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SCANNER'S APPENDIX
CA Final Gr. I May 2003
Paper 1
ADVANCED ACCOUNTING Ch apter - 2 : Accou nting Stan dar ds in In dia 2003 - May [1] (a) From the Books of B harati Ltd., following informations are available as on 1.4.20 01 and 1.4.20 02: Rs. (1) Equity shares of Rs. 10 each outstanding 1,00,000 (2) Partly paid E quity shares of R s. 10 each R s. 5 paid 1,00,000 (3) Options outstanding at an exercise price of Rs. 60 for one equity share Rs. 10 each. Average Fair value of equity share during both years Rs. 75 10,000 (4) 10% convertible preference shares of Rs. 100 each. Conversion ratio 2 equity shares for each preference share 80,000 (5) 12% convertible d ebentures o f Rs. 10 0 conversio n ratio 4 equity shares for each debenture 10,000 (6) 10% dividend tax is payable the years ending 31.3.2003 and years ending 31.3.2002. (7) On 1.10.2002 the partly paid shares were fully paid up. (8) On 1.1.2003 the company issued 1 bonus share for 8 shares held on that date. Net profit attributable to the equity shareholders for the years ending 31.3.2003 and 31.3.2002 were Rs. 10,00,000. Calculate: (i) Earnings per share years ending 31.3.2003 and 31.3.2002. (ii) Diluted earnings per share years ending 31.3.2003 and 31.3.2002. (iii) Adjusted earnings per share and d iluted EPS for the year ending 31.3.2002, assuming the same information for previous year, also assume that partly paid shares are eligib le for proportionate dividend only. (14 marks) 2003 - May [2] (b) A Ltd. acquired 25% of shares in B Ltd. as on 31.3.2002 for Rs. 3 lakhs. T he B alance Sheet of B Ltd. as on 31.3.2002 is given below:

CA Final Gr. I May 2003

Rs. 5,00,000 5,00,000 10,00,000 5,00,000 2,00,000 3,00,000 10,00,000 During the year ende d 31 .3.20 03 the following are the additional information available: (i) A Ltd. received dividend from B Ltd., for this year ended 31.3.2002 at 40% from the Reserves. (ii) B Ltd., made a profit after loss of Rs. 7 lakhs for the year ended 31.3.2003. (iii) B Ltd., declared a dividend @ 50% for the year ended 31.3.2003 on 30.4.2003. A Ltd. is preparing Consolidated Financial Stateme nts in accordance with AS-21 for its various subsidiaries. Calculate: (i) Goodwill if any on acqu isition of B Ltd. shares. (ii) How A Ltd., will reflect the investment value of B Ltd., in the Conso lidated Financial Statements? (iii) How the dividend received from B Ltd. will be shown in the Conso lidated Financial Statements? (6 marks) 2003 - May [5] (a) XYZ L td., has undertaken a project for expansion of capacity as per the following details: Plan Actual Rs. Rs. April, 2002 2,00,000 2,00,000 May, 2002 2,00,000 3,00,000 June, 2002 10,00,000 July, 2002 1,00,000 August, 2002 2,00,000 1,00,000 September, 2002 5,00,000 7,00,000 The company pays to its branches at the rate of 12% p.a., interest being deb ited on a monthly basis. During the half year company had Rs. 10 lakhs overdraft upto 31 st July, surplus ca sh in August and again overdraft of ove r Rs. 10 lakhs from 1.9.2 002 . The com pany had a strike during June and hence could not co ntinue the work during June. Work was again commenced on 1st July and all the works were completed on Share Capital Reserves amd Surplus Total Fixed Assets Investm ents Current Assets

CA Final Gr. I May 2003

30th September. Assume that expenditure were incurred on 1st day of each month. Calculate: (i) Interest to be capitalised. (ii) Give reaso ns wherever necessary. Assume: (a) Overdraft will be less, if there is no capital expenditure. (b) The Board of Directors based on facts and circumstances of the case has decided that any capital expenditure taking more than 3 months as substantial period of time. (8 marks) 2003 - May [6] Brie fly explain as per relevant Accounting Standard /guidance no tes: (a) TVSM com pany has take n a T ransit Insurance Policy. Suddenly in the year 2002-2003 the percentage of accid ent has gone upto 7% and wants to rec ognise insurance claim as revenue in 20 02-2 003 in accordance with relevant Accounting Standards. Do you agree? (4 marks) (b) SCL Ltd., sells agriculture products to dealers. One of the condition of sale is that interest is payable at the rate of 2% p.m., for delayed paymen ts. Percentage of intent recovery is only 10% on such overdue outstandings due to various reasons. During the year 20022003 the compa ny wants to reco gnise the entire interest receivable. Do you agree? (4 marks) (d) SFL Ltd. is a m utual fund. T he fund values the investment on mark to market basis. The Accountant argues since investment are valued on the above ba sis there is no necessity to disclose depreciation separately in the financial statements. Do you agree? (4 marks) (e) ABC Ltd. was making provision for non-moving stocks based on no issues for the last 12 months upto 31 .3.200 2. T he co mpa ny wants to provide during the year ending 31.3.2003 based on technical evaluation: Total value of stock Rs. 100 lakhs Provision required based on 12 m onths issue Rs. 3.5 lakhs Provision required based on technical evaluation Rs. 2.5 lakhs Does this amo unt to change in Accounting policy? Can the company change the method of provision? (4 marks) (f) XYZ is an exp ort oriented unit and was enjoying tax holiday up to 31.3.2002. No p rovision for deferred tax liability was made in acco unts for the year ended 31.3.2002. W hile finalising the

