JMD Tutorials TYBBI - Revision Sheet Question Bank Prelim Papers With Solution

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JMD Tutorial’s JMD Tutorials - REVISION SHEET

Question Bank for FRA Topic Vertical Formats Common Size Fund Flow & Cash Flow Statements Insurance Company accounts Banking Company Accounts Company Final Accounts Ratio Analysis Theory

Sum numbers Learn formats and list of items on Pg. 3. Problems -2,4,7 1,7 & also go through extra practice sums given on pg. no 11 For comparative and trend – just go through the steps to solve given in revision sheet 4,5,7,8,9,10,14,15 3,6,9,12,14,19,20 6,8,16,18,21,23,26 1,2,3,13,14,15,16,17,18,21. Sums & Theory given in Extra sheet 1,2,6,7,8,9,10,11,12,16,18,19,21,24,26.Functional Classification on pg.13

Do ALL (Don’t keep theory for last minute. It is only 6 pages)

Comparative and Trend- Format Steps for Comparative statements: 2 years will be given: make 4 columns. 1. Year 1: Amount 2. Year 2: Amount 3. Absolute increase/ decrease i.e Year 2 – Year 1 4. % increase / decrease i.e Column no 3/ Column 1 X 100 Note: If 3rd column is negative then 4th column will also be negative. The above formats is applicable for both Balance sheet and profit and loss Steps for Trend statements: normally 3 to 4 years are given Make extra columns for %. No of columns will be same as number of years. 1 year is taken as base year which is 100% and find % row wise for rest of the years.

COMPANY FINAL ACCOUNTS-EXTRA PRACTICE SUM ON FIXED ASSET SCHEDULE (WHEN SALE OF ASSET TAKES PLACE IN BETWEEN THE YEAR) The Trial Balance of Ajay Ltd shows the following figures relating to Fixed Assets as on 31-3-2009 Particulars Rs. Plant & Machinery 4,20,000 Land 1,60,000 Goodwill 1,00,000 Motor Vehicles 80,000 Opening Depreciation Provision On Plant and Machinery 1,78,000 On Motor Vehicles 44,000 Sale proceeds of old machinery 60,000 Additional Information: 1) Depreciation to be provided during the year at 10% on Straight line method 2) There was an addition to Plant and Machinery on 30-6-2008 for Rs. 1,20,000 3) A Machinery costing Rs. 160,000 was sold on 30-6-2008, depreciation provided on it was Rs. 80,000 Prepare schedule of Fixed Assets. Hints for Plant and Machinery Sale is taking place not at the beginning but after using it for 3 months on 30.6.2008 Particulars Cost Accumulated depreciation WDV Opening 300000 178000 122000 balance Add: Purchase 120000 0 120000 Less: Sale 160000 80000 80000 Closing balance 260000 98000 162000 Calculation of Current Years Depreciation As depreciation is SLM breakup Cost of Rs.260000 into New Machinery Rs.120000 on which Depreciation @10% would be provided for 9 months Rs.9000 and balance is Old Machinery Rs.140000 on which Depreciation @10% would be provided for full year Rs.14000. Also in this sum Machinery has been sold not at the beginning but on 30.6.2008 after using it for 3 months, therefore Depreciation will be calculated @10% on 160000 for 3 months Rs.4000. Therefore Total Current years Depreciation is Rs.27000 (9000+14000+4000) which will go in Column 6 as current years Depreciation Cost 160000 AD 80000 WDV 80000 SP 60000 Loss 20000

FUND FLOW & CASHFLOW 1) If Net profit is given in adjustment-Ignore it 2) If Business Purchase Journal Entry does not tally-Difference in Dr side will be taken as Goodwill and difference in credit side will be taken as Capital reserve.

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JMD Tutorial’s Question Bank for SAPM

1.

Objectives and Abbreviation

2.

Time value of money

3. 4. 5. 6. 7.

Risk and Return Valuation of Equity Valuation of bonds Beta & CAPM Ratios

8. 9.

Portfolio Performance Evaluation Make a list of ALL imp formulae

Pg. 36 to 42+ extra objectives given in revision sheet. DON’T forget to write reasons for in objectives in exam 1,3,4,5,7,10,12,16,18,20,22,25,26,27,28 Learn all formulaes of PVF, PVAF, FVF & FVAF 4,6,8,12,14,16,17,21,22,24,27,28 4,6,7,11,13,14,16,20,23,26,29,30,32,34 3,4,5,6,9,11,12 1,2,3,5 1,2,6,7,8,9,10,11,12,16,18,19,21,24,26. (Emphasis on overall profitability ratios & Ratios for equity shareholders) 1,2,3 + extra problem given below on jensens measure For last min revision & make a list of important assumptions

Extra Problem of Portfolio Performance evaluation: The following information is available in respect of certain securities: Security Beta Actual Return of the portfolio I 1.4 22% II 1.2 18% III 1.1 14% The market return is 16% and the risk free return is 6%. Find out whether these securities are correctly priced or not. Solution: In this problem we have do Jensens differential measure. 1st step to calculate CAPM retun and then do step 2 where we find Jensens differential i.e Actual return – CAPM return. If the answer is Positive – it means the security is undervalued and we should buy If the answer is negative – it means the security is overvalued and we should not invest If the answer is zero – it means the security is fairly or correctly valued CAPM return= Rf + beta (Rm – Rf) Security CAPM return= Rf + beta (Rm – Rf) I = 6 + 1.4(16-6)= 20% II = 6 +1.2(16-6) = 18% III =6 + 1.1(16-6) = 17%

