400
1,600
192
10
16
7,632

The resale value of Premises and Land is ` 1,200 lacs and that of Plant and
Machinery is ` 2,400 lacs.
Depreciation @ 20% is applicable to Motor vehicles.
Applicable depreciation on Premises and Land is 2% and that on Plant and
Machinery is 10%.
Market value of the investments is ` 1,500 lacs.
10% of book debts is bad.
The company also revealed that the depreciation was not charged to Profit and
Loss account and the provision for taxation already made is sufficient.
In a similar company the market value of equity shares of the same denomination
is ` 25 per share and in such company dividend is consistently paid during last 5
years @ 25%. Contrary to this, Domestic Ltd. is having a marked upward or
downward trend in the case of dividend paym ent.
In 2007-08 and in 2008-09 the normal business was hampered. The profit earned
during 2007-08 is ` 67 lacs, but during 2008-09 the company incurred a loss of
` 1,305 lacs.
Past 3 years profits of the company were as under:
2009-10
` 469 lacs
2010-11
` 546 lacs

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I-7

2011-12
` 405 lacs
The unusual negative profitability of the company during 2008-09 was due to the
lock out in the major manufacturing unit of the company which happened in the
beginning of the second quarter of the year 2007-08 and continued till the last
quarter of 2008-09.
Value the goodwill of the company on the basis of 4 years purchase of the super
profit.
(10 marks)
Chapter :- 11 Valuation of Shares & Business
2013 - May [4] (a) The capital structure of VW X Ltd. is as follows as on 31st March,
2012:
Particulars

(`)

45,000, equity shares of ` 100 each fully paid

12,500, 12% preference shares of ` 100 each fully paid
12% secured debentures
Reserves
Profit before interest and tax during the year
Tax rate

45,00,000
12,50,000
12,50,000
12,50,000
18,00,000
40%

Normally the return on equity shares in this type of industry is 15%.

Find out the value of the equity shares subject to the following:
(i) Profit after tax covers fixed interest and fixed dividend at least 4 times.
(ii) Debt equity ratio is at least 2.
(iii) Yield on shares is calculated at 60% of distributed profits and 10% on
undistributed profits.
(iv) The company has been paying regularly an equity dividend of 15%.
(v) Risk premium for dividends is generally assumed at 1%.
(12 marks)
Chapter :- 12 Statements of Value Addition
2013 - May [6] (a) From the following Profit and Loss account of B. Co. Ltd. prepare a
gross value added statem ent for the year ended 31-12-2012. Show also the
reconciliation between gross value added and profit before taxation.
Profit and Loss account for the year ended 31-12-2012
Notes
Income:
Sales
Other income
Expenditure:
Production and operational expenses

(` in 000)

(` in 000)
6,240
55
6,295

4,320

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Adm inistrative expenses (Factory)
Interest & Other charges
Depreciation

I-8
2
3

180
624
16
(5,140)
1,155
(55)
1,100
60
1,160

Profit before tax

Provision for tax
Balance as per last Balance Sheet
Transferred to Fixed assets
Replacem ent Reserve
Dividend Paid
Surplus carried to Balance Sheet
Notes:
1. Production and Operation Expenses:
Consumption of Raw materials
Consumption of stores
Local Tax
Salaries to Administrative staff
Other Manufacturing Expenses
2.
3.

400
160

(560)
600

3,210
40
8
620
442
4,320

Administration expenses include

salaries and commission to directors
5
Interest and other charges include:
(a) Interest on bank overdraft
(overdraft is of temporary nature)
109
(b) Fixed loan from I.C.I.C.I.
51
(c) W orking capital loan from I.F.C.I.
20
(d) Excise duties amounts to one-tenth of total value added by manufacturing and
trading activities.
(8 marks)

Paper - 2 : Strategic Financial Management

Chapter:- 2 Project Planning and Capital Budgeting
2013 - May [1] {C} (c) Ramesh owns a plot of land on which he intends to construct
apartment units for sale. No. of apartment units to be constructed may be either 10 or
15. Total construction costs for these alternatives are estimated to be ` 600 lakhs or
` 1025 lakhs respectively. Current market price for each apartment unit is ` 80 lakhs.
The market price after a year for apartment units will depend upon the conditions of
market. If the market is buoyant, each apartment unit will be sold for ` 91 lakhs, if it is

