FINAL EXAMINATION SET 2

MODEL QUESTION PAPER TERM – JUNE 2023

PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.
Question No. 1 and 8 are compulsory; Answer any four from Question No. 2, 3, 4, 5, 6 & 7.

SECTION - A
1. (a) Choose the correct alternative. Provide Justification for your answer. 1 Mark
is allotted for the correct choice and 1 mark for the justification. [2 × 10 =20]
(i) In Porter’s structural analysis, which of the following is not considered as an
entry barrier? Why?
a. Product differentiation
b. Switching costs
c. Capital requirements
d. Low value addition
(ii) Which of the following is not a apart of financial risk? Why?
a. Operational risk
b. Market risk
c. Credit risk
d. Liquidity risk
(iii) Which of the following is not a type of Euro Notes? Why?
a. Commercial Papers
b. Note Issuance Facility
c. Medium Term Notes
d. Short Term Notes
(iv) The type of lease that includes a third party, a lender, is called __________.
Why?
a. Sale and leaseback
b. Leverage lease
c. Direct lease arrangement
d. Operating lease
(v) DCL measures the relationship between
a. EPS and EAT
b. EPS and P/E
c. EPS and EBIT
d. EPS and Sales

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
(vi) A six-month forward contract on a stock that does not pay dividend is
available at `340. The risk-free interest rate is 12% p.a. continuously
compounded. Calculate the forward price.
a. ` 359.051
b. ` 361.012
c. ` 363.217
d. ` 364.119
(vii) A project with an initial investment of `50 lakh and life of 10 years generates
Cash Flow After Tax (CFAT) of `10 lakh per annum. Calculate Payback
Reciprocal.
a. 15%
b. 18%
c. 20%
d. 22%
(viii) The return on market portfolio is 14%. The last dividend of share A was `2
and the dividend and earnings have a constant growth rate of 5% p.a. The
beta of the share is 2 and the intrinsic value of the share is `12.35. Find the
risk-free return.
a. 5%
b. 6%
c. 7%
d. 8%
(ix) It was observed that in a certain month, 6 out of 10 leading indicators have
moved up as compared to 4 indicators in the previous month. The diffusion
index for the month was
a. 20%
b. 40%
c. 60%
d. 80%
(x) An Indian Company is planning to invest in the US. The annual rates of
inflation are 8% in India and 3% in USA. If the spot rate is currently `
78.50/$, what spot rate can you expect after 5 years, assuming the inflation
rates will remain the same over 5 years?
a. ` 88.89
b. ` 94.95
c. ` 99.50
d. ` 86.10

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
SECTION - B
2. (a) Q Ltd. has two projects under consideration, A and B, each costing `60 lacs. The
projects are mutually exclusive. The life of Project A is four years and of Project B
is three years. The salvage value is zero for both the projects. Depreciation is
charged uniformly for A over four years and 100% depreciation is available for B
at the end of the first year. The tax rate is 40% and the hurdle rate for cash flow
evaluation is 15%. The cash inflows before tax for A and B are given below:
(Figs. ` lacs)
At the end of the year Project A Project B
1 30 25
2 55 60
3 60 65
4 25 Nil

Find the NPV of A and B. Comment on your preference. Is the NPV the most
appropriate measure for your decision? Why? (Use PV factors up to 3 decimal
points, show annual discounted cash flows for each project in ` lacs, up to two
decimal places.)
(b) Describe various types of securities issued by a SPV in securitization transactions.
[9 + 7 = 16]

3. (a) A firm has an investment proposal, requiring an outlay of ` 40,000. The investment
proposal is expected to have 2 years' economic life with no salvage value. In year
1, there is a 0.4 probability that cash inflow after tax will be ` 25,000 and 0.6
probability that cash inflow after tax will be ` 30,000. The probabilities assigned
to cash inflows after tax for the year 2 are as follows:
The Cash inflow year 1 ` 25,000 ` 30,000
The Cash inflow year 2 Probability Probability
` 12,000 0.2 ` 20,000 0.4
` 16,000 0.3 ` 25,000 0.5
` 25,000 0.5 ` 30,000 0.1
The Firm uses a 12% discount rate for this type of investment.
(i) Tabulate the NPVs for each path of the decision free (diagram not essential)
(ii) What net present value will the project yield if the worst outcome is realized?
What is the probability of occurrence of this NPV.
(iii) What will be the best outcome and the probability of that occurrence?
(12% Discount factor for 1 year is 0.8929 and for 2 year is 0.7972)

(b) Write a short note on: Non-Fungible Tokens (NFTs). [10 + 6 = 16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
4. (a) (i) XY Ltd. is expected to pay a dividend of ` 8.00 at the end of first year, a
dividend of ` 14.00 at the end of second year, a dividend of ` 22.00 at the
end of third year. from fourth year onwards, the dividends are expected to
grow at a constant growth rate of 4%. if the required rate of return is 14%,
compute the value of the stock.

(ii) A ` 100 par value bond bears a coupon rate of 14 percent and matures after
five years. Interest is payable semi-annually. Compute the value of the bond
if the required rate of return is 16 percent.