Jensens Differential = Actual return – Capm return = 22 -20 = +2% = 18 -18 = 0 = 14 – 17 = -3%

Valuation Undervalued Correctly valued Overvalued

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SAPM Theory Theory Meaning of Investment Investment & Speculation Investment Alternatives Investment Attributes/ principles/ Objectives Investment Decision Making and Approaches

Learn Learn Learn Learn Learn

Investment Avenues in Detail: Emphasis on: PPF 9% Senior Citizen Scheme Money Market Instruments ( for detail refer fsm) Mutual Funds Derivatives Life Insurance Examples of Tax saving Investment avenues ( Important)

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Security Market – Primary V/s. Secondary Market (Important) Margin Trading Stock Market indices – functions/ Criticism/ Methods SEBI & Future Challenges Concepts: Bull/ bear/ Scriptless Trading/ Dematerialisation/ Speculation

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Types of Risk Systematic & Unsystematic Risk (Important) Risk Preferences of Investors

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Du Pont Analysis ( Important) Objectives of Financial Statement Analysis Problems in Financial Statement Analysis Guidelines in Financial Statement Analysis

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Time Value of Money

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Meaning of Portfolio & its Diversification Traditional V/s Modern Theory Modern Theory: Markowitz Theory of Portfolio management (Full Co-variance Model) Sharpe’s Portfolio Theory (Market Model/ Single Index Model) CAPM Inputs for CAPM (Important)

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Efficient Market Hypothesis – Random Walk Theory and its three forms ( Very Important)

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Portfolio Management Framework/ Elements/ Phases (*Very Important*****)

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Fundamental Analysis Economic Company Industry Technical Analysis & its limitations Distinction between Fundamental & Technical (Important) Dow Theory Types of Charts

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Interest Rate Risk Determinants of interest rate

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Financial Markets and its important players

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Derivatives & Credit Rating

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Extra Objectives: State one word or group of words for the following: 1) Plotting of price movement of the stock and drawing inferences from the price movement in the stock market – Technical Analysis 2) Loan taken by the company from the public at a specific rate of interest and on certain terms and conditions – Debentures if it secured loan and Public deposit if it is unsecured loan. 3) A speculator on the stock exchange who expects a rise in the price of a certain security- Bull 4) A measure of performance of a particular share in relation to general movement of the market – Beta 5) A special contract in which the owner enjoys the right to buy or sell something without obligation to do so – Option contract (Call Option & Put Option) 6) A institution which enables the trading of securities – Stock Exchange 7) A contract due to which the owner has the right to sell and move out at a predetermined price – Put Option

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Extra Objectives 1. The usual period of issue of commercial paper is : i) 90 days ii) 180 days iii) 30 days iv) one year Ans. 180 days. Commercial paper: the maturity of commercial papers should be atleast 7 days and maximum 180 days in India. Usually the period of issue of commercial paper is 180 days. 2. Dividend payout ratio of a company is ______if NPAT is Rs. 2,25,000, 8% Preference Share capital is Rs. 2,00,000. Equity share capital of Rs. 10/- is Rs. 10,00,000 and dividend is Rs. 1 per share. Dividend Payout ratio = DPS/EPS X 100 = 1/2.09 X 100 = 47.85% EPS = 225000 – 16000 / 100000 = 2.09 3. According to CAPM the correct measure of risk is termed as – a) C) Business Risk b) Financial Risk c) Beta Coefficient d) Systematic Risk According to CAPM the correct measure of risk is Beta Coefficient which measures systematic or nondiversifiable risk. 4. The negative correlation of two securities indicates that_______ a) The portfolio would yield maximum return b) the portfolio would yield minimum return c) the risk can be completely minimized d) the risk cannot be minimized If the correlation of two securities is negative then the risk of two securities gets diversified. Thus the risk can be completely minimized 5. Firm A has a margin of 12%, sales of Rs. 600000 and ROI of 18%. Its average total assets are_______ a) 720000 b) 400000 c) 108000 d) 33,33,333 As per Du Pont Analysis: Return of Total Assets (ROTA) or Return on Investment (ROI) = Net Profit Margin X Total Asset Turnover ratio Net profit margin = 12% ROI = 18% Therefore, Total Asset turnover ratio = 18/12 = 1.5 times Total Asset turnover ratio = Net sales/ average total assets 1.5 = 600000/ Average total assets Therefore average total assets = 400000 6. The institutional investor operates under the advantages of ____________ a) Diversification b) Liqudity of funds c) Quality of management d) all of the above All of the above. All are the advantages of institutional investments i.e. mutual funds. (Explain all in brief) Liquidity of funds means that the mutual funds provide liquidity through open ended schemes. 7. When a trader transacts in the market for price risk management, he is called as_____ a) Bull b) Bear c) Hedger d) Broker Hedger. Explain each of them and justify your answer. Hedger is one who counterbalances one transaction (as a bet) against another in order to protect against loss. Thus he tries to manage risk-reward relationship 8. Which theory quantifies the relationship between risk and return? a) Modern portfolio b) efficient Market c) Traditional Portfolio Modern Portfolio.

d) Equity Portfolio

9. Financial Statements disclose only historical facts- True or False TRUE Full form of SHCIL – Stock Holding Corporation of India ltd.