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sluggish, the sale price for the same will be ` 75 lakhs. Determine the current value of
vacant plot of land. Should Ramesh start construction now or keep the land vacant? The
yearly rental per apartment unit is ` 7 lakhs and the risk free interest rate is 10% p.a.
Assume that the construction cost will remain unchanged.
(5 marks)
2013 - May [2] (a) XYZ Ltd. is planning to procure a machine at an investment of ` 40
lakhs.
The expected cash flow after tax for next three years is as follows:
` (in lakh)
Year - 1
Year - 2
Year - 3
CFAT
Probability
CFAT
Probability
CFAT
Probability
12
.1
12
.1
18
.2
15
.2
18
.3
20
.5
18
.4
30
.4
32
.2
32
.3
40
.2
45
.1
The Company wishes to consider all possible risks factors relating to the machine.
The Company wants to know:
(i) the expected NPV of this proposal assuming independent probability
distribution with 7% risk free rate of interest.
(ii) the possible deviations on expected values.
(8 marks)
2013 - May [5] (b) XY Limited is engaged in large retail business in India. It is
contemplating for expansion into a country of Africa by acquiring a group of stores
having the same line of operation as that of India.
The exchange rate for the currency of the proposed African country is extremely volatile.
Rate of inflation is presently 40% a year. Inflation in India is currently 10% a year.
Management of XY Limited expects these rates likely to continue for the foreseeable
future.
Estimated projected cash flows, in real terms, in India as well as African country for the
first three years of the project are as follows:
Year-0
Year-1
Year-2
Year-3
Cash flows in Indian
-50,000
-1,500
-2,000
-2,500
` (000)
Cash flows in African
-2,00,000
+50,000
+70,000
+90,000
Rands (000)
XY Ltd. assumes the year 3 nominal cash flows will continue to be earned each year
indefinitely. It evaluates all investments using nominal cash flows and a nominal
discounting rate. The present exchange rate is African Rand 6 to ` 1.
You are required to calculate the net present value of the proposed investment
considering the following:

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(i)
(ii)
(iii)

I-10

African Rand cash flows are converted into rupees and discounted at a risk
adjusted rate.
All cash flows for these projects will be discounted at a rate of 20% to reflect it's
high risk.
Ignore taxation.
Year- 1
Year- 2
Year- 3
PVIF @ 20%
.833
.694
.579
(10 marks)

Chapter:- 4 Dividend Decisions

2013 - May [3] (b) ABC Limited has a capital of ` 10 lakhs in equity shares of `100 each.
The shares are currently quoted at par. The company proposes to declare a dividend
of `15 per share at the end of the current financial year. The capitalisation rate for the
risk class of which the company belongs is 10%. What will be the market price of share
at the end of the year, if
(i) a dividend is declared?
(ii) a dividend is not declared?
(iii) assuming that the company pays the dividend and has net profits of ` 6,00,000
and makes new investment of ` 12,00,000 during the period, how many new
shares should be issued? Use the MM model.
(6 marks)
2013 - May [4] (a) X Limited, just declared a dividend of ` 14.00 per share. Mr. B is
planning to purchase the share of X Limited, anticipating increase in growth rate from
8% to 9%, which will continue for three years. He also expects the market price of this
share to be ` 360.00 after three years.
You are required to determine:
(i) the maximum amount Mr. B should pay for shares, if he requires a rate of return
of 13% per annum.
(4 marks)
(ii) the maximum price Mr. B will be willing to pay for share, if he is of the opinion
that the 9% growth rate can be maintained indefinitely and require 13% rate of
return per annum.
(2 marks)
(iii) the price of share at the end of three years, if 9% growth rate is achieved and
assuming other conditions remaining same as in (ii) above.
Calculate rupee amount up to two decimal points.
Year-1
Year-2
Year-3
FVIF @ 9%
1.090
1.188
1.295
FVIF @ 13%
1.130
1.277
1.443
PVIF @ 13%
0.885
0.783
0.693
(2 marks)
Chapter:- 5 Indian Capital Market and Security Analysis
2013 - May [5] (a) M/s. Earth Limited has 11% bond worth of ` 2 crores outstanding with
10 years remaining to maturity.