(b) A Mutual Fund made an issue of 10,00,000 units of ` 10 each on 01.01.2016. No

entry load was charged. It made the following investments after incurring initial
expenses of ` 2 lacs.
Particulars `
50,000 Equity Shares of ` 100 each @ ` 160 80,00,000
7% Government Securities 8,00,000
9% Debentures (unlisted) of ` 100 each 5,00,000
10% Debentures (Listed) of ` 100 each 5,00,000
Total 98,00,000

During the year, dividends of ` 12,00,000 were received on equity shares, interest
on all types of debt securities was received as and when due. At the end of the year,
equity shares and 10% debentures are quoted at 175% and 90% of their respective
face values. Other investments are quoted at par. (i) Find out the Net Asset Value
(NAV) per unit given that the operating expenses during the year amounted to `
5,00,000. (ii) Also find out the NAV, if the Mutual Fund had distributed a dividend
of ` 0.90 per unit during the year to the unit holders. [(4 + 4) + 8 = 16]

5. (a) A holds the following portfolio:

Share/Bond Beta Initial Price Dividend Market price at the end of year
A Ltd. 0.9 30 3 60
B Ltd. 0.8 40 3 70
C Ltd. 0.6 50 2 150
G Bonds 0.01 1000 140 1010
Risk Free return is 14%
Calculate:
(i) The expected rate of return on his portfolio using Capital Asset Pricing
(CAPM)
(ii) The average return of his portfolio.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
(b) Four investors, A, B, C and D have invested equal amounts of money in different
combinations of funds as per their risk appetite. A has fully invested in Money
Multiplier Funds, B has invested 50% in Money Multiplier and 50% in Balanced
Growth Funds, C has invested 80% in Balanced Growth Funds and 20% in Safe
Money Funds and D has fully invested in a fund that exactly replicates the market
portfolio. The following information is given:
Fund Type Return for the year (%) Beta Factor
Money Multiplier (100% Equity) 24.00 1.8
Balanced Growth Funds (50% Equity 17.5 1.3
and 50% Debt)
Safe Money (20% Equity and 80% Debt) 13.00 0.75

The market return is 16% and the risk-free rate is 8%. Analyse the above
information and rank the investors’ rewards using Treynor’s measure.
[8 + 8 = 16]

6. (a) Briefly illustrate various steps in a risk management process.

(b) A owns a portfolio in three stocks as detailed below:

Stock No. of shares Price `/share Beta
X 4,00,000 400 1.1
Y 8,00,000 300 1.2
Z 12,00,000 100 1.3

The NSE-Midcap 100 is at 28,000 and futures price is 28,560. Assume that the
index factor is 100. Advise A on the use stock index futures to
(i) decrease the portfolio β to 0.8;
(ii) increase the portfolio β to 1.5 ; and
determine the number of contracts of stock index futures to be bought or sold in
each case. [7 + 9 = 16]

7. (a) (i) Compare and contrast ADR and GDR.

(ii) An Indian exporter has sold handicraft items to an American business house.
The exporter will be receiving US dollar 1 lakh in 90 days. Premium for a
dollar put option with a strike price of ` 81.00 and a 90 days settlement is `
1. The exporter anticipates the spot rate after 90 days to be ` 79.50. Analyse
the benefit of the exporter if it hedges its account receivable in the options
market.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
(b) A company operating in USA has on 1st September 2022 invoiced sales in $ to an
Indian company, the payment being due on 1st December 2022. The invoice
amount is $ 13,750. At spot rate on 1/9/2022 it is equivalent to ` 10,18,875. The 3
months forward rate is presently quoted at $ 0.01340 per rupee. The importer wants
to hedge half his exposure by a forward contract. Advise the company on hedging
transaction by forward contract. Substantiate your advice through calculation of the
pay outs and the net gain or loss due to hedging if the spot rates are as follows on
1st December 2022.
(i) $ 0.01338
(ii) $ 0.01352
Present your calculation using `/$ up to two decimal places. Ignore transaction
cost. [(4 + 4) + 8 = 16]

SECTION - C
8. Y, a British firm with a US subsidiary, seeks to refinance some of its existing British
pound debt to include floating rate obligations. The best floating rate it can obtain in
London is LIBOR + 2.0%. Its current debts are as follows:
US$ 10 million owed to CT Bank at 9.5% (fixed annually); and
£ 5 million owed to MD Bank at 9.5% (fixed) annually.

HRS Company wishes to finance exports to Britain with £3 million of pound

denominated fixed rate debt for six months. HRS is unable to obtain a fixed interest rate
in London for less than 13.5% interest because of its lack of credit history in the UK.
However, Lloyds Bank is willing to extend a floating rate British pound loan at LIBOR
+ 2%. HRS, however, cannot afford to pay more than 12%. Assume that Y is in a strong
bargaining position and can negotiate the best deal possible, but HRS will not pay over
12%. Assume further that transaction costs are 0.5% and exchange rates are stable.
Advise whether Y and HRS can help each another by an interest rate swap. In case the
swap deal is workable, determine the amount of gains for Y, HRS and the Swap Dealer.
Create a diagrammatic representation of the effective post-swap interest rates of each
party. Explain the diagram with needful narratives. Also show the effective interest rates
for each party over the six months period of the swap.
[16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A (Compulsory)