CA Final Gr. I May 2003

acco unts for the year ended 31.3.20 03, the Accountant says that the entire deferred tax liability upto 31.3.2002 and current years deferred Tax liability should be routed through P rofit and Loss Account as the relevant Accounting Standard has already become mandatory from 1.4.2001. Do you agree? (4 marks) Chapter - 3 : Guidance Notes 2003 - May [6] Briefly explain as per relevant A cco unting Standard /guidance no tes: (c) HSL Ltd. is manufacturing goods for local sale and exports. As on 31st March, 2003, it has the following finished stocks in the factory warehouse: (i) Goo ds meant for local sale Rs. 100 lakhs (cost Rs. 75 lakhs). (ii) Goo ds meant for exports Rs. 50 lakhs (cost Rs. 20 lakhs). Excise duty is pa yable at the rate o f 16% . The com panys M anaging Director says that excise duty is p ayable only on clearance of goods and hence is not a cost. Please advise HSL using guidance note, if any issued on this, including valuation of stock. (4 marks) Chapter - 7 :Accounting for Amalgamations 2003 - M ay [3] The following is the Balance Sheets of RS Ltd. and XY Ltd. as on 31.3.2002: Rs. in 000s Liabilities RS Ltd. XY Ltd. Assets RS Ltd. XY Ltd. Rs. Rs. Rs. Rs. Share Capital: Fixed Assets net of Equity shares of Rs. 100 Depreciation 2,700 850 each fully paid up 2,000 1,000 Investments 700 Reserves and Surplus 800 Sundry Debtors 400 150 10% Debentures 500 Cash & Bank 250 Loan from Financial Profit and Loss Account 800 Institutions 250 400 Bank Overdraft 100 Sundry Creditors 300 300 Proposed Dividend 200 Total 4,050 1,800 Total 4,050 1,800 It was decided that XY Ltd. will acquire the business of RS Ltd. for enjoying the benefit of carry forward of business loss. After acquisition, the XY Ltd. will be renamed as XYZ Ltd. The following scheme has been approved for the merger: (i) XY Ltd. will reduce its shares to Rs. 10 and then consolidate 10 such shares into one share of Rs. 100 each (N ew share).

CA Final Gr. I May 2003 (ii) (iii)

Financial institutions agreed to waive 15% of the loan of XY Ltd. Shareholders of RS Ltd. will be given one new share of X Y L td. in exchange of every share held in RS Ltd. (iv) RS Ltd. will cancel 20% ho lding of XY Ltd. Investments were held at Rs. 25 0 thousand s. (v) After merger the proposed dividend of RS Ltd. will be paid to the shareholders of RS. Ltd. (vi) Authorised Capital of XY L td. will be raised accordingly to carry out the scheme. (vii) Sundry creditors of XY Ltd. includes payable to RS Ltd. Rs. 1,00,000. Pass the necessary entries to im plement the scheme in the books of RS Ltd. and XY Ltd. and prepare a Balance Sheet of XYZ Ltd. (16 marks) Chapter - 11 : Valuation of Shares 2003 - M ay [4] The following is the Balance Sheet of N Ltd. as on 31 st March, 2002: Balance Sheet Liabilities Rs. Assets Rs. 4,00,000 Equity shares of Goodwill 4,00,000 Rs. 10 each fully paid 40,00,000 Building 24,00,000 13.5% Redeemable preference Machinery 22,00,000 shares of Rs. 100 each Furniture 10,00,000 fully paid 20,00,000 Vehicles 18,00,000 General Reserve 16,00,000 Investments 16,00,000 Profit and Loss Account 3,20,000 Stock 11,00,000 Bank Loan (Secured Debtors 18,00,000 against fixed assets) 12,00,000 Bank Balance 3,20,000 Bills Payable 6,00,000 Preliminary Expenses 2,00,000 Creditors 31,00,000 1,28,20,000 1,28,20,000 Further information: (i) Return on capital employed is 20% in similar businesses. (ii) Fixed assets are worth 30% more than book value. Stock is overvalued by Rs. 1,00,000, Debtors are to be reduced by Rs. 20,000. Trade investments, which constitute 10% the total investments are to be valued at 10% b elow cost. (iii) T rade investments were purchased on 1.4.2001. 50% of nonTrade Investments were purchased on 1.4.2000 and the rest on 1.4.1 999 . Non-Trade Investm ents yielded 15% return o n cost. (iv) In 1999-2000 new machinery costing Rs. 2,00,000 was purchased, but wrongly charged to revenue. This amou nt should