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The company is contemplating the issue of a ` 2 crores 10 year bond carrying the
coupon rate of 9% and use the proceeds to liquidate the old bonds.
The unamortized portion of issue cost on the old bonds is ` 3 lakhs which can be written
off no sooner the old bonds are called. The company is paying 30% tax and its after tax
cost of debt is 7%. Should Earth Limited liquidate the old bonds?
You may assume that the issue cost of the new bonds will be ` 2.5 lakhs and the call
premium is 5%.
(6 marks)
2013 - May [6] (b) M/s. Parker & Co. is contem plating to borrow an amount of ` 60
crores for a period of 3 months in the coming 6 month's time from now. The current rate
of interest is 9% p.a., but it may go up in 6 months' time. The company wants to hedge
itself against the likely increase in interest rate.
The Company's Bankers quoted an FRA (Forward Rate Agreement) at 9.30% p.a.
W hat will be the effect of FRA and actual rate of interest cost to the company, if the
actual rate of interest after 6 months happens to be (i) 9.60% p.a. and (ii) 8.80% p.a.?
(8 marks)
Chapter:- 6 Portfolio Theory
2013 - May [2] (b) On January 1, 2013 an investor has a portfolio of 5 shares as given
below:
Security
Price
No. of Shares
Beta
A
349.30
5,000
1.15
B
480.50
7,000
0.40
C
593.52
8,000
0.90
D
734.70
10,000
0.95
E
824.85
2,000
0.85
The cost of capital to the investor is 10.5% per annum.
You are required to calculate:
(i) The beta of his portfolio.
(ii) The theoretical value of the NIFTY futures for February 2013.
(iii) The number of contracts of NIFTY the investor needs to sell to get a full
hedge until February for his portfolio if the current value of NIFTY is 5900
and NIFTY futures have a minimum trade lot requirement of 200 units.
Assume that the futures are trading at their fair value.
(iv) The number of future contracts the investor should trade if he desires to
reduce the beta of his portfolios to 0.6.
No. of days in a year be treated as 365.
Given: in (1.105) = 0.0998
e (0.015858) = 1.01598
(8 marks)
Chapter:- 7 Financial Services in India

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2013 - May [7] W rite short notes on the following:
(a) Credit Rating

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(4 marks)

Chapter:- 8 Mutual Funds

2013 - May [3] (a) Mr. Suhail has invested in three Mutual Fund Schemes as given
below:
Particulars
Scheme A Scheme B Scheme C
Date of investment
1-4-2011
1-5-2011
1-7-2011
Amount of Investment
`
12,00,000
4,00,000
2,50,000
Net Asset Value (NAV) at entry date `
10.25
10.15
10.00
Dividend received up to 31-7-2011
`
23,000
6,000
Nil
NAV as at 31-7-2011
`
10.20
10.25
9.90
You are required to calculate the effective yield on per annum basis in respect of
each of the three Schemes to Mr. Suhail up to 31-7-2011.
Take one year = 365 days.
Show calculations up to two decimal points.
(10 marks)
2013 - May [4] (b) On 1-4-2012 ABC Mutual Fund issued 20 lakh units at ` 10 per unit.
Relevant initial expenses involved were ` 12 lakhs. It invested the fund so raised in
capital market instruments to build a portfolio of ` 185 lakhs. During the month of April
2012 it disposed off some of the instruments costing ` 60 lakhs for ` 63 lakhs and used
the proceeds in purchasing securities for ` 56 lakhs. Fund management expenses for
the month of April 2012 was ` 8 lakhs of which 10% was in arrears. In April 2012 the
fund earned dividends amounting to ` 2 lakhs and it distributed 80% of the realized
earnings. On 30-4-2012 the market value of the portfolio was `198 lakhs.
Mr. Akash, an investor, subscribed to 100 units on 1-4-2012 and disposed off the same
at closing NAV on 30-4-2012. What was his annual rate of earning?
(8 marks)
Chapter:- 9 Money Market Operations
2013 - May [7] W rite short notes on the following:
(b) Asset Securitization
(c) Call Money
Chapter:- 10 FDI, FII and International Financial Management
2013 - May [7] W rite short notes on the following:
(d) Euro Convertible Bonds

(4marks each)

(4 marks)

Chapter:- 11 Foreign Exchange Exposure and Risk Management

2013 - May [1] {C} (a) A Bank sold Hong Kong Dollars 40,00,000 value spot to its
customer at ` 7.15 and covered itself in London Market on the same day, when the
exchange rates were:

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I-13

US$ = HK$ 7.9250

7.9290
Local interbank market rates for US$ were
Spot US$ 1 = ` 55.00
55.20
You are required to calculate rate and ascertain the gain or loss in the transaction.
Ignore brokerage.
You have to show the calculations for exchange rate up to four decimal points.
(5 marks)
(d) XYZ Limited borrows 15 Million of six months LIBOR + 10.00% for a period of 24
months. The company anticipates a rise in LIBOR, hence it proposes to buy a Cap
Option from its Bankers at the strike rate of 8.00%. The lump sum premium is 1.00%
for the entire reset periods and the fixed rate of interest is 7.00% per annum. The actual
position of LIBOR during the forthcoming reset period is as under:
Reset
PeriodLIBOR
1
9.00%
2
9.50%
3
10.00%
You are required to show how far interest rate risk is hedged through Cap Option.
For calculation, work out figures at each stage up to four decimal points and amount
nearest to . It should be part of working notes.
(5 marks)
Chapter:- 12 Mergers, Acquisition Restructuring & Business Valuation
2013 - May [1] {C} (b) ABC Limited is considering acquisition of DEF Ltd., which has
3.10 crore shares issued and outstanding. The market price per share is ` 440.00 at
present. ABC Ltd.s average cost of capital is 12%. The cash inflows of DEF Ltd. for the
next three years are as under:
Year
` in crores
1
460.00
2
600.00
3
740.00
You are required to calculate the range of valuation that ABC Ltd. has to consider.
Take P.V.F. (12%, 3) = 0.893, 0.797, 0.712
(5 marks)
2013 - May [6] (a) Longitude Limited is in the process of acquiring Latitude Limited on
a share exchange basis. Following relevant data are available:
Longitude
Latitude
Limited
Limited
Profit after Tax (PAT)
` in Lakhs
140
60
Number of Shares
Lakhs
15
16
Earning per Share (EPS)
`
8
5
Price Earnings Ratio (P/E Ratio)
15
10
(Ignore Synergy)

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You are required to determine:

(i) Pre-merger Market Value per Share, and
(ii) The maximum exchange ratio Longitude Limited can offer without the dilution of
(1) EPS and
(2) Market Value per Share
Calculate Ratio/s up to four decim al points and am ounts and number of shares
up to two decimal points.
(8 marks)
2013 - May [7] W rite short notes on the following:
(e) Financial Restructuring
(4 marks)

Paper - 3 : Advanced Auditing & Professional Ethics

Chapter:- 1 Auditing and Assurance Standards & Guidance Notes
2013 - May [3] (c) The auditor of H Ltd. wanted to obtain confirmation from its creditors.
But the management made a request to the auditor not to seek confirmation from
certain creditors citing disputes. Can the auditor of H Ltd. accede to this request?
(4 marks)
Chapter:- 2 Accounting Standards & Schedule VI
2013 - May [1] {C} (a) The Balance Sheet of G Ltd. as at 31st March 13 is as under.
Comment on the presentation in terms of revised Schedule VI and Accounting
Standards issued by NACAS.
Heading
Equity & Liabilities
Share Capital
Reserves & Surplus
Employee stock option outstanding
Share application money refundable
Non-Current Liabilities
Deferred tax liability (Arising from Indian
Income Tax)
Current Liabilities
Trade Payables
Total
Assets
Non-Current Assets

Note
No.

31 st
March 13

31 st
March 12

1
2
3
4

xxx
0
xxx
xxx
xxx
xxx

xxx
0
xxx
xxx
xxx
xxx

xxx
xxxx

xxx
xxxx

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Fixed Assets - Tangible
CW IP (including capital advances)
Current Assets
Trade Receivables
Deferred Tax Asset (Arising from Indian
Income Tax)
P & L Debit balance
Total