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Series A N.B. (1) All questions are compulsory. (2) Figures in the brackets to the right indicate the marks Q 1. (A) Indicate the right answer with your reasoning:

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1. Unsystematic risk is a. Internal risk b. External risk c. Controllable risk d. Uncontrollable risk e. Internal and controllable 2. The random walk theory suggests that the successive price changes are a. Dependent b. Interdependent c. Correlated d. Uncorrelated 3. If the Efficient Markets Hypothesis is true: i) Technical analysis will not help investors to make superior returns; ii) Fundamental analysis will not help investors to make superior returns Which of the following is correct? a) Neither i) nor ii) b) i) but not ii) c) ii) but not i) d) Both i) and ii) 4. An individual who is carrying out technical analysis of the shares of a company would be likely to: a. study annual report and accounts of the company b. study the past pattern of share prices movements of the company c. study the production process and marketing methods of the company d. Compare the products produced by the company with those of its competitors. 5. Which measures the systematic or non-diversifiable risk of a security? (i) Beta (ii) Standard Deviation (iii) Variance (iv) Range Q.1 (B) Mrs Agarwal had purchased on 1/7/2003, 100 shares of ABC @ Rs. 150 per share including Brokerage and transaction tax of 1%. The face value of the share is Rs. 10. Company declared dividend as under. August 2003 Final Dividend of 40% for F.Y. 02-03 December 2003 Interim Dividend of 30% August 2004 Final Dividend of 50% for F.Y. 03-04 December 2004 Interim Dividend of 20% The company also declared Bonus shares in the ratio of 1:2 on 15th September 2004. On 01/01/2005, she sold all her shares of ABC @ 510 per share, net of Brokerage and Transaction Tax @ 1%. Calculate following for Mrs. Agarwal 1. Holding Period Return 2. Annual Rate of Return. (5) OR Q.1 (a) What are the approaches to investment decision making? (5) (b) "Mutual Fund' acts as a boon to investors in general and small investors in particular". Explain. (5) (c) Primary Market v/s. Secondary Market. (5) Q.2 (a) Mittal Enterprises purchases a machinery for Rs. 1,00,000 on the 1st of January 1999. The cash flows expected from the machinery are as follows: (10) 2000 Rs. 7,000 2001 Rs. 9,000 2002 Rs. 19,000 2003 Rs. 23,000 2004 Rs. 35,000 The depreciation on machinery is to be provided @ 10% p.a. on written down value method. At the end of 2004 the machinery is sold at a loss of Rs. 7,500. The rate of interest being 9%, comment on your decision. The Present value of Re. 1 at 9 % discounting rate are .917, .842, .772, .708, .649

Q.2 (b) Krishnamurthy has inherited Rs. 1000 a year for the next 20 years. First payment being made in one year’s time. However, he is in need of money immediately & would like to sell his income to any buyer who would pay him the right price. Assume current market rate of interest is 9%. PVAF = 9.129 @9%, 20yrs a) What should be the right price he should accept? b) How much of his income should he sell if he wants only Rs. 2500 at present? (5) OR Q.2) (a) What is DU Pont analysis? (7) (b) Explain the role of SEBI and the future challenges faced by it. (8)

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Q.3 The information below is taken from the records of two companies in the same industry (in 000). (15) Particulars X Y Cash 210 320 Debtors-net 330 630 Stock 1,230 950 Plant and equipments 1,695 2,400 Total assets 3,465 4,300 Sundry creditors 900 1,050 8% Debentures 500 1,000 Equity share capital 1,100 1,750 Retained earnings 965 500 Total liabilities 3,465 4,300 Sales 5,600 8,200 Cost of goods sold 4,000 6,480 Other operating expenses 800 860 Interest expenses 40 80 Income taxes 266 273 Dividends 100 180 Answer each of the following questions by making a comparison of one or more relevant ratios. a) Which company is using the ordinary shareholders' money more profitably? b) Which company is better able to meet its current debts? c) If you were to purchase the debentures of one company, which company's debentures would you buy? d) Which company collects its receivables faster, assuming all sales to be credit sales? e) Which company is extended credit for a longer period by the creditors, assuming all purchases to be credit purchases? f) How long does it take the company to convert an investment in stock to cash? g) Which company retains the larger proportion of income in the business? h) If you were to purchase shares of one company, which company’s shares would you buy? OR Q. 3(a) Pan India Products pays a dividend of Rs. 2.2 per share and this dividend is expected to grow at 12% p.a. for three years, then at 10% for the next three years, after which it will stabilize at 5% forever. What value would you place on the equity if 10.5% rate of return were expected? PVF = 1/(1+r)n (10) Q.3 (b) A Bond of Rs. 1,000 face value with a coupon of 7% is redeemable after 5 years at a premium of 5%. The required rate of return is 8%. The current market price of the bond is Rs. 940. Whether investment at current market price of Rs. 940 is advisable? The Present Value of Re. 1 at 8% discounting rate are, 0.9259, 0.8573, 0.7938, 0.7350 and 0.6806. (5) Q.4) The rate of return on the Mutual fund and on the market portfolio are given below (15) Year Fund A % Fund B % Market Portfolio % 1997 20 15 10 1998 16 18 9 1999 30 40 20 2000 40 35 18 2001 30 40 20 Calculate: a. Expected return of A, B & Market portfolio, b. Standard Deviation of A, B & Market portfolio, c. Beta of A & B d. If the risk free rate of return is 10%. Rank these funds by Jensen’s, Sharpe’s and Treynor’s Performances Indexes. OR Q.4 (a) What is technical analysis? How it is different from Fundamental analysis ? (7) Q.4 (b) What is an option ? What are the different types of options ? (8)