1. Choose the correct option: [15 x 2 =30]

i. Kumar Industries is engaged in manufacture of leather products. It was set up in

backward area and became eligible for subsidy @ 25% for the generator, to be used
in guest house, acquired by it for ₹ 12 lakhs on 15.12.2023. It received the subsidy
in March 2024. The amount of depreciation for the year at the applicable rate would
be _____________.
a. ₹ 67,500
b. ₹ 90,000
c. ₹ 1,80,000
d. Nil

ii. In the year of restructuring, depreciation shall be:

a. available to the successor company fully
b. apportioned between successor and predecessor on the basis of number of days
c. available to the predecessor company fully
d. None of the above

iii. Uncontrolled transaction means a transaction between ____________, whether

resident or non-resident.
a. enterprises other than associated enterprises
b. associated enterprises
c. any enterprises
d. none of the above

iv. The provisions of sec. 92 will apply only if the aggregate value of specified
domestic transactions entered into by the taxpayer during the year exceeds a sum
of ₹_____.
a. 100 crore
b. 5 crore

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
c. 10 crore
d. 20 crore

v. In respect of DTAA, generally, India follows:

a. UN Model
b. UK Model
c. OECD Model
d. US Model

vi. ICDS is applicable in case of income under the head:

a. Profits and gains from Business or Profession
b. Capital Gains
c. Income from House Property
d. All heads of income

vii. Auddy Fertilisers P Ltd., is a manufacturer. A factory building has been constructed
for ₹ 40 lakhs and occupied on 12.02.2023. Additional depreciation allowable for
the said factory building is ______.
a. Nil
b. ₹ 4,00,000
c. ₹ 2,00,000
d. None of the above

viii. MSP Ltd., has spent a sum of ₹ 20 lakhs towards meeting its corporate social
responsibility (CSR) under the Companies Act, 2013. The amount of deduction
available while computing the business income is ___________.
a. Nil
b. ₹ 10 lakhs
c. ₹ 15 lakhs
d. ₹ 20 lakhs

ix. Napa Ltd. earned ₹ 15 lakhs by way of transfer of carbon credit. The tax liability in
respect of carbon credit is ____________.
a. ₹ 1,56,000
b. ₹ 2,34,000
c. ₹ 4,68,000
d. Nil

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION

x. Vikash has advertised on Facebook to promote his business of coaching. He is

required to pay ₹ 20,000 in the previous year 2023-24 to Facebook for the
advertising services availed. What amount is required to be deducted as
equalisation levy?
a. ₹ 1,200
b. ₹ 800
c. ₹ 400
d. Nil

xi. When an assessee fails to furnish any information relating to a specified domestic
transaction, the quantum of penalty as a percentage of value of the transaction
would be —
a. 2%
b. 1%
c. 5%
d. 3%

xii. A is using a motor car for his personal purposes, but charges as business
expenditure. This is the case of __________.
a. Tax Avoidance
b. Tax Planning
c. Tax Evasion
d. Tax Management

xiii. Countries that employ explicit policies designed to attract international trade
oriented activities by minimization of taxes and reduction or elimination of other
restrictions on business operations is described as ________.
a. Tax Havens
b. Tax Planning
c. Tax Evasion
d. Tax Management

xiv. During the course of survey in the premises of Ratan & Co. on 10.01.2024, stocks
of goods purchased for ₹ 10 lakhs were found to be not recorded in the books of
account. The firm has brought forward loss of ₹ 5 lakhs and incurred business loss
of ₹ 2 lakhs for the year ended 31.03.2024 without considering the unaccounted

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
stock. The tax liability of the firm including the said unaccounted purchase would
be _______.
a. ₹ 7,80,000
b. ₹ 3,12,000
c. ₹ 93,600
d. Nil

xv. GAAR provisions shall not apply to:

a. an arrangement where the tax benefit in the relevant assessment year arising, in
aggregate, to all the parties to the arrangement does not exceed a sum of ₹ 3
crore
b. an arrangement where the tax benefit in the relevant assessment year arising, in
aggregate, to all the parties to the arrangement does not exceed a sum of ₹ 5
crore
c. an arrangement where the tax benefit in the relevant assessment year arising, in
aggregate, to all the parties to the arrangement does not exceed a sum of ₹ 1
crore
d. None of the above.

SECTION – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks)
[5x14=70]

2. Following is the profit and loss account of Z Ltd. for the year ended on 31-3-2024:
Particulars Amount Particulars Amount
To Raw material 23,25,000 By Sale 1,60,00,000
consumed
To Rent 3,50,000 By Closing Stock 10,00,000
To Salary & Wages 12,00,000 By Revaluation Reserve 25,000
To Depreciation 5,00,000 By General Reserve 1,00,000
To Provision for 75,000
contingencies
To Wealth Tax 50,000
To Provision for bad debts 40,000