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7
8

xxx
xxx

xxx
xxx

9
10

xxx
xxx

xxx
xxx

xxx
xxxx

xxx
xxxx

(b) Z Ltd. changed its employee remuneration policy from 1st of April 2012 to provide
for 12% contribution to provident fund on leave encashm ent also. As per the leave
encashment policy the employees can either utilize or encash it. As at 31 st March
13 the company obtained an actuarial valuation for leave encashm ent liability.
However it did not provide for 12% PF contribution on it. The auditor of the
company wants it to be provided but the management replied that as and when the
employees availed leave encashment, the provident fund contribution was made.
The company further contends that this is the correct treatment as it is not sure
whether the em ployees will avail leave encashment or utilize It. Comment.
(c) T Ltd. commenced its manufacturing activities from 1st April 2012. In the course
of production the company generated certain by - products. As at 31st March 13 the
company did not value the by-products considering the value as insignificant. The
auditor of the company is of the opinion that the by-products are inventory of the
company and it should be valued and brought into books of account . Comment.
(d) K Ltd. had 5 subsidiaries as at 31st March 2013 and the investments in subsidiaries
are considered as long term and valued at cost. Two of the subsidiaries net worth
eroded as at 31st March 13 and the prospects of their recovery are very bleak and
the other three subsidiaries are doing exceptionally well. The company did not
provide for the decline in the value of investments in two subsidiaries because the
overall investment portfolio in subsidiaries did not suffer any decline as the other
three subsidiaries are doing exceptionally well. Comm ent.
( 5 marks each)
2013 - May [7] W rite short notes on the following:
(c) Corresponding figures
(4 marks)
Chapter:- 3 Audit Strategy, Planning Programming & Techniques
2013 - May [3] (b) In audit plan for T Ltd, as the audit partner you want to highlight the
sources of misstatements, arising from other than fraud, to your audit team and caution
them. Identify the sources of misstatements.
(d) R & Co, a firm of Chartered Accountants have not revised the terms of engagements and obtained confirmation from the clients, for last 5 years despite changes

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in business and professional environment. Please elucidate the circumstances that

may warrant the revision in terms of engagement.
(4 marks each)

Chapter:- 4 Risk Assessment and Internal Control

2013 - May [3] (a) In the course of audit of Z Ltd, its auditor wants to rely on audit
evidence obtained in previous audit in respect of effectiveness of internal controls
instead of retesting the same during the current audit. As an advisor to the auditor kindly
caution him about the factors that may warrant a re-test of controls.
(4 marks)
2013 - May [5] (d) As the auditor of a large multi locational company, in the planning
process, you are requested to identify the inherent audit risk at the account balance and
class of transaction level.
(4 marks)
Chapter:- 5 Audit under CIS Environment
2013 - May [5] (c) E & Co, a firm of Chartered Accountants, requires your help in
identifying the audit procedures that can be performed using CAATs. Please guide
them.
(4 marks)
Chapter:- 9 Audit Report
2013 - May [6] (a) H Private Ltd. had taken overdrafts from two banks with a limit of `10
lacs each against the security of fixed deposit it had with those banks and an unsecured
overdraft from a financial institution of ` 9 lacs. The said loans were outstanding as at
31 st March 13. The paid up capital and reserves of the company as at that date was `40
lacs and its turnover during the financial year ended on 31st March 13 was ` 3 crores.
The management of the company is of the opinion that CARO 03 is not applicable to
it because turnover and paid up capital were within the limits prescribed and loans taken
against the fixed deposits cannot be considered. The company further contended that
loan limit is to be reckoned per bank or financial institution and not cumulatively.
Comm ent.
(4 marks)
(b) XYZ Ltd. has significant operations in a foreign country. Due to civil and political
unrest in that country physical verification of inventory and fixed assets could not carried
out and you are not in a position to obtain audit evidence through other audit procedures
also. The value of fixed assets and inventory forms part of 80% of the asset value of the
company. As the auditor of XYZ Ltd. what factors do you consider in your reporting
responsibility. Also draft a suitable report that will be incorporated in the main audit
report (Reporting under CARO 03 need not be considered).
(8 marks)
(c) R Ltd. as at 31st March 2013 defaulted in the repayment of interest and principal due
to a financial institution. The due date was 28th February 2013. However the defaulted
amount was paid on 5th April 2013. The companys management is of the opinion that

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since the default is set right before the audit completion these need not be reported in
CARO 03. Comment and draft a suitable report
(4 marks)