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Series B N.B. (1) All questions are compulsory. (2) Figures in the brackets to the right indicate the marks Q (A) Indicate the right answer with your reasoning: (10) 1. Investment process takes into account a. Time dimension b. Today’s sacrifice c. Prospective gain d. All of the above e. None of the above 2. 90 days Treasury Bills of Rs. 100 are sold for Rs. 97 per bill. The annualized rate of return on this investment is: a. 12.37%; b. 4.04%; c. 11.88%; d. 3% 3. The approach towards investment decision which involve the price movements of the securities and drawing inferences from the price movement in the market is known as a. Fundamental Approach b. Technical Approach c. Psychological approach d. Efficient market theory approach 4. When a portfolio consisting of 12 to 15 securities is built then, a. Unsystematic risk can be reduced b. Systematic risk can be reduced c. Total risk can be reduced d. None of the above 5. If the Net profit margin (NPM) is 5% and Return on total assets (ROTA) is 20%, then the Total Asset Turnover ratio is a. 100, b. 0.25, c. 4, d. none of the above. Q1 (B) Give the full forms of the following: (5) a) SBTS b) PMS c) NCDEX d) BOLTS d) OTCEI OR Q.1) a) Explain the term investment. What are the attributes/ Principles/ objectives of investment? (7) b) Investment is a game but you must know how to play it. Explain this statement keeping in view various approaches to investment decision making. (8) Q.2) Write short notes on: a) Primary V/s. Secondary Market (4) b) Stock Market Indices – its functions and limitations (4) c) SEBI & Future Challenges (4) d) Stock Markets abroad (3) OR Q2) (A) The following information is available in respect of Company A and Company B: (10) Particulars Company A Company B Equity shares of Rs. 10/- each 20,00,000 25,00,000 9% Preference Shares 8,00,000 10,00,000 Reserves & Surplus 40,00,000 50,00,000 Profit after Tax 60,00,000 80,00,000 Proposed Equity Dividend 36,00,000 40,00,000 Market Price per share Rs. 96 Rs. 132 Depreciation 400000 700000 Calculate: 1. EPS; 2. Cash EPS; 3. P/E ratio; 4. Dividend Payout ratio; 5. Retention ratio; 6. Dividend Yield ratio; 7. Dividend Cover for Preference and Equity separately 8. Book Value per share. Advise which company is worth investing. Q.2) (B) Mr. Puneet is planning to invest Rs. 50000 on Xerox machine on 1 st Jan 2002. He estimates net cash income from Xerox machine in next 5 years as under: (5) Year Estimated Inflows 2002 12000 2003 15000 2004 18000 2005 25000 2006 30000 At the end of 5th year machine will be sold at scrap value of Rs. 5000. In addition to investment in machine he will also invest Rs. 10000 for working capital at the beginning of venture. Advice him whether his project is viable, considering interest rate of 10% p.a. PVF @ 10% for Year 1 to Year 5 are, .909, .826, .751, .683, .621. Q.3) (A) As per the financial accounts for the last year, the company has paid dividend @ 20%. Amount of paid up equity capital is Rs. 600000 and 10% preference share capital Rs. 1,00,000. Operating Profit is Rs. 4,00,000. The tax rate is 40%. The company expects a growth rate of 3%. The required rate of return is 10%. Compute value per Equity Share using: a) Dividend approach, (b) Dividend Growth Approach; (c) Earnings approach (10) Q.3) (B) what do you understand by Random Walk Theory? Explain its different forms.