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION

To Proposed dividend 1,00,000

To Provision for Income 1,05,000
tax
To Net Profit 1,23,80,000
1,71,25,000 1,71,25,000
Additional Information:
(1) The amount of depreciation includes depreciation on revaluation of assets ₹ 50,000.
Further, for the purpose of Income tax, depreciation is ₹ 4,00,000.
(2) Turnover of the company during the previous year was ₹ 530 crores. However, during
the financial year 2021-22, turnover of the company was ₹ 250 crores only.
(3) In past few years, company had suffered losses, following balances are still
unabsorbed:
As per Income tax Act As per books of Accounts
Depreciation ₹ 66,00,000 Nil
Losses ₹ 35,50,000 Nil
Compute tax liability of the company. [14]

3. (a) On 01-10-2023, Mr. Shah of Surat is offered an employment by Vimal & Co. Ltd.,
Surat on a basic salary of ₹ 55,500 p.m. Other allowances are dearness allowance
(not forming part of salary for retirement benefits) ₹ 50,000 p.m., medical
allowance ₹ 10,000 p.m. and bonus being 1 month’s basic salary. The company
gives an option to Mr. Shah either to take a rent-free accommodation in Surat of the
fair rental value of ₹ 20,000 p.m. or to accept house rent allowance of ₹ 20,000 p.m.
Mr. Shah join the job with house rent allowance and takes a house in Surat at a
monthly rent of ₹ 20,000.
Analyse whether he has made a wise choice from tax advantage view (old regime).
[7]
(b) Smile Ltd. is a wholly-owned subsidiary company of Happy Ltd., an Indian
company. Smile Ltd. owns Plant-A and Plant-B (depreciation rate 40%, depreciated
value of the block ₹ 3,00,000 on 1st April, 2023). Plant-B was purchased and put to
use on 10th November, 2021 (cost being ₹ 70,000). Plant-B is transferred by Smile
Ltd. to Happy Ltd. on 14th December, 2023 for ₹ 20,000. It is put to use by Happy
Ltd. on the same day. Happy Ltd. owns Plant-C on 1st April, 2023 (depreciation rate
40%, depreciated value ₹ 60,000). Find out the amount of depreciation in the hands
of Smile Ltd. and Happy Ltd. for the assessment year 2024-25. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
4. (a) X Ltd. has several undertakings carrying on several businesses. During the year
2023-24, the company sold one of its undertaking (as it was continuously
generating loss since last 5 years) for a lump sum value of ₹ 300 lacs without
assigning value to individual asset and liabilities. The fair market value of the
capital asset of that unit is ₹ 350 lacs. Book value of sundry assets and liabilities of
the undertaking as on the date of sale is as under:
Items Book Value
Land ₹ 50 lacs (Value for the purpose of Stamp duty ₹ 70,00,000)
Machinery ₹ 70 lacs (WDV as per IT Act ₹ 60 lacs)
Furniture ₹ 50 lacs (WDV as per IT Act ₹ 90 lacs)
Stock ₹ 30 lacs
Debtors ₹ 40 lacs
Creditors ₹ 50 lacs
Brokerage on transfer paid @ 5%. Compute capital gain. [7]

(b) USA Airlines incorporated as a company in USA operates its flights to India and
vice versa during the year 2023-24 and collects charges of ₹ 150 lakh for carriage
of passengers and cargo out of which ₹ 90 lakh were received in US Dollars for the
passenger fare booked from New York to Mumbai. The total expenses for the year
on operation of such flights were ₹ 195 lakh. Income chargeable to tax of the foreign
airlines may please be computed. [7]

5. (a) Summarize a comparison between revision u/s 263 and revision u/s 264. [7]

(b) Mr. Goswami submitted his return on 25th July, 2024 for the assessment year
2024-25. The following particulars are furnished by him for the previous year
2023-24:
₹
Tax payable on assessed income 1,03,950
Tax deducted at source 36,450
Advance taxes paid as under:
15th June, 2023 Nil
15th September, 2023 18,500
15th December, 2023 16,125
15th March, 2024 25,250
You are required to examine and compute the interest, if any, payable by the
assessee at the time of filing return of income. [7]

6. (a) Analyze, in brief, the different models of tax convention in DTAA. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION

(b) Amar, an individual, resident of India, receives the following payments after TDS
during the previous year 2023-24:
(i) Professional fees on 17.08.2023 2,40,000
(ii) Professional fees on 04.03.2024 1,60,000
Both the above services were rendered in country X on which TDS of ₹ 50,000 and
₹ 30,000 respectively has been deducted. He had incurred an expenditure of ₹
2,40,000 for earning both these receipts / income. His income from other sources
in India is ₹ 5,00,000 and he has made payment of ₹ 70,000 towards LIC. Compute
the tax liability of Amar and also the relief u/s 91, if any, for A.Y.2024-25. [7]

7. (a) Brain Inc. London has 35% equity in Salem Ltd. The company Salem Ltd. is
engaged in development of software and maintenance of customers across the
globe, which includes Brain Inc.
During the year 2023-24, Salem Ltd. spent 2000 men hours for developing and
maintaining a software for Brain Inc. and billed at ₹ 1,000 per hour. The cost
incurred for executing maintenance work to Brain Inc. for Salem Ltd. amount to ₹
15,00,000. Similar such work was done for unrelated party Try Ltd. in which the
profit was at 50%.
Brain Inc. gives technical support to Salem Ltd. which can be valued at 8% of gross
profit. There is no such functional relationship with try Ltd.
Salem Ltd. gives credit period of 90 days the cost of which is 3% of the normal
billing rate which is not given to other parties.
Compute ALP under cost plus method in the hands of Salem Ltd. and the impact of
the same on the total income. [7]