CA Final Gr. I May 2003

be adjusted taking depreciation at 10% on reducing value method. (v) In 2000-2001 furniture with a book value of Rs. 1,00,000 was sold for Rs. 60,000. (vi) For calculating goodwill two years purchase o f super profits based on simple average profits of last four years are to be considered. Profits of last four years are as under: 1998-99 Rs. 16 ,00,0 00, 1999-2000 Rs. 18,00,000, 20002001 Rs. 21,00,000, 2001-2002 Rs. 22,00,000. (vii) Additional depreciation provision at the rate of 10% on the additional value of Plant and Machinery alone may be considered for arriving at normal p rofit. Find out the intrinsic value of the equity share. Income-tax and Dividend tax are not to be considered. (16 marks) Chap ter - 12 : Holding C ompan y Acco unts 2003 - May [2] (a) On 31st March, 1996, P Ltd. acquired 1,05,000 shares of Q Ltd. for Rs. 12,00,000. The Balance Sheet of Q Ltd. on that da te was as under: Liabilities Rs.Assets Rs. 1,50,000 equity shares of Fixed Assets 10,50,000 Rs. 10 eac h fully paid 15,00,000 Current Assets 6,45,000 Pre-incorp oration pro fits 30,000 Profit and Loss Account 60,000 Creditors 1,05,000 16,95,000 16,95,000 On 31st March, 2002 the Balance Sheets of two companies were as follows: Liabilities P Ltd. Q Ltd. Assets P Ltd. Q Ltd. Rs. Rs. Rs. Rs. Equity shares of Fixed Assets 79,20,000 23,10,000 Rs. 10 each fully 1,05,000 equity paid. 45,00,000 15,00,000 Shares in Q Ltd. Securities premium 9,00,000 at cost 12,00,000 Pre-incorporation Current Assets 44,10,000 17,55,000 profits 30,000 General Reserve 60,00,000 19,05,000 Profit and Loss Account 15,75,000 4,20,000 Creditors 5,55,000 2,10,000 1,35,30,000 40,65,000 1,35,30,000 40,65,000

CA Final Gr. I May 2003

Directors of Q Ltd . mad e a bo nus issue in the ratio of one equity share of Rs. 1 0 eac h fully paid for eve ry two equity shares held on 31.3.2002. Calculate as on 3 1st M arch, 2 002 (i) Cost of Control/Capital Reserve; (ii) Minority Interest; (iii) Consolidated Profit and Loss Acco unt in each of the following cases: (i) Before issue of bonus shares. (ii) Immed iately after issue of bonus shares. It may be assumed that bonus share s were issued out of p ostacquisition profits by using General Reserve. Prepare a Consolidated Balance Sheet after the bonus issue. (10 marks) Chapter - 16 : Corporate Social Reporting 2003 - May [5] (b) W rite short notes on the following: (ii) Corporate Soc ial Reporting (4 marks) Chapter - 17 : Human Resource Accounting 2003 - May [5] (b) W rite short notes on the following: (iii) Jaggi and Lan model on valuation on group basis of Human Resou rces. (4 marks) Chapter : Financial Reporting for Financial Institutions 2003 - May [5] (b) W rite short notes on the following: (i) Books of account required to be maintained by a Stock Broker (4 marks) Chapter : Environmental Accounting 2003 - May [1] (b ) W rite a note on A ccounting issues involved in Environmental Accounting. (6 marks)

Paper 2
M AN AG EM EN T A CC OU NT ING AN D F INA NC IAL AN AL YSIS Chapter - 1 : Capital Budgeting 2003 - May [1] (c) A compa ny is considering Pro jects X and Y with following information: Project Expected NPV Standard deviation (Rs.) X 1,22,000 90,000 Y 2,25,000 1,20,000 (i) W hich project will you recommend based on the above data? (ii) Exp lain whether your opinion will change, if you use coefficient of variation as a measure of risk.