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OR Q.3) (A) Munnas equity shares currently sells for Rs. 66 per share. His Finance Manager Mr. Circuit anticipates a constant growth rate of 15% and dividend per share of Rs.3.00. (5) a) What is the expected rate of return if the share is sold for Rs.70? b) If the required rate of return is at 20 percent, what would be the indicative value of the stock? c) Is it worth investing in the share? Q.3) (B) You are considering an investment in one of the following Bonds: Coupon Rate Maturity Price (Rs. 100 par value) Bond A 12% 10 Years Rs. 70 Bond B 10% 6 Years Rs. 60 What is YTM of each Bond & which Bond would you recommend for investment? (5) Q.3) (C) An Rs.5000 bond with a 12% coupon rate matures in 8 years and currently sells at 96%. Is this bond a desirable investment for an inverter whose required rate of return is 10%? PVAF @ 10% for 7 years = 4.868 and PVF @ 10% for 8 th year = 0.467 (5) Q.4) (A) Following information is available in respect of the rate of return of two securities A and B in different economic conditions: (8) Condition Probability Rate of Return Security A Security B Recession .20 -.15 .20 Normal .50 .20 .30 Boom .30 .60 .40 Find out the expected returns and the standard deviations for these two securities suppose an investor has Rs. 20,000 to invest. He invests Rs. 15,000 in security A and balance in security B, what will be the expected return and the standard deviation of the portfolio? Q.4) (B) The details of three portfolios are given below. Compare these portfolios on performance using the Sharpe, Treynor and Jensen’s measures. (7) Portfolio Average return Standard deviation Beta JMD Growth Fund 15% 0.25 1.25 Reliance Growth Fund 12% 0.30 0.75 Templeton Growth Fund 10% 0.20 1.10 Market index 12% 0.25 1.00 The risk free rate of return is 9%. OR Q.4) Explain in detail the steps/ elements/ phases in the construction of a portfolio.

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Solution to Series A Q.1) e,d,d,b,a Q.1) (B) Refer Q.8 of Risk and Return Q.2) Refer Q.5 & Q.21 of time value of money of JMD Q.3) Refer Ratios sum no 24 of JMD Q.3(a) Alternative Year F.V 1 2.2 (1.12) = 2.464 2 2.2 (1.12)2 = 2.760 3 2.2 (1.12)3 = 3.091 4 3.091(1.10)1 = 3.399 5 3.091(1.10)2 = 3.74 6 3.091(1.10)3 = 4.114

PVF @ 10.5% 0.905 0.819 0.741 0.671 0.607 0.549

P.V 2.23 2.26 2.29 2.281 2.27 2.259 13.59

V6 = D7/ k –g = 4.114(1.05)/ 0.105 – 0.05 =78.54 Vo =78.54 X 0.549 = 43.12 Total Vo = 43.12 + 13.59 = 56.71

Q.3 (b) alternative: Refer valuation of bond sum no 3 Q.4)Make same table as beta and add one more A B Expected return 27.2 29.6 Std Deviation 9.44 12.17 Beta 1.42 2.2 Ranks: (Don’t rank market) Sharpes: A,B ; Treynor: A,B; Jensens: A,B

column for (Rx – Rx(bar)]^2 Market 15.4 5.46 --

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Solution to Series B Q.1) d, a (use HPR formula and Current Income is nil, and then find annualized return),b , a, c (ROTA = NPM X TATA) Q1 (B) Refer JMD notes. SBTS: Screen Based Trading System. (in notes incorrectly printed as training) Q.2) A) EPS DPS Cash EPS P/E ratio Dividend Payout ratio Retention ratio/ Retained earnings ratio = 100 – Div payout ratio Dividend Yield ratio Preference Div coverage ratio Equity Div coverage ratio Total Div coverage ratio Book Value per share

A Rs 29.64 Rs 18 Rs. 31.64 3.23 times 60.73% 39.27%

B Rs 31.64 Rs 16 Rs 34.44 4.17 times 50.57% 49.43%

18.75% 83.33 times 1.65 times 1.63 times Rs. 30

12.12% 88.88 times 1.98 times 1.95 times Rs.30

Q.2 B) Refer JMD class work problems Q. 3 – time value Q3) A) Refer Valuation of equity sum no 32 Q.3(A) alternative: k = 19.29% V = 3/ 0.2-0.15 = Rs. 60 No as the market price (Rs 66) is more then the expected price. Q.3) b) alternative: YTM Refer Q.9 of JMD – valuation of bonds Q.3) c) alternative: JMD – valuation of bonds- sum no 2 Q.4) Refer Q.25 of JMD – Risk and return Q.4) b) Refer Q.1 of JMD – Portfolio performance evaluation

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JMD Tutorial’s JMD TUTORIAL’s - FRA Prelims – Series A