(b) SD Ltd., an Indian Company, has borrowed ₹ 100 crores on 01-04-2023 from M/s.
SM Inc., a company incorporated in UK, at an interest rate of 10% p.a. The said
loan is repayable over a period of 10 years. Further, this loan is guaranteed by M/s
MSPL Inc. incorporated in UK. M/s. MM Inc., a non-resident, holds shares carrying
35% of voting power both in M/s SD Ltd. and M/s MSPL Inc. Net profit of M/s. SD
Ltd. for P.Y. 2023-24 was ₹ 11 crores after debiting the above interest, depreciation
of ₹ 5 crores and income-tax of ₹ 4 crores.
Calculate the amount of interest to be allowed to be claimed under the head "Profits
and gains of business or profession" in the computation of M/s SD Ltd. Also explain
allowability of such disallowed interest, if any. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
8. (a) Roma purchases 600 equity shares in XY (P) Ltd. on 1-04-2023 @ ₹ 150 each. On
31-12-2023, XY (P) Ltd. is demerged. In the scheme of demerger, division Y was
transferred to Y (P) Ltd. (resulting company). On that date balance sheet of XY (P)
Ltd. is as follow –
Division Division
Liabilities Total Asset Total
X Y X Y
6,000 E. 6,00,000 Land - 2,50,000 2,50,000
Shares
General 4,00,000 Plant 1,75,000 1,00,000 2,75,000
Reserve
Loan 2,00,000 Investm 2,50,000 - 2,50,000
(General) ent
Loan 60,000 75,000 1,35,000 Stock 1,95,000 2,30,000 4,25,000
(Specific)
Creditors 25,000 40,000 65,000 Debtors 55,000 45,000 1,00,000
Cash 25,000 75,000 1,00,000
and
Bank
14,00,000 14,00,000
Y (P) Ltd., in consideration of the demerger, issued equity share of ₹ 100 each (at
par) to the shareholders of XY (P) Ltd. on proportionate basis. You are required to
compute –
- Number of shares of Y (P) Ltd. received by Roma and cost thereof.
- Cost of acquisition of shares held by Roma in XY (P) Ltd. after demerger.
Capital gain, if Roma sold 200 shares of XY (P) Ltd. @ ₹ 125 & 100 shares of Y(P)
Ltd. @ ₹ 110 on 31-03-2024. [7]

(b) Explain when two enterprises will be considered as an associated enterprise?

Examine the different circumstances when two enterprises are treated as deemed
associated enterprises. If X Inc. holds 30% equity shares in Y Ltd. as well as in Z
Inc., does Y Ltd. And Z Inc. considered as associated enterprise? Justify. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER
PAPER - 15
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.
Question No. 1 and 8 are compulsory; Answer any four from Question No. 2, 3, 4, 5, 6 & 7

SECTION - A
1. (a) Choose the correct alternative. Provide Justification for your answer. 1 Mark
is allotted for the correct choice and 1 mark for the justification. [2 × 12 =24]
(i) When an assessee fails to furnish any information relating to a specified
domestic transaction, the quantum of penalty as a percentage of value of the
transaction would be _______. [Please provide a brief justification]
a. 2%
b. 1%
c. 5%
d. 3%
(ii) Information and documents required to maintained u/s 92D shall be kept and
maintained for a period of ____ from the end of the relevant assessment year.
[Please provide a brief justification]
a. 8 years
b. 5 years
c. 10 years
d. 16 years
(iii) Advance Pricing Agreement shall be valid for such period not exceeding
_____ consecutive previous years as may be specified in the agreement.
[Please provide a brief justification]
a. 5
b. 3
c. 10
d. 2
(iv) As per section _____ when any specified domestic transaction is carried out
between associated enterprises, the said transaction should be carried out at
arm’s length price. [Please provide a brief justification]
a. 90
b. 91
c. 92
d. 90A

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(v) In the year of restructuring, depreciation shall be ___________. [Please
provide a brief justification]
a. available to the successor company fully
b. apportioned between successor and predecessor on the basis of number
of days
c. available to the predecessor company fully
d. None of the above
(vi) A is using a motor car for his personal purposes, but charges as business
expenditure. This is the case of ____________. [Please provide a brief
justification]
a. Tax Avoidance
b. Tax Planning
c. Tax Evasion
d. Tax Management
(vii) During the course of survey in the premises of Jagan & Co. on 10.01.2023,
stocks of goods purchased for ₹ 10 lakhs were found to be not recorded in
the books of account. The firm has brought forward loss of ₹ 5 lakhs and
incurred business loss of ₹ 2 lakhs for the year ended 31.03.2023 without
considering the unaccounted stock. The tax liability of the firm including
the said unaccounted purchase would be ___ (including surcharge and cess).
[Please provide a brief justification]
a. ₹ 7,80,000
b. ₹ 3,12,000
c. ₹ 93,600
d. Nil
(viii) Tripti Charitable Trust registered u/s 12AB paid rent for premises at
₹30,000 per month by cash. It also did not deduct tax on salary paid to its
manager amounting to ₹ 9,80,000 for the previous year 2022-23. The total
income of the assessee would be increased by because of the
above said transactions. [Please provide a brief justification]
a. ₹ 3,60,000
b. ₹ 6,54,000
c. ₹ 8,40,000
d. ₹ 2,52,000
(ix) Royalty of ₹ 10 lakh received by a foreign company from an Indian concern
in pursuance of an agreement approved by the Central Government in the
previous year 2022-23. What will be tax liability of the company? [Please
provide a brief justification]

