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CA Inter Suggested answers for Financial Management and Economics for Finance Subject

CA Inter Suggested answers for Financial Management and Economics for Finance Subject

  • 22-January-2022
  • CA-Inter
CA Inter Dec 2021 Financial Management and Economics for Finance Question Paper:

ICAI CA Inter Dec 2021 Question. 1 (a)

A factoring firm has offered a company to buy its accounts receivables.

The relevant information is given below.

(i) The current average collection period for the company's debt is 80 days and 1/2 % of debtors default. The factor has agreed to pay over money due, to the company after 60 days and it will suffer all the losses of bad debts also.

(ii)    Factor will charge commission @2%.

(iii)   The company spends Rs. 1,00,000 p.a. on administration of debtor. These are avoidable cost.

(iv)   Annual credit sales are Rs. 90 lakhs. Total variable costs is 80% of sales. The company's cost of borrowing is 15% per annum. Assume 365 days in a year.

Should the company enter into agreement with factoring firm?



ICAI CA Inter Dec 2021 Question. 1 (b)

Book value of capital structure of B Ltd. is as follows.

SourcesAmount
12%, 6,000 Debentures @ Rs. 100 each 6,00,000Rs. 6,00,000
Retained earningsRs. 4,50,000
4,500 Equity shares @ Rs. 100 eachRs. 4,50,000
 Rs. 15,00,000

Currently, the market value of debenture is Rs. 110 per debenture and equity share is Rs. 180 per share. The expected rate of return to equity shareholder is 24% p. a. Company is paying tax @30%. Calculate WACC on the basis of market value weights.


ICAI CA Inter Dec 2021 Question. 1 (c
)

 X Ltd. is a multinational company. Current market price per share is Rs. 52,185. During the F.Y. 2020-21, the company paid Rs. 140 as dividend per share. The company is expected to grow @12% p.a. for next four years, then 5% p.a. for an indefinite period. Expected rate of return of shareholders is 18% p.a.

(i)      Find out intrinsic value per share.

(ii)    State whether shares are overpriced or underpriced.

Year12345
Discounting factor @18%0.8470.7180.6080.5150.436


ICAI CA Inter Dec 2021 Question. 1 (d)

A garment trader is preparing cash forecast for first three months of calendar year 2021. His estimated sales for the forecasted periods are as below:

 January (Rs. '000)February (Rs. '000)March (Rs. '000)
Totals Sales600600800

i. The trader sells directly to public against cash payments and to other entities on credit. Credit sales are expected to be four times the value of direct sales to public. He expects 15% customers to pay in the month in which credit sales are made, 25% to pay in the next month and 58% to pay in the next to next month. The outstanding balance is expected to be written off.

ii. Purchases of goods are made in the month prior to sales and it amounts to 90% of sales and are made on credit. Payments of these occur in the month after the purchase. No inventories of goods are held.

iii. Cash balance as on 1st January, 2021 is Rs. 50,000.

iv. 
Actual sales for the last two months of calendar year 2020 are as Below :

 November (Rs. ’000)December (Rs. ’000)
Total Sales640880

You are required to prepare a monthly cash budget for the three months from January to March, 2021.


ICAI CA Inter Dec 2021 Question. 2 

Following are the data in respect of ABC Industries for the year ended 31st March, 2021:

Debt to total assets ratio0.40
Long-term debts to equity ratio30%
Gross profit margin on sales20%
Accounts receivables period36 days
Quick ratio0.9
Inventory holding period55 days 
Cost of goods soldRs. 64,00,000

LiabilitiesRs.AssetsRs.
Equity share Capital20,00,000Fixed assets 
Reserves & surplus Inventories 
Long-term debts Accounts receivable 
Accounts payable  Cash 
Total50,00,000Total 

Required:

Complete the Balance Sheet of ABC Industries as on 31 March, 2021 All calculations should be in nearest Rupee. Assume 360 days in a year.


ICAI CA Inter Dec 2021 Question. 3

Earnings before interest and tax of a company are Rs. 4,50,000. Currently the company has Rs. 80,000 Equity shares of Rs. 10 each, retained earnings of Rs. 12,00,000. It pays annual interest of Rs. 1,20,000 on 12% Debentures. The company proposes to take up an expansion scheme for which it needs additional fund of Rs. 6,00,000. It is anticipated that after expansion, the company will be able to achieve the same return on investment as at present. It can raise fund either through debts at rate of 12% p.a. or by issuing Equity shares at par. Tax rate is 40%.

Required:

Compute the earning per share if:

(i)      The additional funds were raised through debts.

(ii)    The additional funds were raised by issue of Equity shares.

Advise whether the company should go for expansion plan and which sources of finance should be preferred.


ICAI CA Inter Dec 2021 Question. 4

Stand Ltd is contemplating replacement of one of it’s machines which has become outdated and inefficient. It’s financial manager has prepared a report outlining two possible replacement machines. The details of each machine are as follows:-

 Machine 1Machine 2
Initial investmentRs. 12,00,000Rs. 16,00,000
Estimated useful life3 years5 years
Residual valueRs. 1,20,000Rs. 1,00,000 
Contribution per annumRs. 11,60,000Rs. 12,00,000
Fixed maintenance costs per annumRs. 40,000Rs. 80,000
Other fixed operating costs per annumRs. 7,20,000 Rs. 6,10,000

The maintenance costs are payable annually in advance. All other cash flows apart from the initial investment assumed to occur at the end of each year. Depreciation has been calculated by straight line method and has been included in other fixed operating costs. The expected cost of capital for this project is assumed as 12% p.a.

Required:

(i)
Which machine is more beneficial, using Annualized Equivalent Approach? Ignore tax.

(ii) Calculate the sensitivity of your recommendation in part (i) to change In the contribution generated by machine 1.