Chapter:- 11 Audit of Banks

2013 - May [4] (a) In course of audit of Good Samaritan Bank as at 31st March 13 you
observed the following:
(i) In a particular account there was no recovery in the past 18 months. The bank
has not applied the NPA norms as well as income recognition norms to this
particular account. When queried the bank management replied that this account
was guaranteed by the Central Government and hence these norms were not
applicable. The bank has not invoked the guarantee. Please respond. W ould
your answer be different if the advance is guaranteed by a State Government?
(5 marks)
(ii) The banks advance portfolio comprised of significant loans against Life
Insurance Policies. W rite suitable audit program to verify these advances.
(3 marks)
Chapter:- 12 Audit of General Insurance Company
2013 - May [4] (b) As at 31 st March 2013 while auditing Safe Insurance Ltd. you
observed that a policy has been issued on 25th March 2013 for fire risk favouring one
of the leading corporate houses in the country without the actual receipt of premium and
it was reflected as premium receivable. The company maintained that it is a usual
practice in respect of big customers and the money was collected on 5th April 2013. You
further noticed that there was a fire accident in the premises of the insured on 31st
March 2013 and a claim was lodged for the same. The insurance company also made
a provision for claim. Please respond.
(4 marks)
Chapter:- 13 Audit of Co-operative Societies
2013 - May [7] W rite short notes on the following:
(a) Restrictions on investments of funds of a central co-operative society. (4 marks)
Chapter:- 15 Audit under Fiscal Laws
2013 - May [4] (c) While writing the audit program for tax audit in respect of A Ltd. you
wish to include possible instances of capital receipt if not credited to Profit & Loss
Account which needs to be reported under clause 13(e) of form 3CD. Please elucidate
possible instances.
(4 marks)
Chapter:- 17 Special Audit Assignments
2013 - May [7] W rite short notes on the following:
(e) Volatility Margin, its computation and its application.

(4 marks)

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Chapter:- 19 Internal Managem ent and Operational Audit

2013 - May [5] (b) The Managing Director of X Ltd. is concerned about high employee
attrition rate in his company. As the internal auditor of the company he requests you to
analyze the causes for the same. W hat factors would you consider in such analysis?
(4 marks)
Chapter:- 20 Investigation and Due Diligence
2013 - May [5] (a) J Ltd is interested in acquiring S Ltd. The valuation of S Ltd. is
dependent on future maintainable sales. As the person entrusted to value S Ltd. what
factors would you consider in assessing the future m aintainable turnover? (4 marks)
Chapter:- 21 Peer Review
2013 - May [7] W rite short notes on the following:
(b) Technical, ethical and professional standards as per statement on peer review.
(4 marks)
Chapter:- 22 Professional Ethics
2013 - May [2] Give your comments with reference to Chartered Accountants Act, 1949
and Schedules thereto.
(a) Mr. A, a practicing Chartered Accountant, failed to return the books of account and
other documents of a client despite many reminders from the client. The client had
settled his entire fees dues also.
(b) Mr. B, a practicing Chartered Accountant as well as a qualified lawyer, was
permitted by the bar council to practice as a lawyer also. He printed his visiting card
where he mentioned his designation as Chartered Accountant and Advocate.
(c) Mr. C, a practicing Chartered Accountant, in the course of the audit of a listed
company discovered serious violations of the provisions of the Companies Act
1956, informed the Registrar of Companies out of public interest.
(d) Mr. D, a practicing Chartered Accountant, did not com plete his work relating to the
audit of the accounts of a com pany and had not submitted his audit report in due
time to enable the company to comply with the statutory requirements.
(4 marks each)
Chapter:- 23 Audit of Consolidated Financial Statements
2013 - May [7] W rite short notes on the following:
(d) Permanent Consolidated Adjustm ents
(4 marks)

Paper-4 : Corporate and Allied Laws

Chapter - 1 : Account & Audit
2013 - May [1] {C} (a) Mr. Ramanujam, one of the Directors in Debari Food Processing
Limited was not satisfied with the performance of the company in financial matters. He

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requested Mr. Anandaraja, a Chartered Accountant, to inspect the books of accounts