Q.1) From the foll information, prepare Profit and loss account of Trinity Bank Ltd. for the year 31 March 2008. Rs Interest on Investments 3,00,000 Interest on Balance with RBI 2,00,000 Interest on Loans 25,95,000 Interest on fixed deposits 27,50,000 Rebate on Bills discounted (1-4-2007) 4,90,000 Commission 82,000 Establishment Charges 5,40,000 Discount on Bills discounted 14,60,000 Interest on Cash Credit 22,30,000 Interest on Current Accounts 4,20,000 Salaries 80,000 Contribution to Provident fund 20,000 Rent and Rates 80,000 Interest on Overdraft 15,40,000 Directors' fees 30,000 Auditor's Fees 12,000 Interest on Savings Bank Deposits 6,80,000 Postage and Telegram 14,000 Printing and Stationery 29,000 Sundry Charges 17,000 Profit and Loss Account (1-4-2007) 2,00,000 Share Capital 20,00,000 Dividend on shares 2,00,000 Income from Joint ventures 1,00,000 Interest on Borrowings 2,00,000 1. Bad debts to be written off amounted to Rs. 4,00,000 & RDD RS. 1,00,000 2. Provision for taxation to be made at 55%. 3. Unexpired Discount on bills discounted (31-3-2008) Rs. 5,00,000. 4. Interest accrued on doubtful loans is included in interest on loans above Rs. 5,000. 5. Directors proposed dividend of 10%. OR Q.1) Write Short Notes on any Three a) Rule for valuation of investments by Banks b) Rebate on Bill Discounted c) Non Performing Assets d) Acceptances Endorsements and other Obligations e) Cash Credit, Loan & overdraft f) Money at Call & Short Notice Q.2) From the foll information as on 31st March 2004, prepare Revenue Account of the Indian Marine Insurance Co. Ltd. Direct Business Rs. Reinsurance Rs. 1. Premium: Received 46,00,000 7,20,000 Receivable-1st April 2,48,000 27,000 -31st March 3,36,000 34,000 Paid 4,60,000 Payable-1st April 37,000 -31st March 62,000 2. Claims: Paid 23,50,000 3,00,000 Payable-1st April 1,66,000 39,000 -31st March 2,08,000 44,000 Received 1,70,000 Receivable-1st April 16,000 -31st March 23,000 3. Commission: On insurance accepted 2,20,000 19,000 On re-insurance ceded 26,000 4. Other Expenses and Income: Salaries - Rs. 3,20,000, Rent Rates and Taxes Rs.29,000; Postage & Telegrams Rs.43,000; Advertisement and Publicity paid - Rs. 4,40,000; Interest, Dividends and Rent Received (net) Rs. 1,37,500; Income Tax deducted at Source Rs. 40,250; Legal expenses (inclusive of Rs. 40,000 in connection with settlement of claims) Rs. 72,000. 5. Balance of Fund on 1st April, Rs. 38,45,000 including Additional Reserve of Rs. 4,45,000. Additional Reserve has to be maintained at 5% of the net premium of the year. OR Q.2a) Explain surrender value and how is it different from paid-up value. b) Life Insurance Fund. c) Reserve for Unexpired Risk. d) What is meant by Reinsurance & How is it helpful to Insurance Companies.

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Q.3 a) JMD LTD-TRIAL BALANCE AS ON 31.3.2008 Particulars Building (WDV) Plant (WDV) Furniture & Fitting (WDV)

Dr. 1,50,000 80,000 15,000

6 marks Depreciation w/off upto last year Particulars Amt. Rate Building 5000 2.5% Plant 45000 15% Furniture & Fitting 5000 10%

Q.3b) ) JMD COMMUNICATION LTD. 31.3.2005 Particulars Amt. Amt. Advance Tax / Tax Provision 02-03 (Assessment year 03-04) 81,000 84,000 03-04 (Assessment year 04-05) 72,600 70,000 04-05 (Assessment year 05-06) 65,000 --Assessment for assessment year 03-04 completed resulting in additional demand of Rs. 3,000 and for assessment year 04-05 resulting in additional demand Rs. 26,000 of which company has disputed Rs. 12,000 in appeal. 6 marks Q.3c) How will you treat following in Company Final accounts: 3 marks i) Sundry Debtors Total Rs.460000 out of Which Rs 60000 due for Less than Six months. ii) Arrears of Preference Dividend Rs.25000 iii) Disputed Income Tax Dues Rs 50000 iv) Disclosure Requirement payment to Auditors OR Q.3) Following is the Balance Sheet of P Ltd. LIABILITIES 2000 2001 ASSETS 2000 2001 Equity Share Capital 30,000 40,000 Goodwill 10,000 8,000 7% Redem. Pref. Shares 15,000 10,000 Land 20,000 1 7,000 Capital Reserve — 2,000 Plant 8,000 20,000 General Reserve 4,000 5,000 Investments 2,000 3,000 P& L A/c 3,000 4,800 Debtors 14,000 17,000 Sundry Creditors 2,500 4,700 Stock 7,700 10,900 Bills Payable 2,000 1,600 Bills Receivable 2,000 3,000 Liability for Expenses 3,000 3,600 Cash in hand 1,500 1,000 Proposed Dividend 4,200 5,000 Cash at bank 1,000 800 Provision for taxation 4,000 5,000 Misc Expenses 1,500 1,000 Total (Rs) 67,700 81,700 Total (Rs) 67,700 81,700 Additional information: i) A plot of land was sold in 2001 and profit on its sale was transferred to capital reserve. ii) A machine has been sold for Rs.3,600 on 1.1.2001. It was originally purchased for Rs.10000/- on 1.1.1998 and its WDV as on the date of sale was Rs. 5,120. iii) Depreciation of Rs.4,000 is charged on plant account in 2001. iv) Income tax Rs.3,500 was paid during the year and charged against provision for taxation. v) An interim dividend of Rs.2,000 has been paid in 2001. vi) Investments costing Rs.500 were sold on 10.5.2001 for Rs.800 Prepare Cash Flow for the year ended 31st December 2001 Q.4) (a) Following ratios & data pertain to the financial statements of P Ltd. for the year ended 31st Dec 2001. a) Working Capital Ratio 1.75:1 Acid Test Ratio 1.27:1 Working Capital Rs.33000 Find out Current Assets & Current Liabilities b) If Stock turnover ratio is 4 times and Avg Stock is Rs.20000, Find COGS c) IF COGS is Rs.80000 and Gross profit Ratio is 20%, Find Sales. d) If Credit Sales is Rs.100000, ACP is 36 days; Avg Bills Receivable is Rs2000, Find Debtors e) If Working Capital is Rs.33000, Fixed Assets to Shareholders' Equity is 0.625:1, assuming no Investments & Borrowed Funds. Find Fixed Assets & Shareholders Fund