CA Final Gr. I May 2003 (iii)

W hich measure is more appropriate in this situation and w hy? (3 marks) 2003 - May [4] (a) Armada Leasing Company is considering a proposal to lease out a school bus. The bus can be purchased for Rs. 5,00,000 and, in turn, be leased out at Rs. 1,25 ,000 per year for 8 years with paym ents occurring at the end of each year: (i) Estimate the internal rate of return for the company assuming tax is ignored. (ii) W hat should be the yearly lease paym ent charged by the company in order to earn 20 per cent annual compounded rate of return before e xpenses and taxes? (iii) Calculate the annual lease rent to be charged so as to am ount to 20% after tax annual compound rate of return, based on the following assump tions: (i) Tax rate is 40%; (ii) Straight line depreciation; (iii) Annual expenses of Rs. 50,000; and (iv) Resale value Rs. 1,00,000 after the turn. (16 marks) Chapter - 6 : Indian Stock M arket 2003 - May [3] (a) W rite a note on bu y-back of shares b y comp anies. (10 marks) Cha pter - 7 : F inancia l Services 2003 - May [6] (a) E xp lain the role of M erchant Bankers in Public issues. (6 marks) Chapter - 8 : Portfolio M anagement 2003 - May [1] (b) C yber C omp any is considering two mutually exclusive projec ts. Investment outlay of both the projects is Rs. 5,00,000 and each is expected to have a life of 5 years. Under three possible situations their annual cash flows and probab ilities are as under : Cash Flows (Rs.) Situation Probabilities Project Project A B Good 0.3 6,00,000 5,00,000 Normal 0.4 4,00,000 4,00,000 W orse 0.3 2,00,000 3,00,000 The cost of capital is 7 per cent, which project should be accepted? Explain with workings. (3 marks) 2003 - May [2] (c) An investor is holdin g 1,000 shares of Fatlass Compa ny. Presently the rate of dividend being paid by the compa ny is Rs. 2 per share and the share is being sold at Rs. 25 per share in the

CA Final Gr. I May 2003

market. However, several factors are likely to change during the co urse of the year as indicated below: Existing Revised Risk free rate 12% 10% Market risk premium 6% 4% Beta value 1.4 1.25 Exp ected growth rate 5% 9% In view of the above factors whether the investor sho uld buy, hold or sell the shares? And wh y? (8 marks) 2003 - May [6] (b) Yo ur client is holding the following securities: Particulars of Cost Dividends Market Price BETA Securities Rs. Rs. Rs. Equity Shares: Co. X 8,000 800 8,200 0.8 Co. Y 10,000 800 10,500 0.7 Co. Z 16,000 800 22,000 0.5 PSV Bonds 34,000 3,400 32,300 1.0 Assuming a Risk-free rate of 15%, calculate: Expected rate of return in each, using the Cap ital Asset Pricing Mo del (CAPM ). Average return of the portfolio. (6 marks) Chapter - 11 : Mutual Funds 2003 - May [2] (a) Write short notes on the role of Mutual funds in the Financial market. (6 marks) 2003 - May [5] (b) A mutual fund that had a net asset value of Rs. 20 at the beginning of month-t made income and ca pital gain distribution of Re. 0.0375 and Re. 0.03 per share respectively during the month, and then ended the month with a net asset va lue of R s. 20.0 6. Ca lculate monthly return. (4 marks) Chapter - 12 : Mergers & Acquisitions 2003 - May [5] (c) XYZ L td., is considering merger with ABC Ltd. XYZ Ltd.s shares are currently traded at Rs. 20. It has 2,50,000 shares outstanding and its earnings after taxes (EAT) amount to Rs. 5,00,000. ABC Ltd., has 1,25 ,000 shares outstanding; its current market p rice is Rs. 10 and its EAT are Rs. 1,25,000. The marger will be effected by means of a stoc k swap (exchange). ABC Ltd., has agreed to a plan under which XYZ Ltd., will offer the current market value of ABC Ltd.s shares: (i) W hat is the pre-merger earnings per share (EPS) and P/E ratios of both the co mpanies?

CA Final Gr. I May 2003 (ii)

10

If ABC Ltd.s P/E ratio is 6.4, what is its current market price? W hat is the exchange ratio? What will XYZ Ltd .s post-merger EPS be? (iii) W hat should be the exchange ratio, if XYZ Ltd.s pre-merger and post-merger EPS are to be the same? (10 marks) Chapter - 14 : International Financial M anagement and Raising Capital Abroad 2003 - May [4] (b) W rite short notes on Global Dep ository Receipts and Euro Convertible Bo nds. (4 marks) Chapter - 15 : Foreign Exchange Exposure and Risk Management 2003 - M ay [1] (a) What is a derivative? Briefly explain the recom mendations of the L.C. G upta Co mmittee on d erivatives. (6 marks) Or Briefly explain Capital Asset Pricing Mo del (CAPM ). 2003 - May [2] (b) In March, 2003, the Multinational Industries makes the following assessment of dollar rates per British pound to prevail as on 1.9.03: $/Pound Pro bab ility 1.60 0.15 1.70 0.20 1.80 0.25 1.90 0.20 2.00 0.20 (i) What is the expected spot rate for 1.9.03? (ii) If, as of M arch, 2 003 , the 6-month forward ra te is $ 1.8 0, should the firm sell forward its pound receivables due in September, 2003? (6 marks) Chapter - 16 : Money M arket and their Operations 2003 - May [5] (a) Write short notes on commercial paper. (6 marks) Chapter - 18 : Dividend Policy 2003 - May [3] (b) X Ltd., has 8 lakhs equity shares outstanding at the beginning of the yea r 2003. T he current market price p er share is Rs. 120 . The Board of Directors of the co mpa ny is contemplating Rs. 6.4 per share as dividend. The rate of capitalisation, appropriate to the riskclass to which the company belongs, is 9.6%: (i) Based on M -M Ap proach, calculate the market price of the share of the compa ny, when the dividend is (a) declared; and (b) not declared.