Year123456
PVIF0.12,t0.8930.7970.7120.6360.5670.507
PVIFA0.12,t0.8931.6902.4023.0383.6054.112


ICAI CA Inter Dec 2021 Question. 5

Information of A Ltd. is given below:

·         Earnings after tax 5% on sales

·         Income tax rate: 50%

·         Degree of Operating Leverage: 4 times

·         10% Debenture in capital structure : 3 lakhs

·         Variable costs: 6 lakhs

Required:

(i) From the given data complete following statement :

SalesXXXX
Less : variable costsRs. 6,00,000
ContributionXXXX
Less : fixed costsXXXX
EBITXXXX
LESS : interest expensesXXXX
EBTXXXX
Less : Income taxXXXX
EATXXXX

(ii) Calculate Financial Leverage and Combined Leverage.

(iii) Calculate the percentage change in earning per share, if sales increased by 5%.


ICAI CA Inter Dec 2021 Question. 6 (a)

Write short notes on Bridge Finance and Clean Packing Credit.


ICAI CA Inter Dec 2021 Question. 6 (b)

Distinguish between Scenario Analysis &Sensitivity Analysis.


ICAI CA Inter Dec 2021 Question. 6 (c)

Explain in brief the phases of the evolution of financial management.

OR

Adjustment of risk is required in capital budgeting decision, give reasons for it.  



SECTION - B

ICAI CA Inter Dec 2021 Question. 7 (a)

The following information is given:

ParticularsAmount in (Rs.) Crore
Notes in circulation 25,00,000
Circulation of rupee coins26,000
Circulation of small coins 850
Cash on hand with banks 95,000
Bankers’ deposits with RBI4,500
Other deposits with RBI180
Total post office deposits 12,000
 Time deposits with banks 15,000

You are required to compute:

(i)  Currency with the Public; and

(ii) Reserve Money.


ICAI CA Inter Dec 2021 Question. 7 (b)

The Nominal GDP and Real GDP of a country in the financial year 2018-19 were Rs. 1,500 crore and Rs. 1,200 crore respectively, you are required to calculate:

(i) GDP deflector in the financial year 2018-19 and comment.

(ii) Inflation rate in the financial year 2019-20 assuming GDP deflator rate in this year is 140 as compared to the year 2018-19.


ICAI CA Inter Dec 2021 Question. 7 (c)

Explain the features of Contractionary Fiscal Policy.


ICAI CA Inter Dec 2021 Question. 7 (d)

Describe the types of transactions in the forex-market and also distinguish between forward premium and forward discount.


ICAI CA Inter Dec 2021 Question. 8 
(a)   

The following information is related to an economy:

ParticularsAmount in (Rs.) crore
Domestic sales3600
Opening stock800
Exports1000
Depreciation 300
Closing stock200
Net indirect tax400
Intermediate consumption 600
Net factor income from aboard
10

Calculate the followings

(i) Gross Value of Output (GVOMp)

(ii) Gross Value Added (GVAMP)

(iii
) Net Value Added (NVAMp)

(
iv) Net Domestic Product (NDPFc)

(v) Net National Product (NNPFc)


ICAI CA Inter Dec 2021 Question. 8 
(b)

(i) Discuss the role of government interventions in minimizing the market power.

(ii) Calculate Narrow Money (M) from the following information:

 (Rs. In crore)
Currency with public 2,80,000
Demand deposits with banks 4,00,000
Time deposits with banks3,40,000
Other deposits with RBI5,80,000
Post Office Savings Deposits90,000


ICAI CA Inter Dec 2021 Question. 9 
(a)

How is the nominal exchange rate determined? Explain.   


ICAI CA Inter Dec 2021 Question. 9
 
(b)

Discuss the salient features of bilateral trade agreements.


ICAI CA Inter Dec 2021 Question. 9
 
(c)

Calculate Money Multiplier with the help of following information:

Reserve Ratio (r) = 10%

Currency = Rs. 200 billion

Deposits = Rs. 400 billion

Excess Reserve = Rs. 800 million


ICAI CA Inter Dec 2021 Question. 9
 
(d)

What do you mean about gross investment of a country? 


ICAI CA Inter Dec 2021 Question. 10
 
(a)

(i) How does the fiscal policy redress the inequalities of income and wealth of a country?

(ii) State the main objectives of World Trade Organization (WTO). 


ICAI CA Inter Dec 2021 Question. 10
 
(b)

(i) Explain Friedman’s Restatement of Quantity Theory with reference to demand for money?

(ii) Discuss the meaning and consequences of negative production externalities.


ICAI CA Inter Dec 2021 Question. 11
 
(a)

How is aggregate consumption function affected, if:

(i) An impending war is expected to result in shortage of goods and an adoption of a rationing system.

(ii)  Increased cost for steel, oil etc. are expected to result in higher prices for consumer goods, or

(iii)
The leadership assures that economic policy is bringing the recession to an end.


ICAI CA Inter Dec 2021 Question. 11
 
(b)

Discuss the three branch taxonomy of the role of Government in market economy.


ICAI CA Inter Dec 2021 Question. 11
 
(c)

What is speculative motive for holding cash?


ICAI CA Inter Dec 2021 Question. 11
 
(d)

Discuss the non-technical measures adopted by the countries with reference to (i) Trade investment measures; and (ii) Price control measures.

OR

Discuss the salient features of Escalated tariff.


 To Download Question Paper, Click Here

Suggested answers for ICAI CA Dec 21 exams Accounting subject were discussed in Youtube Live Sessions by Yash Sir. Watch the videos below:

ICAI CA Dec 21 Suggested Answers | Financial Management and Economics for Finance - Day 12



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We hope your doubts are cleared now and the suggested answers helped you.


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