Q.4 (b) Find out the amount of provision to be made: Facility Amount outstanding Security Realisable value of security Doubtful period ECGC/DIGC/CGESI Cover

Advances 10,00,000 1,00,000 1,50,000 2 years 50% or Maximum 20,00,000 whichever is lower

OR Q.4) Write Short Notes on a) Directors Report b) Importance and items to listed in Corporate Governance Report c) Management Discussion and Analysis d) Contingent Liabilities and Commitments. e) Section 212: Accounts of Holding and Subsidiary Companies

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Prakash Fulwadhaya 9967008172

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JMD Tutorial’s JMD TUTORIAL’s - FRA Prelims – Series B

Q.1) On 31st March, 2008, the foll balances stood in the books of New Bank Ltd. after preparing final a/cs. Particulars Rs. ‘000 Particulars Rs. ‘000 Share Capital 7,000 Cash with RBI 21,000 Reserve fund 4,900 Loans, overdrafts and Cash Credits 98,000 Fixed deposit accounts 13,300 Cash with other banks 18,200 Savings bank accounts 42,000 Borrowings from other banks 8,800 Current Accounts (credit) 1,12,000 Bills discounted and purchased 8,400 Money at call and short notice 4,200 Sundry creditors 420 Investments at cost 42,000 Bills payable 11,200 Profit and Loss Accounts (credit 1-4-2007) 2,940 Unclaimed dividend 420 Dividend for 2007 700 Bills for collection 1,960 Land and Buildings (after depreciation upto 31-3-2008) 14,890 Acceptances on behalf of customers 2,800 Cash in hand 840 Net Profit for 2007-08 3,360 The net profit is after deducting provisions for bad debts Rs. 4,20,000 tax provision Rs. 14,00,000 and Rebate on bills discounted Rs. 70,000. Prepare Balance Sheet of the bank as on 31-3-2008. OR Q.1) (A) Following are the details of advances if Swedish Bank Ltd. as on 31st March 2008. Bills purchased and discounted (others) Cash Credits in India In India 8,782 Priority sector 11,250 Out of India 1,653 Public sector 6,105 Term Loans in India Others 31,250 Priority sector 12,782 Cash credits out of India Public sector 1,289 Banks 1,225 Banks 1,652 Others 469 Others 28,256 Overdrafts in India Term loans out of India Banks 4,523 Banks 278 Others 11,785 Others 4,285 Overdrafts out of India Demand loans in India Others 250 Banks 750 Demand loans out of India Others 11,279 Others 620 Prepare schedule 9 of Advances in the statutory format. Q.1 (b) Following are the statements of interest on advance in respect of performing & non-performing assets. Find out the income to be recognized for the year ended 31st March 2008. (Rs in Lakhs) 5 marks Performing Assets Interest Earned Interest Received C.C. and Overdrafts 1,800 1060 Term Loan 480 320 Bills purchased and Discounted 700 550 Non- Performing Assets C. C. and Overdrafts 450 70 Term Loan 300 40 Bills purchased and Discounted 350 36 Q.2) From the following balances as at March 31, 2004 in the books of General Insurance Co. Ltd. prepare a Revenue Account in respect of Fire Insurance business carried on by them. Particulars Rs Claims 4,80,000 Claims outstanding on April 1, 2003 40,000 Claims intimated and accepted, but not paid on March 31, 2004 70,000 Premium received 12,00,000 Re-insurance Premium 1,20,000 Commission 2,00,000 Commission on re-insurance ceded 8,000 Commission on re-insurance accepted 4,000 Expenses of Management 3,02,000 Provision for unexpired risk on April 1 4,00,000 Additional provision for unexpired risk on April 1 20,600 Re-insurance recoveries of claims 8,000 Survey expenses regarding claims 5,000 Loss on sale of Motor Car 3,500 Bad debts 2,500 Interest in income tax refund 4,500 Interest and Dividends (Net) 8,000 Income tax deducted thereon 1,500 Legal expenses regarding claims 4,000 Profit on sale of investments 3,500 Depreciation of Furniture 4,600 You are required to provide for additional reserve for unexpired risk at 1% of the net premium. OR