CA Final Gr. I May 2003 (ii)

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How many new sha res are to be issued by the company, if the company desires to fund an investment budget of Rs. 3.20 crores by the end of the year assuming net income for the year will be Rs. 1.60 crores? (10 marks) Chapter - 19 : Miscellaneous 2003 - May [1] (d) P ragya L imited has issued 75 ,000 equity shares of Rs.10 each. The current market price per share is Rs. 2 4. The com pany has a plan to make a rights issue of one new equity share at a price of Rs. 16 for every four share held. You are required to: (i) Calculate the theoretical post-rights price per share; (ii) Calculate the theoretical value of the right alone; (iii) Show the effect o f the rights issue on the wealth of a shareholder, who has 1,000 shares assuming he sells the entire rights; and (iv) Show the effect, if the same shareholder does not take any action and ignores the issue. (8 marks) 2003 - May [6] (c) A company is presently working with an earning before interest and taxes (EBIT) of Rs. 45 lakhs. Its present borrowings are: (Rs. Lakhs) 12% term loan 150 W orking cap ital: Borrowing from Bank at 15% 100 Public deposit at 11% 45 The sales of the company is growing and to support this the company propo ses to obtain additional borrowing of Rs. 50 lakhs expected to cost 16%. The increase in EBIT is expected to be 16%. Calculate the change in interest coverage ratio after the additional borrowing and com mitment. (8 marks)

Paper 3
ADVANCED AUDITING Chapter - 3 : The Company Auditor 2003 - May [8] W rite short notes on the following: (e) Can a statutory auditor act as a book-keeper and as an internal auditor? (4 marks) Chap ter - 6 : Compa ny Au dit -I 2003 - May [3] (a) Surprise Checks help the audito rs to ascertain whether the internal control system is operating effectively in a Company or not. Discuss. (8 marks)

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2003 - M ay [7] (a) W hat is your understand ing of the term true and fair view in a statutory audit report of a co mpa ny? (8 marks) 2003 - May [8] W rite short notes on the following: (d) Personal expenses of directors (4 marks) Chap ter - 9 : Audit Rep orts - I 2003 - M ay [1] {C} As a statutory auditor, how would you deal with the following? (c) During the course of statutory audit of an investment company dealing in shares and securities, inspite of repeated remind ers by the statutory audito r, the compa ny officials d id not provide the investments held by the company at the Balance Sheet date for verification and also did not provide the details for valuation of unlisted shares as on the Balance Sheet date. The statutory auditor, in his final audit report to the shareholders, reported as follows: Subject to the verification of the existence and value of the investments, the B alance Sheet show s a true and fair view. Is the rep ort made by the Statutory aud itor correct? (6 marks) Chapter - 13 : Investigations 2003 - M ay [4] An American Company engaged in the business of manufacturing and d istribution of industrial gases, is interested in acquiring a listed Indian Comp any having a market share of more than 65% of the ind ustrial gas business in India, requ est you to cond uct a Due Diligence of this Indian Company and submit your Report. As due Diligence Auditor, what key areas you will cover in your review? List out the contents of your Due Diligence Review Repo rt that you will subm it to your U SA b ased Client. (16 marks) 2003 - M ay [5] A nationalised bank received an application from an export company seeking sanction of a term loan to expand the existing sea food processing plant. In this connection, the General Manager, who is in charge of Advances, approaches you to conduct a thorough investigation of this limited comp any and submit a confidential report based on which he will decide w hether to sanction this loa n or no t. List out the p oints you will cover in your investigation before submitting your report to the General Manager. (16 marks) Ch apter - 14 : C ost A udit 2003 - May [8] W rite short notes on the following: (c) Reconciliation of cost and financ ial acco unts (4 marks) Ch apter - 15 : A udit o f PSU's a nd P ropriety Audit 2003 - May [8] W rite short notes on the following: (b) Pro priety audit (4 marks)

