ACTUARIAL SOCIETY OF INDIA

EXAMINATIONS : MAY 2001

Subject 108: Finance and Financial Reporting

Time allowed : Three hours
1.
2.
3.
4.
5.
6.

Maximum marks 100

Write your Candidates number in the space provided.

Do not write your name anywhere in the answer sheets.
Mark allocations are shown in brackets.
Attempt all questions. Begin your answer to each question on a new page.
Actuarial Tables and graph paper will be available on request.
You may use Simple electronic calculators, but not programmable ones or those capable
of storing prior data.

At the end of the examination :

Hand over your answer booklet and this question paper to the Supervisor .

1)

List possible reasons for high P/E ratio of a share.

[2]

2)

What is a "Zero coupon bond"

[2]

3)

List the features of Commercial Paper

[2]

4)

Compare leasing with hire -purchase

[2]

5)

6)

ABC plc owns 80% DEF Ltd, and 60% of GHI Ltd. DEF Ltd. also owns 20% of GHI Ltd. In ABC
Plc's group accounts, what proportion of GHI Ltd will be shown as a minority interest?
[2]
In times of rising prices, the historical cost convention has the effect of
A: understating profits and overstating balance sheet items
B: understating profits and understating balance sheet items
C: overstating profits and understating balance sheet items
D: Overstating profits and overstating balance sheet items

[2]

7)

A company's ordinary shares have a current market price of Rs. 20/- The company is making a 2 for
5 rights issue at a price of Rs 15/- Calculate the ex-rights price.
[2]

8)

Explain the basic principles of double taxation relief.

9)

A company treasurer is concerned to protect himself against interest rates rising on a 5 year floating
rate loan he has outstanding. Which form of derivative would be most suitable for providing this
protection and how might the contract be structured?
[4]

10)

The directors of a company are planning to undertake a right issue. Describe the factors that should
be taken into account in deciding whether to have this issue underwritten.
[6]

11)

Describe how the financial statements for a group of companies will differ from those for a single
company.
[6]

12)

A company must choose between two mutually exclusive investment projects. Project A has a higher
net present value (NPV) than project B, but project B has a higher internal rate of return (IRR).

[4]

Explain which of the two measures (NPV or IRR) is more reliable in the above case and explain
whether the company should choose project A or B.
[6]
13)

A 10 year bond with 12% coupon is priced at a premium of 5%. Calculate the Gross Redemption
Yield and Interest Yield. Also, calculate the holding period return if it is sold after 5 years at a
discount of 2%.
[6]

14)

Explain two different methods of charging depreciation. Give an example comparing the two
methods over a three-year period.
[6]

15)

State the advantages of listing for a company.

16)

The following information relates to HJK Ltd for the two years to 31 December 1996 and 1997
(amounts in million Rs.)

[8]

Trading and profit and loss accounts

Sales
Less: Cost of goods sold:
Opening Stock
Purchases
Closing Stock
Gross profit
Less: Expenses
Net Profit

80
995
1075
100

1996

1997

1500

1900

975
225
250
275

100
1400
1500
200

1300
600
350
250

Balance sheets at 31 December

Fixed assets
Current Assets
Stock
Trade debtors
Bank

Current liabilities
Bank overdraft
Trade creditors
Net current assets

Capital and reserves

Ordinary share capital
Profit and loss account

1996
580

1997
460

100
375
25
500

200
800
0
1000

0
80

10
200
420
1000

790
1250

900
100
1000

900
350
1250

Discuss the company's performance for the year to 31 December 1997, You should use accounting ratios to
support your analysis.
[20]
17)

The following information is from the accounting records of XYZ Ltd. (Amounts in Rs. 000S)

Extract from Balance Sheet as on 31/03/1999:

Fixed Assets
Factory:
Gross Value
23300
Depreciation
1340
21960
Machinery:
Gross Value
Depreciation

12300
6000

6300

Extract from Trial Balance as on 31/03/2000:

Administration costs
960
Bank Overdraft
700
Debtors 1300
Factory running costs
1200
Loan interest
1680
Long term loans
12000
Manufacturing wages
1300
Materials consumed
1600
Sales
16000
Sales Salaries
1600
Share capital
12000
Inventory
700
Creditors
600
Notes:
a) Tax charges for the year has been estimated at Rs 1,290,000
b) The directors have proposed a dividend of Rs.1,400,000
c) The directors had the factory professionally revalued during the year. The valuer's report estimates the
value at Rs 25,000,000 as at the year end. This value is to be incorporated into the balance sheet.
d) During the year the company charged depreciation of Rs. 460,000 on the factory and Rs. 2,000.000 on
the machinery. The company purchased new machinery at a cost of Rs. 2,700,000. There were no other
transactions involving fixed assets.
Prepare XYZ's profit and loss account for the year ended 31 March 2000 and the balance sheet as at that
date, clearly show your workings. You should provide a note in respect of tangible fixed assets. [20]