CWA/ICWA Final :: Management Accounting - Financial Strategy and Reporting : June 2007

(i)	The value of EBIT at which EPS is Zero is called A. Financial break even point B. EBIT indifference point C. Break even EBIT D. All of the above.
(ii)	Net float means A. Difference between payment float and collection float B. The amount excess of the bank balance for which cheques may be issued C. When the net float is positive the balance in banks books is higher than the balance in the firm's books. D. A and C
(iii)	EPS is nil only when A. EBIT is nil B. EBIT equals interest C. Tax rate is very high D. Interest is very high
(iv)	Which of the following can be termed as the objectives of inflation accounting? A. Improving quality of financial information for decision making B. Providing a better basis for inter period comparison of financial statements. C. To give effect to the changes in purchasing power of money while measuring the income and expenses during an accounting period. D. All of (A), (B) and (C) above
(v)	Hedging through forwards, futures, swaps etc, is an example of A. Risk avoidance B. Lose control C. Risk sharing D. Risk transfer.
(vi)	High asset turnover ratio indicates A. Large amount of investment in the fixed assets B. Large amount of investment in the current assets C. Large amount of sales value in comparison to total assets D. Inefficient utilization of the assets.
(vii)	A good responsibility accounting and reporting system is dependent upon A. The correct allocation of controllable fixed costs B. The correct allocation of controllable variable costs C. Identification of the management level at which all costs are controllable D. The proper delegation of responsibility and authority
(viii)	Disha Co. purchased a three-month US Treasury bill. Disha's policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months of less when purchased. How should this purchase be reported in Disha's statement of cash flows? A. As an outflow from investing activities B. As an outflow from financing activities C. As an outflow from operating activities D. Not reported in cash flow statement.

When the restrictions were imposed at the end of the year 2004, the company recognized the impairment loss by determining the recoverable amount of assets at Rs. 3,400 lakhs. In 2006, Government lifted the restriction imposed on the export and due to this favourable change MKCLtd. re-estimated recoverable amount, which was estimated at Rs. 4,275 lakhs.

The amortization period for Goodwill to be taken as 5 years as per AS – 14.

Required:

(i)	Calculation and allocation of impairment loss at the end of year 2004.
(ii)	Reversal of an impairment loss and its allocation as per AS – 28 at the end of year 2006.

Ascertain in the hands of Milton Ltd. keeping in view the relevant Accounting Standard

(i)	The annual lease payment
(ii)	The unearned finance income.

Note: Extracted from the table of PV of Re: 1

Year PVIF at 10%:

0 1,000

1 0.909

2 0826

3 0.751

4 0.683

He purchased one 3 months call with a striking price of Rs. 42 for Rs. 42 for Rs. 2 premium and paid Re. 1 per share premium for a 3 months put with a striking price of Rs. 40.

(i)	Determine the Investor's position, if the tie-up offer bids the price of XYZ Corporation's stock up to Rs. 43 in 3 months.
(ii)	Determine the Investors ending position, if the tie-up programme fails and the price of the stocks falls to Rs. 36 in 3 months.

(1)

Gross value added statement; and

(2)

Statement showing reconciliation of gross value added with Profit Before Taxation. Profit & Loss Account of Dark Ltd. for the year ended 31st March, 2007 Income Rs. in thousands Rs. in thousands Sales less Returns Dividends & Interest Miscellaneous Income 15,27,956 130 474 (A) 15,28,560 Expenditure Production & Operational Expenses: Decrease in inventory of Finished Goods Consumption of Raw Materials Power & Lighting Wages, Salaries & Bonus Staff Welfare Expenses Excise Duty Other Manufacturing Expenses 26,054 7,40,821 1,20,030 3,81,760 26,240 14,540 32,565 13,42,010 Administrative Expenses: Directors' Remuneration Other Administrative Expenses 7,810 32,565 40, 450 Interest on: 9% Mortgage Debentures Long-term Loan from financial institution Bank Overdraft Depreciation on Fixed Assets       (B) Profit before Taxation: (A) — (B) Provision for Income Tax @ 35.875% Profit after Taxation Balance of Account as per last Balance Sheet 14,400 10,000     100 24,500 50,600 14,57,560 71,000 25,470 45,530 6,300     51,830 Transferred to General Reserves 40% of Rs. 45,530 Proposed Dividend @ 22% Tax on Distributed Profits @ 12.81% Surplus carried to Balance Sheet 18,212 22,000     2,818 43,030     8,800

	(Rs. in lakhs)	(Rs. in lakhs)
Fixed assets Current Assets Creditors falling due within 1 year Net Current Assets Equity Shares (Rs. 10 par) 7% Preference Shares (Rs. 100 par) Share Premium Account Profit & Loss Account 9% Debentures	590.00 (260.00)	1535.00 330.00 1865.00 200.00 100.00 110.00 655.00 800.00 1,865.00

Additional Information:

(1)	The current price of Equity Shares is Rs. 75 ex-dividend. The projected EPS and DPS for the current year are Rs. 16 and Rs. 10 respectively.
(2)	Dividend indicated on Preference Shares is 11%. The current price of the Preference Shares is Rs. 78.
(3)	The Debenture Interest has also been paid recently and the Debentures are currently trading at Rs. 80 per Rs. 100 nominal.
(4)	Corporation Tax: 35 per cent: Divident Tax: 10 per cent.
Requirements:
(i)	Calculate the gearing ratio for Penguin India Ltd. using A. Book Value B. Market Value
(ii)	Calculate the Company's Weighted Average Cost of Capital (WACC) using the respective market values as weighting factors.

The applicable price indices are given below:

Period	Inventory	Fixed Assets
31.12.2006 31.12.2005 01.01.2005 Average for 2006 Average for Nov./Dec. '05 Average for Nov./Dec. '06	142 — — 130 120 140	104 90 80 96 — —

You are required to reconstruct the Financial Statements as per the CCA method. Ignore MWCA (Monetary Working Capital Adjustment) and Gearing Adjustment. All workings should form part of your answer.