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Chap ter - 16 : Audit of B anks 2003 - May [3] (b) Discuss the sco pe of concurrent aud it in the banks. (8 marks) Ch apter - 18 : Tax A udit 2003 - May [7] (b) XYZ Private Limited is engaged in the wholesale business of buying and selling silk sarees. The accounts are maintained under the Co mpa nies Act from 1st October to 30th September each year. The Chief Accountant of the Company is requesting the tax auditor to conduct tax audit U/S 44AB of the I.T. Act for the period for which acco unts have b een m aintained under the Companies Act. As the tax auditor of XYZ Private Limited, how will you react to the Chief Accountants request? (8 marks) Chap ter - 20 : Special Aspects 2003 - May [6] As the Auditor of a NBFC , which is engaged in the acquisition of securities and trading in such securities? List out the special points that may be co vered in your audit. (16 marks) Chapter - 21 : Professional Ethics 2003 - May [2] {C} (a) Mr. X, a Chartered Accountant accepted his appointment as tax auditor o f a firm und er Section 44AB, of the Incometax Act, and commenced the tax audit within two days o f his appointment since the client was in a hurry to file Return of Income before the due date . After co mmencing the aud it, Mr. X realised his mistake of accepting this tax audit without sending any communication to the previous tax auditor. In order to rectify his mistake, before signing the tax audit report, he sent a registered post to the previous auditor and obtained the postal acknowledgement. Will Mr. X be held guilty under the CA Act? (6 marks) (b) Mr. J started his practice as Chartered Accountant in 1996. During 1999, he got an offer fo r the po st of Chief Accountant of a Software Developm ent Company, as a fulltime employee, for a salary of Rs. 60,000 per month. On accepting this offer, Mr. J converted his practice into a partnership firm by taking a fresh Chartered Accountant as his partner. M r. J neither intimated the Institute nor obtained permission from the Institute about his employment. Will Mr. J be held guilty under the CA Act? (6 marks) (c) A Chartered Accountant in practice had confirmed in the application made by his articled clerk to the council for permission to study that the normal working hours of his office were 11 a.m. to 6 p.m. and the hours during whole the articled clerk was required to attend college classes were 7 a.m. to 9.30 a.m. On inquiry from Principa l of College, it was

CA Final Gr. I May 2003

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ascertained that the articled clerk used to attend classes fro m 10 a.m. to 1.55 p.m. The Chartered Accountant pleaded ignorance about the articled clerk attending the college classes during office hours. Will the Chartered Accountant be held guilty of professiona l misconduc t? (4 marks) Chapter - 24 : Accounting Standards & Schedule VI 2003 - M ay [1] {C} As a statutory auditor, how would you deal with the following? (a) ABC Ltd., is a company engaged in the business of construction of roads and bridges. It follows com pleted contra ct method fo r all its projects and therefore revenue is recognised only when the contract is completed or substantially completed. For the year ended 31st M arch, 2001, the ABC Ltd., has earned a sum of Rs. 25 lakhs as interest on short-term depo sits with their bank. These deposits are made out of advances received from the customers towards the projects that they are executing. AB C Ltd . while filing their Return of Inco me for the year 3 1st March, 2001 with the tax authority declared NIL income for that year. W hile calculating pro gress p ayments at the yea r-end, the interest of Rs. 25 lakhs earne d was considered as p art of the funds re ceived for the project. Is the treatment given by ABC Ltd. with regard to the interest earne d on short-term deposit correct? (8 marks) (b) XYZ Ltd., as part of overall cost cutting measure announced voluntary retirement scheme (VR S) to its employees, to reduce the employee strength. D uring the first half year ended 30 .9.2002 the company paid a compensation of Rs. 72 lakhs to those who availed the scheme. The Chief Accountant has reflected this paym ent as part of regular salaries and w ages p aid by the compa ny. Is this correct? (6 marks) Chapter - 26 : Miscellaneous 2003 - May [8] W rite short notes on the following: (a) Underwriting function and its internal control procedures (4 marks)

Paper 4
CORPORATE LAWS AND SECRETARIAL PRACTICE Chapter - 1 : Directors M eetings and Proceedings 2003 - May [7] (b) Advise the company with reference to the relevant provisions of the Companies Act about sending notice of board meetings to the following directors: (i) Mr. Rohit, a director, who intimates his inability to attend the next board meeting.

CA Final Gr. I May 2003 (ii)