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Q.3) (a) Current Ratio of a company is 2: 1. Explain which of the following transactions will: (a) Improve the ratio; (b) Reduce the ratio; (c) Does not affect the ratio. 1. Issued debentures for Rs. 1, 00,000; 2. Bank O/d. of Rs. 50,000 is converted into a bank loan 3. Drawn bill of exchange worth Rs. 1, 00,000 on debtors. 4. Pay a current liability Q.3 (b) The Trial Balance of Ajay Ltd shows the following figures relating to Fixed Assets as on 31-3-2009 Particulars Rs. Plant & Machinery 4,20,000 Opening Depreciation Provision On Plant and Machinery 1,78,000 Sale proceeds of old machinery 60,000 Additional Information: 1) Depreciation to be provided during the year at 10% on Straight line method 2) There was an addition to Plant and Machinery on 30-6-2008 for Rs. 1,20,000 3) A Machinery costing Rs. 160,000 was sold on 30-6-2008, depreciation provided on it was Rs. 80,000 Prepare schedule of Fixed Assets. Q.3 (c) JMD I FLEX SOLUTIONS LTD: TRIAL BALANCE AS ON 31.3.2008 FXED ASETS AT COST /ACCUMULATED DEPRECIATION Particulars Dr. Cr. Land 1,40,000 Vehicles 1,67,700 42,000 Vehicle sold(cost 65000/ profit 600) 50,000 Depreciation is charged on WDV basis at 10% vehicles. Land was Revalued by Rs.10000, effect of which was not given in books of accounts. OR Q.3) The following are the balance sheets of Z Limited as at 31st March 2002 and 2001 Liabilities Share capital Reserves Profit & Loss A/c. Sundry Creditors Bills Payable Bank Overdraft Prov. for tax

31.3.01 1,20,000 30,000 23,814 23,700 20,268 35,706 24,000 2,77,488

31.3.02 1,56,000 35,000 25,732 19,681 5,915 — 30,000 2,72,328

Assets Goodwill Land & Building Plant & Machinery Cash Sundry Debtors Sundry Advances Stock

31.3.01 — 89,100 67,770 1,500 51,105 1,389 66,624 2,77,488

31.3.02 12,000 86,550 69,720 1,620 43,575 441 58,422 2,72,328

The following additional information is obtained: 1. During the year ended 31st March 2002, an interim dividend of Rs. 16,000 was paid, 2. The assets and liabilities of another company were purchased for Rs. 36000 payable in fully paid shares or the company. These assets consisted of stock Rs. 14,984, machinery Rs. 11,016 and goodwill Rs. 12,000 and creditors Rs. 2,000, Additional plant for Rs. 3,390 was purchased. 3. Income tax paid during the year amounted to Rs. 15,000. You are required to prepare a statement showing the source and application of funds for the year ending 31st March 2002 and a schedule of changes in working capital. Q.4) Based on the following information, prepare Balance Sheet of Dhoni Ltd. as on 31st march, 2006. Current Ratio 2.5 Liquidity ratio 1.5 Net Working Capital 600000 Stock Turnover Ratio 5 Turnover Ratio to Net Fixed Assets (COGS/FA) 2 Ratio of Gross Profit to sales 20% Average Debt Collection period 2.4 months Fixed Assets to Net Worth 0.80 Long Term debt to Capital and Reserve 7/25 OR Q.4) From the following balance sheet presented by Messrs. Deepak Ltd. prepare common size statement Liabilities Rs. Assets Rs. Share Capital 1,35,000 Goodwill 4,450 Reserves 34,000 Preliminary Expenses 500 Dividend Equalisation Reserve 10,000 Land and Buildings 45,000 Profit and Loss A/c. 10,000 Plant and Machinery 85,000 15% Debentures 45,000 Furniture 40,500 Public Deposits 62,010 Investment 49,500 Creditors 20,920 Debtors 1,14,170 Outstanding Expenses 5,000 Bank Balance 11,610 Proposal Dividend 16,200 Provision for Taxation 12,600 1. 2.

Total Rs. 3,50,730 Total Rs. 3,50,730 Fixed Assets are shown in balance sheet at Gross Value. Accumulated depreciation is 10% of gross block value and wrongly included in Reserves. Out of investments, which are otherwise current in nature, a sum of Rs. 1,500 is represented by the shares of a cooperative society, who has allotted shares enabling the company to occupy its office premises.

Deepak Fulwadhaya 9820797729

Prakash Fulwadhaya 9967008172

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Solutions: All sums are from text book except for the hints and solutions given below Series A: Q.1) Banking: Interest accrued on doubtful loans is to be deducted from interest on loans given in the table and net interest can only be shown under schedule 13.1a Q.4a) C.A= 77000, CL = 44000 COGS = Rs. 80000 Sales = Rs. 100000 Debtors = Rs. 8000 Shareholders Fund = Rs. 88000 (see note down) Fixed assets = Rs. 55000 Note: SF + BF = FA + WC SF=FA + 33000 (There are no BF) --- Equation 1. FA =0.625 SF 1 Therefore FA = 0.625SF—substitute this in equation 1 Q.4 (b)

Advances Doubtful

Secured 150000

Balance Unsecured 850000

Secured 150000 Doubtful for 2 years , therefore RDD at the rate of 30% = 150000 X 30% =45000 Unsecured RDD @ 100%

850000 = 850000

Total RDD = 45000 + 850000 = 895000 Less: ECGC 50% = 447500 RDD required = 447500 Series B: Q3 (b) Refer to extra sum given for company final accounts in this master revision sheet, solution is given there only, go through it. It is sale in between the year. Q4- alternative – common size statements – refer pg. no 11 og JMD text book for solutions.

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