# Special Studies in Finance Prelims Questions 2012

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PRELIMINARY EXAMINATION

00000012 / 3044 / 0005 / BMS / Special Studies in Finance (SSF) / V Semester / Marks 60 M / 2.00 Hrs. Seat ————

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Note:

1. Attempt both the sections on same answer sheet
2. All the questions are compulsory in Section I and attempt any three questions from Section II
3. Working notes should be part of the answers
4. Figures to indicate right will give you full Marks
5. Use of Simple Calculator is allowed

SECTION I

Q1 a. Concept TestingÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â Â Â Â Â Â Â Â Â Â Â  05

1)Â Â Â Â Â  Flash ReportÂ Â Â Â Â Â Â Â Â Â Â Â Â Â  2) ESOPÂ Â Â Â Â Â Â Â Â  3) AS 31Â Â Â Â Â Â Â Â Â  4) Non – Monetary items as per AS 11

5) AS 17

Q1 b. Attempt any twoÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  10

1)Â Â Â Â Â  Mahesh used his car of the value Rs. 89,730 for a lease rental of Rs. 30,000 payable at the end of each year of 5 years. Calculate the interest rate implicit in the lease.

2)Â Â Â Â Â  The following data pertain to division of Nidhi incorporated. The companyâ€™s required rate of return on invested capital is 8%.

 Particulars Division Sales value (Rs.) ? Income (Rs.) ? Average investment (Rs.) ? Sales margin % 25% Capital turnover (Times ) ? ROI (%) 25% Residual income/ economic value added (Rs.) 1,20,000

3)Â Â Â Â Â  Minal Ltd. acquired a machine on 1.4.2008 costing US \$ 40,000. The suppliers agreed following terms of payment:

 Date Terms of payment 1.4.2008 1.4.2009 1.4.2010 Down payment 50% 25% 25%

The company depreciates machinery @ 10% on the straight line method. The rate of exchange is steady at US \$ 1= Rs.40 up to 30.9.2009. on 1.10.2009, due to an official revaluation of rates , the exchange rateÂ  is adjustedÂ  to US \$ 1=48. the extractsÂ  of the relevant entries in the profit & loss A/c. for the year ended 31st March 2010Â  and the balance sheet as on date, showing such workings as necessary as per AS-11.

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Q2. Case Study Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  15

You are approached by financial institution to appraise the following project:

Name of the borrowers: NIDHI Chemicals Private Limited

Proposed loan is taken to set up a chemical unit for processing industrial waste into a marketable product XYZ. The product has a demand for 50000 liters. The processing costs include variable cost of Rs. 5 per liter and fixes cost (excluding depreciation) Rs. 30000 per year. Advertising expenses are also expected to be Rs. 20000 per year.

XYZ can be sold at Rs.10 per liter. Raw material (Industrial Waste) is available at Re. 1 per liter. The capital cost of Chemical Unit is Rs. 750000.

The company has applied for a loan of Rs. 600000 for a term of 10 years and that is over the life of the asset. The promoters of the company are young, dynamic and highly qualified people but are doing the venture for the first time. The promoters are unable to provide any collateral security for the loan expect personal Guarantee for their parents.

They have thought of this project after market research. The said research has stated in the risk factors about invasion of Malaysia in chemical market and drastic reduction in selling price of similar products.

The above unit is a SSI unit and its average tax rate is 20%. Interest rate is 12% p.a.

Loan is repayable equally in 10 annual installments along with interest at the end of each year. You are required to:

1. Give the cash flow generated by the above project for the first 3 years only.
2. Calculate the Debt Service Coverage Ratio for the above 3 years.
3. 3.Â Â Â Â Â  Prepare the flash report presenting the above information to the financial institution.

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SECTION II (Any Three)

Q3. M/s. Sehwag and Co. purchased a machinery worth Rs. 7,92,500/- (cash pirce) from M/s Gambhir and Bros. on 1st January 2008. It was agreed by both the parties that eh payment of machinery will be done as under:

Down payment Rs. 1,58,500/- on the date of purchase and the balance will be discharge in four half-yearly installment of RS. 2 lakhs each, commencing from 30th June, 2008.

Your are required to prepare Machinery Account and M/s. Gambhir and Bros. account in the books of M/s. Sehwag and Co. for calendar years 2008 and 2008, considering that M/s. Shewag and co. closes its books of account on 31st December every year and charges depreciation on machinery @10% p.a. on written Down Value Method.

Q4. From the following information for NIDHI Ltd. For the year ended 31st March 2009 calculate the deferred tax asset/ liability as per AS-22.

 Â Accounting profit Rs. 1,00,000 Book profit as per MAT (minimum alternate tax ) Rs. 90,000 Profit as per income tax act Rs. 10,000 Tax rate 30% MAT rate 10%

Q5. PASS Journal Entries for the following transactions in foreign currency and in the books of nidhi Ltd. Nidhi Ltd. imported raw materials worth US \$ 40,000 on 12th December 2004. The Exchange rate for US \$ 1 as on 12-12-2004 was Rs. 46.50Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  10

 Â Â Â Â Â Â Â Â  Date of Payment Â Â Â Â Â Â Â  Payment Exchange rate for 1US \$ 23-02-2005 US \$ 18,000 RS.48.75 21-03-2005 US \$ 12,000 RS. 47.25 10-04-2005 US \$ 10.000 Rs. 49.50

The accounting year of the company ended on 31st March .The exchange rate as on 31st March 2005 for US\$1was Rs. 46

Q6. Short Notes (Any Two)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  10

a)Â Â Â Â Â  Profit Maximization v/s Wealth Maximization

b)Â Â Â Â Â  Steps involve in Term Loan

c)Â Â Â Â Â  Distinguish Between Hire Purchase and Lease

d)Â Â Â Â  Explain Merchant Banking

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