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Mr. Bipin Ram, who has gone abroad for four months and an alternate director has been appointed in his place. (iii) Mr. James is a director residing abroad representing the foreign collaborator and the Articles of Association of the company provide for sending no tice to such directors. (7 marks) Chapter - 2 : Directors 2003 - May [1] {C} Answer the following: (a) Mr. Busybody has been appointed as a Director of ACE Automobiles Limited on 2nd April, 2002. The articles of association of the com pany provides that the qualification of a director shall be holding of at least 10 shares in the comp any. M r. Busybody applied for 10 equity shares of the company on 31st May, 2002. But the shares were allotted only at the Board meeting held on 19th August, 2002. E xamine with reference to the relevant provisions o f the Companies Act, 1956 whether Mr. Busybody has com plied with the requirements relating to qualification shares. If not, what are the co nsequences? (5 marks) (c) Exp lain the circumstances under which a Director retiring at an annual general meeting shall be deemed to have been re-appointed even though no such appointment has been made. (7 marks) 2003 - M ay [4] (a) Mr. Ram is a Director of ABC Limited, XYZ Limited and PQR Limited. ABC Limited was regular in filing annual returns, but did not file annu al accounts for the year ended 31st March, 2002. Further ABC Limited failed to pay interest on loans taken from a public financial institution from 1st January, 2002 onwards and also failed to repay the matured depo sits on due date from 1st Ap ril, 2002 o nwards. M r. Ram is prop osed to be appointed as additiona l directo r of M N Limited on 1st June, 2003. MN Limited has sought a declaration from Mr. Ram to the effect that the disqualification specified in Section 274(1)(g) of the Companies Act, 1956 is not applicable in his case. Mr. Ram seeks your advice on the following: (i) W hether it is in order for him to give the declaration sought by M N Limited in view of the defaults committed by ABC Limited. (ii) W hether he can continue as a Director in XYZ Limited and PQR Limited and also seek reappointment when he retires by rotation at the annual general meetings of respective companies to be held in September, 2003. Advise explaining the relevant provisions o f the Co mpa nies Act, 1956. W ould your answer be different, if Mr. Ram resigned his office of director in ABC Limited on 31st December, 2002? (8 marks)

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2003 - May [5] (a) M/s Supreme Techno logies L imited propose to appoint Mr. E and Mr. F as whole-time directors for a period of three years with effect from 1st June, 2003. T he co mpa ny pro poses to pay a consolidated salary of Rs. 80,000 per month to each of them. Mr. D, the managing director of the company, has been appointed for a period o f five years with effect from 1st January, 2001 on a remuneration payable in the form of commission at the rate of five per cent of net profit subject to a minimum remuneration of Rs. 80,000 per month. The effective capital of the company at the end of the financial year ending 31st December, 2002 is Rs. 4.5 crores and it has been increased to Rs. 5.5 crore s on 1st April, 2003 by way of right issue of equity shares. The company did not repay public deposits on the date of maturity from 1st January, 20 03 o nward s, but the d efault was mad e goo d on 1st Ap ril, 2003. The com pany seeks yo ur advice on the steps to be taken to comp ly with the requirements of Section 269 read with Schedule XIII to the Companies Act, 1956 with regard to the propo sed appo intment of M r. E and Mr. F as whole-time directors. Advise explaining the relevant provisions. (8 marks) 2003 - May [8] (b) XYZ Company Ltd. in its annual general meeting appointed all its directo rs by passing o ne single resolution. No objection was made to the resolution. Exa mine the validity of appointment of directors explaining the relevant provisions of the Companies Act, 1956. W ill it make any difference, if XYZ Compan y was a priva te com pany? (7 marks) 2003 - May [9] (b) Advise the Board o f Directors of a public company about their po wers in re spect of the following proposals explaining the relevant provisions of the Companies Act, 1956: (i) Donation of Rs. 5,00,000 to a hospital established exclusively for the benefit of emp loyees. (ii) Buy-back of shares of the company for the first time upto 10% of the paid-up equity share ca pital. (iii) Delegating to the managing d irector of the comp any the p ower to invest surplus funds of the company in the shares of some comp anies. (7 marks) Chapter - 4 : Compromise, Arrangement & Reconstruction 2003 - May [8] (a) Overambitious Limited became sick. The shareholders and creditors of the company passed resolutions in meetings convened

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by the company approving a scheme of reconstruction of the company. The scheme provides for sale of vac ant land and utilisation of the sale proceeds for payment of outstanding wages, sales tax dues and repayment of part of the loan taken from the bank. The unsecured creditors will have to forego 50% of their claims aga inst the company and receive debentures for the balance amount. Advise the directors about the steps to be taken to give effect to the proposed scheme inspite of objec tions raised by a few share holders and creditors. (8 marks) Chapter - 7 : Winding up 2003 - May [7] (a) M/s XY Z Limited is being wound up by the Court. The official liquidator after realisation of the assets has an amount of Rs. 56,0 0,00 0 at his d isposal towards payment of creditors of the company. Details of creditors are as under: Rs. (i) Dues to secured creditors 40,00,000 (ii) Dues to workers 30,00,000 (iii) Taxes and duties payable to Government authorities 4,00,000 (iv) Unsecured creditors 80,00,000 Since the availab le amo unt is insufficient to mee t the claims of all the creditors, explain the procedure to be followed for payment of dues as provided in the Companies Act, 1956, assuming that the company has created a charge on all the assets of the company in favour of the secured creditors. (8 marks) Chapter - 8 : Miscellaneous Provisions 2003 - May [6] (b) E xamine with reference to the provisions of the Companies Act, 1956 whether the following companies can be treated as foreign com panies: (i) A company incorporated outside India having a share registration office at M umb ai. (ii) Indian citizens incorporated a company in Singapore for the purpose of carrying on business there. (7 marks) 2003 - May [9] (a) Ram and Co. Ltd. having paid up share capital of Rs. 40 lakhs appointed on Ist January, 1995 Lakshman and Co. Pvt. Ltd. as sole selling agent for a period of 5 years with effect from Ist January,1995 with the approval of the company in general meeting. The directors of Lakshman and Co. Pvt Ltd. were ho lding 4 0,00 0 equity shares of Rs. 10 each fully paid-up in Ram and C o. Ltd. since Ist December, 1994.

