Solved PYQs 1-4 of 360: IAS (CSE) Mains Commerce Accountancy | PYQ 2024
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Question 1 | PYQ 2024250 words | 15 marks
Six years ago, a machine was purchased for ₹3,00,000. It has been depreciated to a book value of ₹1,80,000. Its economic life was 15 years with no salvage value. If this machine is replaced by a new machine costing ₹4,50,000, the combined cost would be reduced by ₹60,000 for the next 10 years. The old machine could also be sold for ₹10,000. The cost of capital is 10% . The new machine will be depreciated on a straight-line basis over eight years life with ₹50,000 as salvage value.
Assuming the company՚s tax rate to be 55% and using the NPV method, state whether the old machine should be replaced or not.
The present value factor at 10% is as follows:
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
|---|---|---|---|---|---|---|---|---|
| PVF | 0.909 | 0.826 | 0.751 | 0.683 | 0.621 | 0.564 | 0.513 | 0.467 |
Answer
Step 1: Given Data
Old Machine Book Value = ₹1,80,000
Old Machine Sale Value = ₹10,000
New Machine Cost = ₹4,50,000
Combined Cost Savings Annual = ₹60,000
Salvage Value of New Machine After 8 Years = ₹50,000
Economic Life of New Machine = 8 Years
Tax Rate = 55% 0.55
Cost of Capital Discount Rate = 10%
… (220 more words) …
Financial ManagementDesigning of Capital StructureTypes of Leverages-Combined
Question 2 | PYQ 2024250 words | 15 marks
How will you measure the degree of combined leverage? Also describe the effects of combined leverage along with suitable examples.
Answer
Combined Leverage
When a company leverages both financial and operational aspects to increase the impact of any sales change on earnings per share, it is known as combined leverage. This concept can also be referred to as composite leverage or total leverage.
Combined leverage illustrates the relationship between sales revenue and taxable income.
To calculat…
… (491 more words) …
Financial ManagementComponents of Working CapitalCash, Inventory and Receivables
Question 3 | PYQ 2024250 words | 15 marks
The Board of Directors of a company asks to prepare a statement showing working capital estimates for a level of activity of 15,600 units of production. The following information is available for calculation:
(A) Per Unit Cost and Selling price:
Raw materials Rs 90
Labour ₹40
Overheads Rs 75
Total Rs 205
Profit Rs 60
Selling price Rs 265
(B)
(i) Raw materials are in stock on an average for one month.
(ii) Raw materials are in process on an average for two weeks.
(iii) Finished goods are in stock on an average for one month.
(iv) Credit allowed by suppliers — one month.
(v) Credit allowed to debtors — two months.
(vi) Lag in payment of wages — 1.5 weeks.
(vii) Lag in payment of overheads is one month.
20% of the production is sold against cash. Cash in hand is expected to be ₹60,000. It is to be assumed that production is carried on evenly, throughout the year, wages and overheads accrue similarly and the time period of 4 weeks is equivalent to one month.
Answer
Step 1: Given are the following values:
Production Level: 15,600 units
Per Unit Cost:
Raw Material = ₹90
Labour = ₹40
Overheads = ₹75
Total Cost Price = ₹205
Selling Price = Cost Price + Profit = ₹265
Cash Sales: 20%
Credit Sales: 80%
Cash in Hand: ₹60,000
Step 2: Time Allocated:
Stock of Raw Material: 1 month
Work in Process: 2 weeks 0.5 months
Stock of Finished Goods…
… (106 more words) …
Financing DecisionsTheories of Capital StructureNet Income (NI) Approach
Question 4 | PYQ 2024250 words | 15 marks
A company has earnings of ₹1,00,000. The capital structure of the company contains debt as well as equity in which debt is ₹4,00,000 borrowed at the rate of 10% . Presently, the cost of equity capital of the company is 12.50% . Find out the total value of the company and the overall cost of capital using Net Income approach. If debt is increased or reduced by ₹1,00,000, what will be the effect on the value of the company and on overall cost of capital as per the Net Income approach?
Answer
Problem solving using the Net Income NI Approach in capital structure.
Earnings (EBIT) = ₹1,00,000
Debt (D) = ₹4,00,000
Interest Rate on Debt = 10%
Cost of Equity (Ke) = 12.5%
Step 1: Find the Interest on Debt
… (179 more words) …
Financial Markets and InstitutionsFinancial Market Instruments
Financial Markets and InstitutionsInnovative Debt Instruments