Special Studies in Finance Prelims Question Paper 2013 – ScoreBMS

Q.1 a) Each Question of 1 Mark (5C x 1M = 5M)

i)        AS – 17.

ii)      Sweat Equity.

iii)    Sensitivity Analysis

iv)    NBFC

v)      Private Placement

Q.1 b) Each Question of 5 Marks. Attempt any two.            (5 x 2 = 10 Marks)

i)        Coal India Ltd. IPO opened on 6^th October & closed on 8^th October – Company issued 20 crore shares in the price band 1200 – 1300. Public applied for 200 crore shares. The BRLM J.P. Morgan in consultation with company announced issue price  1250. Average Price of application receive is  1270. Pass necessary journal entries in books of Coal India Ltd. Refund & Allotment of shares of face value of  10 was done on 20^th Oct. 2010.                     (5 Marks)

ii)      Ram Prasad takes an asset on finance lease from Shyam Prasad the terms of which are given below:                                                                                                                     (5 Marks)

Lease term:                                                                              4 years

Fair value at the inception of the lease;                                  12,50,000

Lease rent:                                                                               4,00,000 at the end of year

Guaranteed residual value;                                                     85,000

Expected residual value                                                          1,88,900

Implicit rate of interest                                                           15%

You are required to show how the accounting is done in the books of lessor.

iii)    A Colliery company purchase machine on the hire – purchase system over a period of five years, payable by annual instalments of 1,200. The machine company charge interest at the rate of 5% p.a. on yearly balances. Show the accounts in the books of the buyer. Depreciation to be reckoned at 10% p.a., The cash value of the machine may be taken as the present value of an annuity of 1,200 for 5 years at 5% interest. Reference to the Annuity Table shows that the present value of an annuity of Re.1 for 5 years at 5% p.a. is 4.329477.

(5 Marks)

(Q.2) (a) Mayur imported goods from US company worth US $ 5 lakhs on 10-08-2004 when exchange rate was US $ 1=  42.90. He agreed to pay 5 installments as below:

The rate of exchange was  43.00 as on 31-03-2005. Pass journal entries (including those for cash) in the books of Mayur in accordance with AS 11.                                                                      (10 Marks)

(b) TT Ltd. purchased a machine on Hire Purchase System. The total cost price of the machine was  30,00,000 payable 20% down and four annual installments of  8,40,000, 7,80,000, 7,20,000 & 6,60,000 at the end of 1^st, 2^nd, 3^rd & 4^th year respectively.

Calculate the interest included in each year’s installment assuming that the sales were made at the beginning of the year.                                                                                                     (5 Marks)                                                                                           

SECTION – II  (Attempt any 3)

Q.3) Explain Role and function of Merchant banker in Book building process.                 (10 Marks)

Q.4) You are approached by a financial institution to appraise the following project:       (10 Marks)  

Name of the Borrowers: Anju Devi 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 litres. The processing costs include variable cost of  5 per litre and fixed cost (excluding depreciation)  30000 per year. Advertising expenses are also expected to be  20000 per year.

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

The company has applied for a loan of  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 of 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 follow generated by the above project for the first 3 years only.
2. Calculate the Debt Service Coverage Ratio for the above 3 years.
3. Prepare the flash report presenting the above information to the financial institution.

Q.5)  The Income Statement and Balance Sheet of Alpha Company Ltd. is given below: (10Marks)

INCOME STATEMENT

BALANCE SHEET

The cost of equity and cost of debt is 14% and 8% respectively. The company pays 30% corporate tax.

From the information given you are required to calculate the EVA. Also, calculate MVA on the basis of Market value of equity capital.

Q.6) You are required to pass journal entries in the books of Y Ltd. In respect of following transactions.

a)      300 sweat equity shares of 10 each were issued at  40 to directors. Market price was  200.

b)     600 sweat equity shares of 10 each were issued free of cost to employee for providing Technical Knowhow. Market price was  200

c)      900 equity shares of 10 each were issued to vendor for purchase of Trademark. Market price per share was  200                                                                                                           (10 Marks)

Q.7) (a) From the following details of Arvind Mills Ltd. for the year ended 31-03-2006, calculate the deferred tax asset/liability as per AS 22 :                                                                            (5 Marks)

Note : MAT – Minimum Alternative Tax.                                                     

(b)

State Reportable segment as per AS – 17                                                                  (5 Marks)