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a. Nil
b. ₹ 1,04,000
c. ₹ 4,16,000
d. None of the above
(x) Harivallabh Pvt. Ltd., has spent a sum of ₹ 10 lakhs towards meeting its
corporate social responsibility (CSR) under the Companies Act, 2013. The
amount of deduction available while computing the business income is
___________. [Please provide a brief justification]
a. Nil
b. ₹ 10 lakhs
c. ₹ 15 lakhs
d. ₹ 12.5 lakhs
(xi) When an Indian company pays ₹5 lakhs to a foreign company for online
advertisement of its products, it has to deduct __________. [Please provide a
brief justification]
a. equalization levy @ 6%
b. equalization levy @ 8%
c. tax at source @ 10%
d. tax at source @ 2%
(xii) Venus Traders i s engaged in turmeric trade with a turnover exceeding ₹
1000 lakhs dispatched its goods through Indian Railways. The amount of
freight payable as on 31.03.2023 was ₹1,40,000. It wants to claim the freight
as expenditure. To satisfy such claim, it has to pay the freight to Indian
Railways ________________. [Please provide a brief justification]
a. before due date specified in Section 139(1)
b. before the end of the previous year
c. before the end of the assessment year
d. there is no time restriction

SECTION - B
2. (a) A private limited company has share capital in the form of equity share capital. The
shares were held until 31st March, 2021 by 4 members A, B, C and D equally. The
company made losses/profits for the past three assessment years are as follow:
Asst. Year Business Loss Unabsorbed depreciation Total
2019-20 Nil ₹ 15,00,000 ₹ 15,00,000
2020-21 Nil ₹ 12,00,000 ₹ 12,00,000
2021-22 ₹ 9,00,000 ₹ 9,00,000 ₹ 18,00,000

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The above figures have been accepted by the tax department.
During the previous year 31-3-2022, A sold his shares to Y and during the previous
year 31-3-2023, B sold his shares to Z. The profits for the past two years are as
follows:
- 31-3-2022 ₹ 18,00,000 (before charging depreciation ₹ 9,00,000)
- 31-3-2023 ₹ 45,00,000 (before charging depreciation ₹ 7,50,000)
Compute taxable income for A.Y. 2023-24.
(b) Shri Anuj, an ordinarily resident in India, provides following details of his income
for the previous year relevant to the A.Y. 2023-24
- Income from India ₹ 3,40,000
- Income from Country Z ₹ 2,00,000
- Investment in PPF ₹ 10,000

Further, it is to be noted that:

(i) India has avoidance of double taxation agreement with Country Z. According
to the said agreement, income is taxable in the country in which it is earned
and not in the other country. However, in the other country, such income can
be included for the purpose of computation of tax rate.
(ii) Foreign income has been taxed in Country Z @ 20%.
Compute Indian tax payable. [7 + 8 = 15]

3. (a) Mr. Brown, a non-resident, made an application to the Board for Advance Rulings
on 12.7.2022 in relation to a transaction proposed to be undertaken by him. On
10.9.2022, he decides to withdraw the said application. Suggest whether he can
withdraw the application on 10.9.2022.

(b) Compute ALP through following information:

- A Ltd. is a distributor of IT products.
- A Ltd. purchases these products from its related party, P Ltd.
- A Ltd. also trades in laptops manufactured by X Ltd.
- P Ltd as well as X Ltd would supply the warranty replacements free of cost
to A Ltd.
- Other details are as under:
Particulars P Ltd (AE) X Ltd
Purchase price of A Ltd. INR 15,000 INR 22,000
Sale price of A Ltd INR 18,000 INR 26,000
Other expenses incurred by A Ltd INR 500 INR 700
[5 + 10 = 15]

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DIRECT TAX LAWS AND INTERNATIONAL TAXATION
4. (a) Analyze the given information to determine the penalty leviable u/s 270A in case
of X Ltd from the following details:
Particulars Total Tax on Total Book Tax on Book
Income Income Profit Profit
Return of income 80,00,000 24,96,000 2,00,00,000 33,38,400
Assessed income 1,20,00,000 40,06,080 2,10,00,000 35,05,320

(b) Write a brief note on secondary adjustment u/s 92CE. [10 + 5 = 15]

5. (a)(i) Distinguish between Tax Planning and Tax Avoidance.

(ii) How could you compute total undisclosed foreign income and asset under the
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,
2015?