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State with reasons whether the appointment is valid. Will your answer be different, if Lakshman and Co . Pvt. Ltd. had acquired the aforesaid shares only on Ist December, 1995? (8 marks) Ch apter - 9 : Accou nts & Audit 2003 - May [5] (b) (i) W hat is the liability of an aud itor for fail ure to point out in his report that dividend is paid out of capital? (ii) Can an auditor be disqualified for indebtedness in the following cases? (a) W here he is recov ering his fees on a progressive basis even though the job is not complete. (b) W here the auditor's firm has purchased goods from the auditee comp any and no t paid for them for o ver six months. (7 marks) 2003 - May [6] (a) The Profit and Loss Account and Balance Sheet of a listed company have not been prepared in accordance with some of the app licable accounting standards. Examine the responsibility of the directors and auditors in this regard under the Companies Act, 1956. (8 marks) Chapter - 10 : Foreign Exchange Management Act, 1999 2003 - May [2] {C} Answer the following: (a) Examine whether the following branches can be co nsidered as a 'Person resident in India' under Fore ign Ex change M anagement Act, 1999: (i) ABC Limited, a com pany incorp orated in Ind ia established a branch at London on 1st January, 2003. (ii) M/s XY Z, a foreign company, established a branch at New Delhi on 1st January, 2003. The branch at New Delhi controls a branch at Colombo. (7 marks) (b) M r. Ramesh is an exporter of goods and services. Explain briefly his duties under Foreign E xchange M anagement Act, 1 999 with regard to the following: (i) Furnishing of informa tion relating to such expo rts. (ii) Realisation and repatriation of foreign exchange on such exports. (7 marks) Chapter - 11 : SEBI 2003 - May [3] {C} Answer the following: (a) SEBI received a c omp laint from an investor that he has not received the payment due to him from a registered stock broker. Explain the action that can be taken by SEB I against the stock broker under the provisions of Securities and Exchange Board of India Act, 1992 and

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the factors that will be taken into account while taking such action. (8 marks) (b) Super Chemicals Limited, a closely held unlisted company, is in need of about Rs. 20 crores for financing its expansion programme. The company has not declared and dividend so far though it has made good profits from the commencement of commercial operations of 1st January, 1995. The paid-up capital of the company was increased to Rs. 3.5 crores on 1st April, 1998. The net worth of the comp any as per latest audited Balance Sheet as at 31st March, 2002 is Rs. 5 crores. The com pany seeks yo ur advice as to its eligibility to raise R s. 20 crores through public issue of equity shares at a premium. Advise with reference to relevant guidelines issued by SEBI. (8 marks) Chap ter - 12 : Interpretation of Statutes, Deed s and Do cuments 2003 - May [3] {C} Answer the following: (c) Exp lain the rules relating to interpretation of the terms 'subject to' and 'notwithstanding' used in the provisions of an Act. State the effect of the term 'notwithstanding anything contained in this A ct' used in Section 408 of the Companies Act empowering the Central Go vernm ent to prevent opp ression or mismanagem ent. (8 marks) Chap ter - 13 : Corp orate Secretarial Pra ctice - I 2003 - May [4] (b) A private company having a p aid-up cap ital of Rs. 6 crores has been converted into a public company. The company proposes to constitute an Audit Committee. Draft a board resolution covering the following matters taking into account the provisions of the Companies Act, if any, in this regard: (i) Memb ers of the audit committee (ii) Chairman of the audit committee (iii) Quorum for a meeting of the audit committee (iv) Any two main functions of the committee. (7 marks) Chapter - 15 : Securities Contracts (Regulation) Act, 1956 2003 - May [1] {C} Answer the following: (b) M/s AB & C ompany, a member of a recognised stock exchange propose to buy and sell shares of a particular company on behalf of investors as well as o n their own account. They see k your advice as to restrictions, if any, under Securities Contracts (R egulatio n) Act, 1956 for dealing in securities on their own account. Advise. (5 marks)

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Rampur Stock E xchange wants to get itself recognized. Explain: (i) W ho enjoys the power to recognize stock exchange? (ii) W hat information will have to be provided with the application for recognition? (5 marks)

Shuchita Prakashan (P) Ltd. 25/19, L.I.C. Colony, Tagore Town, ALLAHABAD 211002