of the company on his behalf. Decide, under the provisions of the Companies Act, 1956
whether the said company can refuse to allow Mr. Anandaraja to inspect the books of
accounts?
(4 marks)
2013 - May [3] (a) The statutory auditors of Ghosunda Refinery Limited, did not verify
the correctness of the particulars furnished in the Boards Report in respect of certain
employees under Clause (2A) of Section 217 of the Companies Act, 1956. State the
particulars which are required to be furnished under Clause (2A) of Section 217 of the
said Act and also explain the legal position relating to verification of these particulars
by the auditors of the said Company.
(8 marks)
Chapter - 3 : Meetings of Directors and Related Party Transactions
2013 - May [1] {C} (c) Mr. Gopalasunderam, a Director in Fatehnagar Textiles Limited,
took a loan from the company without obtaining the approval of the Central
Government. Examine, under the provisions of the Companies Act, 1956 whether it is
possible for him to avoid prosecution by applying to the Central Government for
approval or by refunding the loan taken by him from the company.
(5 marks)
2013 - May [4] (a) Mr. Kishore is a Director of AB Limited and PQ Limited. AB Limited
was regular in filing the Annual Returns but did not file annual accounts for the years
ended 31 st March, 2009, 2010 and 2011. AB Limited did not pay interest on loans taken
from a public financial institution from 1st April, 2011 and also failed to repay matured
deposits taken from public on due dates from 1 st April, 2012 onwards.
Answer the following in the light of relevant provisions of the Companies Act, 1956:(i) W hether Mr. Kishore is disqualified under Section 274 (1) (g) of the Companies
Act, 1956 and if so, whether he can continue as a Director in AB Limited and
also seeks reappointment when he retires by rotation at the Annual General
Meeting of PQ Limited to be held in September, 2013?
(ii) Mr. Kishore is proposed to be appointed as Additional Director of XY Limited in
June, 2013. Is he eligible to be appointed as Additional Director in XY Limited?
(8 marks)
2013 - May [2] (b) State the legal requirements to be complied with by a public
company in respect of a Board Meeting.
Examine with reference to the provisions of the Companies Act, 1956 whether notice
of a Board Meeting is required to be sent to the following persons:
(i) Alternative Director;
(ii) An interested Director;
(iii) A Director who has expressed his inability to attend a particular Board Meeting;
(iv) A Director who has gone abroad.
(8 marks)
Chapter - 7 : Compromise, Arrangements & Reconstructions
2013 - May [2] (a) Hi-tech Engineering Limited engaged in the business of engineering
construction and cement manufacturing, decided to concentrate on its core business

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of engineering construction and hive off (demerge) its cement business in favour of
Premier Cement Limited. State the steps to be taken by Hi-tech Engineering Limited to
give effect to the proposed demerger under the provisions of the Companies Act, 1956.
(8 marks)
Chapter - 8 : Prevention of Oppression and Mismanagement
2013 - May [1] {C} (b) The issued, subscribed and paid-up capital of Supreme Chemicals Limited is ` 2 crore consisting of 20,00,000 equity shares of ` 10 each. The said
company has 800 members. For the purpose of relief against oppression and
mismanagement, a petition was submitted before the appropriate authority duly signed
by 90 members holding 1,00,000 equity shares of the said company. Subsequently, 30
members, who signed the petition, withdrew their consent. Decide, under the provisions
of the Companies Act, 1956 whether the said petition is maintainable?
(5 marks)
Chapter - 10 : Corporate Winding up and Dissolution
2013 - May [5] (a) What is meant by misfeasance? Who can initiate misfeasance
proceedings and is there any time limit for initiating such proceedings? Examine the
extent to which the legal representatives of a deceased Director, against whom
misfeasance proceedings were initiated, can be held liable under the provisions of the
Companies Act, 1956.
(8 marks)
Chapter - 11 : Producer Companies
2013 - May [6] (a) Southern India Sugar Producer Company Limited, having paid-up
capital of ` 5 lakh and free reserves of ` 3 lakh, propose to make the following loans and
investments:
(i) Loan of ` 2 lakh to Mr. Ram, a member of the Com pany, for a period of one year
and a loan of ` 1 lakh to Mr. Shekhar, a Director of the Company for a period of
six months;
(ii) Investment of ` 3 lakh in the equity shares of XYZ Marketing Limited.
State the restrictions, if any, in this regard and also the legal requirements to be
complied with by the Company under the provisions of the Companies Act, 1956.
(8 marks)
Chapter - 12 : Foreign Companies
2013 - May [6] (b) Examine in the light of the provisions of the Companies Act, 1956
whether the following companies can be considered as Foreign Companies:(i) A company incorporated outside India having a share registration office at New
Delhi;
(ii) A company incorporated outside India having shareholders who are all Indian
citizens;
(iii) A company incorporated in India but all the shares are held by foreigners.
Also exam ine whether the above companies can issue Indian Depository Receipts
under the provisions of the Companies Act, 1956?
(8 marks)
Chapter - 16 : Corporate Secretarial Practice

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2013 - May [4] (b) Morbani Woods Limited decide to appoint Mr. Wahid as its Managing
Director for a period of 5 years with effect from 1st May, 2013. Mr. Wahid fulfils all the
conditions as specified in Part I and Part II of Schedule XIII of the Companies Act, 1956.