(b) Megabyte Inc. of France and R Ltd. of India are associated enterprises. R Ltd.
imports 3,000 compressors for Air Conditioners from Megabyte Inc. at ₹ 7,500 per
unit and these are sold to Pleasure Cooling Solutions Ltd at a price of ₹ 11,000 per
unit. R Ltd. had also imported similar products from Cold Inc. Poland and sold
outside at a Gross Profit of 20% on Sales. Megabyte Inc. offered a quantity
discount of ₹ 1,500 per unit. Cold Inc. could offer only ₹ 500 per unit as Quantity
Discount. The freight and customs duty paid for imports from Cold Inc. Poland
had cost R Ltd. ₹ 1,200 per piece. In respect of purchase from Cold Inc., R Ltd.
had to pay ₹ 200 only as freight charges.

Analyze in the light of the related provisions of Income Tax Law and compare
the amount of Arm’s Length Price and Total Income of R Ltd. [(3+4)+8=15]

6. (a) Smile Ltd. is a wholly-owned subsidiary company of Happy Ltd. Smile Ltd. owns
Plant-A and Plant-B (depreciation rate 40%, depreciated value of the block
₹3,00,000 on 1st April, 2022). Plant-B was purchased and put to use on 10th
November, 2020 (cost being ₹ 70,000). Plant-B is transferred by Smile Ltd. to
Happy Ltd. on 14th December, 2022 for ₹ 20,000. It is put to use by Happy Ltd. on
the same day. Happy Ltd. owns Plant-C on 1st April, 2022 (depreciation rate 40%,
depreciated value ₹ 60,000).

Assess the amount of depreciation in the hands of Smile Ltd. and Happy Ltd. for
the assessment year 2023-24 in accordance with the related provisions of Law.

(b) State the disclosure requirements of ICDS III. [9 + 6 = 15]

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7. (a) A Co. Ltd. of Chennai and Sky Inc. of Singapore are associate enterprises. A Co.
Ltd. imported 1000 television sets at ₹ 16,000 per set without any warranty period.
A Co. Ltd. also imports similar TV sets from unrelated party Sign Inc. of Japan. It
is imported at ₹ 15,000 per set with warranty time of 2 years. The cost of warranty
in respect of goods imported from Sky Inc. for a period of 2 years would cost
₹2,000.
Compute arm’s length price and the amount of increase in total income of A Co.
Ltd. as per CUP method.
(b) Sri Sen, 20 years, went to England from India for higher education on 1st
December, 2019. So long he was in England, he had a residence in India. In winter
vacations, he came twice to India. First time he came on 1st January, 2021 and
stayed for 20 days, and second time he came on 15th December, 2021 and stayed
for 25 days. After completing the education, he came back to India forever on 30th
December, 2022.
On 01/01/2023, he got the job in Ram Ltd. for a monthly salary of ₹ 1,00,000. His
salary has credited into his bank account on the last day of the month.
During the previous year 2022-23, he also earned saving bank interest of ₹ 13,360/-
. In order to save tax, during the year, he has also invested ₹ 50,000 in PPF.
On the basis of aforesaid information, you are requested to suggest Sri Sen on the
following issues:
(i) What is the residential status of Sri Sen for the previous year 2022-23?
(ii) What is his total income?
(iii) Is he required to file return of income for the A.Y. 2023-24?
(iv) If in case, he is required to file return of income, please suggest, in which
ITR he is required to file his return of income. [5 + 10 = 15]

SECTION - C
8. (a) Mr. Amin, furnishes you the following particulars of income for previous year 2022–
23:
Particulars ₹
Income from business in India (computed) 11,00,000
Dividend received from Company incorporated in Country X (gross) 2,00,000
Royalty income from writing text book for schools in Country Y (gross) 6,00,000
Expenditure incurred for authoring text book 50,000
Business loss in Country Y (gross) 2,50,000
Health insurance premium paid for his father (age 67) a resident in 30,000
India (His father is not dependent on Mr. Amin)

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The business loss in Country Y is eligible for set off against other income as per the
Income-tax law of that country.
There is no DTAA between India and Country “X” and Country “Y” given above.
The rate of tax in Country “X” and Country “Y” may be taken as 10% and 25%
respectively any threshold exemption limit).
On the basis of aforesaid information, you are requested to submit a report
highlighting the qualifications of your answer which should be integrated with
related tax laws w.r.t. the follwoing:
1. What will be his tax liability before any relief u/s 90 or 91?
2. What is his average rate of tax?
3. State the eligible amount of relief u/s 90 or 91
(b) Following is the profit and loss account of Z Ltd. for the year ended on 31-3-2023
Particulars Amount Particulars Amount
To Raw material consumed 23,25,000 By Sale 1,60,00,000
To Rent 3,50,000 By Closing Stock 10,00,000
To Salary & Wages 12,00,000 By Revaluation Reserve 25,000
To Depreciation 5,00,000 By General Reserve 1,00,000
To Provision for contingencies 75,000
To Wealth Tax 50,000
To Provision for bad debts 40,000
To Proposed dividend 1,00,000
To Provision for Income tax 1,05,000
To Net Profit 1,23,80,000
1,71,25,000 1,71,25,000
Additional Information
1. The amount of depreciation includes depreciation on revaluation of assets
₹50,000. Further, for the purpose of Income tax, depreciation is ₹ 4,00,000.
2. Turnover of the company during the previous year was ₹ 530 crores. However,
during the financial year 2020- 21, turnover of the company was ₹ 250 crores
only.
3. In past few years, company had suffered losses, following balances are still
unabsorbed:
As per Income tax Act As per books of Accounts
Depreciation ₹ 66,00,000 Nil
Losses ₹ 35,50,000 Nil
Formulate the tax liability of the company and also highlight the possible
causes for which the company must have suffered losses in the past few years
and submit a report by integrating the related provisions of Tax Laws with
the facts of the case. [8+8 = 16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A (Compulsory)

