Fm Revision set 4

1)      Wcm	1)                  A proforma cost sheet of a Shrinath & Co. provides the following particulars :­            Element of Cost Amount per unit (Rs.) Raw Material 80 Direct Labour 30 Overheads 60 Total Cost 170 Profit 30 Selling Price 200 The following further particulars are available:­ 1.      Raw materials are in stock on average one month. Production period is two week. For estimating work-in-progress consider 100% Material cost and 50% of labour and overheads. 2.      Finished goods are in stock on an average for one month. 3.      Credit allowed by suppliers is one month. Credit allowed to debtors is two months. 4.      Lag in payment of wages, is 1.5 weeks. Lag in payment of overhead expenses is one month. 5.      One-fourth of the output is sold against cash. Cash on hand at bank is expected to be Rs. 10,000/-. 6.      You are required to prepare a statement showing the Working Capital needed to finance a level of activity of 2,000 units of production per week. Debtors to be considered at selling price. 7.      You may assume that production is carried on evenly throughout the year. Wages and Overheads accrue similarly and a time period of 4 weeks is equivalent to a month. (Month to be converted in weeks). All purchases are on credit basis
2)      Rm	The credit manager of XYZ Ltd. is reappraising the company’s credit policy. The company sells the products on terms of net 30. Cost of goods sold is 85% of sales and fixed costs are further 5% of sales. XYZ classifies its customers on a scale of 1 to 4. During the past five years, the experience was as under: Classification      Default as a % of sales      Average collection period- in                                                                              days for non-defaulting accounts 1                                       0                                       45 2                                       2                                       42 3                                     10                                       40 4                                    20                                        80 The average rate of interest is 15%. What conclusions do you draw about the company’s Credit Policy? What other factors should be taken into account before changing the present policy? Discuss.
3)      CM	1)      Hari is a large retailer of consumer durable, 25% of its sales are of cash; the balance is on one month’s credit, though atleast 20% (of the sales) end up being collected in the second month following sales. You are given the following data: Total sales achieved in: Rs. In Lakhs January February March Total sales estimated in: April May June 100 120 160 200 200 200 Required: a. A schedule of cash collections expected during April, May and June. b. An estimate of addition collections in April, May and June if credit period of one month is to be enforced strictly.
4)      Coc	Lakshmy Ltd. retains Rs. 7,50,000 out of its current earnings. The expected rate of return to the shareholders, if they had invested the funds elsewhere is 10%. The brokerage is 3% and the shareholders come in 30% tax bracket. Calculate the cost of retained earnings.
5)      WACC	X Ltd., a widely held company is considering a major expansion of its production facilities and the following alternatives are available: Alternative (Rs.in lakhs)                                                                          A  B   C Share Capital                                                                                            50 20 10 14% Debentures                                                                                        -   20 15 Loan from a Financial Institution @ 18% p.a. Rate of Interest         -  10 25 Expected rate of return before tax is 25%. The rate of dividend of the company is not less than 20%. The company at present has low debt. Corporate taxation 50%. Which of the alternatives you would choose?
6)      CSP	A Company earns a profit of Rs.3,00,000 per annum after meeting its Interest liability of Rs.1,20,000 on 12% debentures. The Tax rate is 50%. The number of Equity Shares of Rs.10 each are 80,000 and the retained earnings amount to Rs.12,00,000. The company proposes to take up an expansion scheme for which a sum of Rs.4,00,000 is required. It is anticipated that after expansion, the company will be able to achieve the same return on investment as at present. The funds required for expansion can be raised either through debt at the rate of 12% or by issuing Equity Shares at par. Required: (i) Compute the Earnings Per Share (EPS), if:          -  the additional funds were raised as debt        - the additional funds were raised by issue of equity shares. (ii) Advise the company as to which source of finance is preferable
7)      Lev	Consider the following information for Strong Ltd: EBIT 1,120 Rs. in lakh,  PBT 320 Rs. in lakh,  Fixed Cost 700 Rs. in lakh Calculate the percentage of change in earnings per share, if sales increased by 5 per cent.
8)      CB	Fair finance, a leasing company, has been approached by a prospective customer intending to acquire a machine whose Cash Down price is Rs. 3 crores. The customer, in order to leverage his tax position, has requested a quote for a three year lease with rentals payable at the end of each year but in a diminishing manner such that they are in the ratio of 3 : 2 : 1. Depreciation can be assumed to be on straight line basis and Fair Finance’s marginal tax rate is 35%. The target rate of return for Fair Finance on the transaction is 10%. Required: Calculate the lease rents to be quoted for the lease for three years
9)      BR	A Ltd. decided to take over the business of M/s. AB. The purchase consideration was to be discharged as to Rs. 36,500 in cash, Rs. 33,000 in 7½% debentures of Rs. 100 each and by the issue of 5,000 fully paid equity shares of Rs. 10/- each at par.  Calculate the purchase consideration. The following were the Balance Sheets of P Ltd. and V Ltd. as at 31st March, 2001 : Liabilities                                                                        P Ltd                 . V Ltd.                                                                                     (Rs. in lakhs) (Rs. in lakhs) Equity Share Capital (Fully paid shares of Rs. 10 each) 15,000 6,000 Securities Premium                                                                3,000    – Foreign Project Reserve                                                          –         310 General Reserve                                                                   9,500    3,200 Profit and Loss Account                                                      2,870     825 12% Debentures                                                                  –             1,000 Bills Payable                                                                           120 Sundry Creditors                                                                 1,080      463 Sundry Provisions                                                               1,830       702                                                                                              33,400 12,500 Assets Land and Buildings                                                                6,000    – Plant and Machinery                                                             14,000   5,000 Furniture, Fixtures and Fittings                                         2,304   1,700 Stock                                                                                       7,862   4,041 Debtors                                                                                   2,120    1,020 Cash at Bank                                                                             1,114    609 Bills Receivable                                                                            —       80 Cost of Issue of Debentures                                                           —    50                                                                                                   33,400 12,500 All the bills receivable held by V Ltd. were P Ltd.’s acceptances. On 1st April 2001, P Ltd. took over V Ltd in an amalgamation in the nature of merger. It was agreed that in discharge of consideration for the business P Ltd. would allot three fully paid equity shares of Rs. 10 each at par for every two shares held in V Ltd. It was also agreed that 12% debentures in V Ltd. would be converted into 13% debentures in P Ltd. of the same amount and denomination. Expenses of amalgamation amounting to Rs. 1 lakh were borne by P Ltd. You are required to : (i) Pass journal entries in the books of P Ltd. and (ii) Prepare P Ltd.’s Balance Sheet immediately after the merger.