The terms of appointm ent are as under:

(i) Salary ` 1 lakh per month;
(ii) Com mission, as may be decided by the Board of Directors of the company;
(iii) Perquisites:
Free Housing,
Medical reimbursement upto ` 10,000 per month,
Leave Travel concession for the family,
Club membership fee,
Personal Accident Insurance ` 10 lakh,
Gratuity, and
Provident Fund as per Companys policy.
You, being the Secretary of the said Com pany, are required to draft a resolution to give
effect to the above, assuming that Mr. Wahid is already the Managing Director in a
public limited company.
(8 marks)
Chapter - 17 : SEBI Act, 1992
2013 - May [3] (b) Modern Chemicals Limited, a listed company, propose to make a
preferential issue of equity shares to the promoters of the Company. You are required
to answer the following with reference to the Securities and Exchange Board of India
(Issue of Capital and Disclosure Requirements) Regulations, 2009:(i) W hat are the conditions to be complied with by the Company to give effect to the
proposed preferential issue?
(ii) W hat is the price at which the proposed issue can be made?
(iii) W hat is the lock-in period in respect of shares allotted on preferential basis to
promoters?
(8 marks)
Chapter - 18 : SCRA, 1956
2013 - May [1] {C} (d) The Securities and Exchange Board of India received serious
complaints against Mr. Satyanarayan, a member of Mavli Stock Exchange. State as to
what powers can be exercised by the Securities and Exchange Board of India to make
enquiries and to take action in this matter, under the provisions of the Securities
Contracts (Regulation) Act, 1956?
(6 marks)
Chapter - 19 : FEMA, 1999
2013 - May [7] Attempt:
(a) Mr. Kishore resided in India during the Financial Year 2009-2010 for less than 182
days. He came to India on 1st April, 2010 for business. He closed down his
business on 30th April, 2011 and left India on 30 th June, 2011 for the purpose of
employment outside India. Decide the residential status of Mr. Kishore during the

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Financial Years 2010-2011 and 2011-2012 under the provisions of the Foreign
Exchange Management Act, 1999.
(4 marks)
Chapter - 20 : Competition Act, 2002
2013 - May [7] Attempt:
(b) Bombay Textiles Limited and Gujarat Textiles Limited marketing their products in
India propose to be amalgamated. The enterprise created as a result of the said
amalgamation will have assets of value of ` 300 crore and turnover of `1,000 crore.
Examine whether the proposed amalgamation attracts the provisions of the
Competition Act, 2002?
(4 marks)
Chapter - 21 : Banking Regulation Act, 1949
2013 - May [5] (b) The Board of Directors of a newly incorporated Banking Company
is required to file the accounts and Balance sheet. Advise the Board of Directors about
the law relating to preparation, signing and filing of accounts and Balance sheet under
the provisions of the Banking Regulation Act, 1949. Also state the applicability of the
provisions of the Companies Act, 1956 in this regard.
(8 marks)
Chapter - 23 : SRFAESI Act, 2002
2013 - May [7] Attempt :
(d) Explain briefly the concept of Securitisation under the provisions of the
Securitisation and Reconstruction of Financial Assets and Enforcem ent of Security
Interest Act, 2002.
(4 marks)
Chapter - 24 : Prevention of Money Laundering Act, 2002
2013 - May [7] Attempt :
(c) Money Laundering does not mean just siphoning of fund.
Comment on this statement explaining the significance and aim of the Prevention
of Money Laundering Act, 2002.
(4 marks)
Chapter - 25 : Interpretation of Statutes, Deeds and Documents
2013 - May [7] Attempt :
(e) Section 294 (2) of the Companies Act, 1956 provides that the Board shall not
appoint a Sole Selling Agent for any area except subject to the condition that the
appointment shall cease to be valid if it is not approved by the company in the First
General Meeting held after the date on which the appointment is made.
Examine whether the procedure under the above provision is mandatory or
directory?
State also the distinction between a mandatory provision and a directory provision.
(4 marks)

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Shuchita Prakashan (P) Ltd.

25/19, L.I.C. Colony, Tagore Town,
Allahabad - 211002
Visit us : www.shuchita.com

FOR NOTES

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FOR NOTES

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