1. Choose the correct option: [15 x 2 =30]

(i) Moon Ltd. has received ` 99 lakhs (net of TDS) as dividend from a domestic
company on 31st Dec 2023. It has distributed ` 105 Lakhs as dividend to its
shareholders on 31st July 2023. What is the amount of deduction available to Moon
Ltd. in respect of such dividend?
(a) ` 99 Lakhs
(b) ` 105 Lakhs
(c) ` 110 Lakhs
(d) Nil

(ii) Star Ltd. set up a manufacturing unit in Chennai on 1st August 2022. It invested `
30 lakhs in new plant and machinery on 1st August 2022. It invested ` 50 lakhs in
new plant and machinery on 1st Dec 2022, out of which ` 10 lakhs was second hand
assets. What is the amount of depreciation allowed u/s 32 for the AY 2023-24?
(a) ` 8,25,000
(b) `18,25,000
(c) ` 26,00,000
(d) ` 17,50,000

(iii) The book profit of Sun Ltd. is ` 40 lakhs and its total income is ` 18 lakhs. Calculate
tax liability.
(a) ` 6,24,000
(b) ` 5,61,600
(c) ` 12,48,000
(d) ` 2,80,800

(iv) A domestic company discloses its taxable income as ` 101 lakhs. What is the tax
liability?
(a) ` 32,24,000
(b) ` 33,71,780

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DIRECT TAX LAWS AND INTERNATIONAL TAXATION
(c) ` 31,51,200
(d) `34,49,680

(v) A firm, which do not have book profits, can claim deduction u/s 40(b) to the extent
of:
(a) 100% of payment
(b) ` 1,50,000 or 100% of payment, whichever is lower
(c) ` 1,50,000 or 100% of payment, whichever is higher
(d) ` 1,50,000

(vi) Assessment order in response to notice u/s 143(2) shall be completed within a
period of:
(a) 12 months from the end of relevant financial year
(b) 24 months from the end of relevant financial year
(c) 12 months from the end of relevant assessment year
(d) 24 months from the end of relevant assessment year
(vii) Rounding off of tax in respect of which interest is to be calculated to nearest
multiple of:
(a) `100
(b) `10
(c) ` 1
(d) Not required
(viii) Income Tax Appellate Tribunal can rectify its own order if it is:
(a) Apparent mistake
(b) Any mistake
(c) Any mistake other than apparent mistake
(d) None of the above
(ix) Equalization levy is applicable if the aggregate amount of consideration for
specified transactions exceeds:
(a) ` 10,000
(b) ` 1,00,000
(c) ` 10,00,000
(d) ` 1 crore

(x) The relief where there is no Avoidance of Double Taxation Agreement, is:
(a) Bilateral relief
(b) Specified relief
(c) Unilateral relief

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DIRECT TAX LAWS AND INTERNATIONAL TAXATION
(d) No relief

(xi) If income is taxed twice in more than one country but in the hands of different tax
payers is called:
(a) Juridical Double Taxation
(b) Economic Double Taxation
(c) Treaty Double Taxation
(d) Deemed Double Taxation

(xii) Range concept principle is applied under Transfer Pricing if there is:
(a) One reasonable price
(b) more than one reasonable price but not more than five
(c) More than five reasonable prices
(d) None of the above

(xiii) Specified Domestic Transactions are covered under Transfer Pricing Provisions if
aggregate value of such transactions exceeds:
(a) `5 Crores
(b) ` 10 crores
(c) ` 20 crores
(d) No limit

(xiv) The time limit for passing an order by Transfer pricing officer is within:
(a) 2 years from the end of financial year of reference made
(b) 1 year from the end of financial year of reference made
(c) No time limit
(d) None of the above

(xv) Yogi Ltd. of Varanasi, India exports “Product X” to YO Ltd of Tokyo, Japan an
associated enterprise for ` 5,300 per product. Yogi Ltd. also exports similar product
to Y Ltd and OY Ltd, who are unrelated for ` 5,350 and ` 5,550 respectively. What
is the price considered to compute profits from transaction with YO Ltd?
(a) ` 5,400
(b) ` 5,300
(c) ` 5,450
(d) None of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
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PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION

SECTION – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks)

2. Given below is the Profit and Loss A/C of Mitra Ltd.

Dr. Cr.
` `
Salaries 3,00,000 Gross Profit 10,00,000
Donation to charitable trust 40,000 Withdrawal from Reserve fund 24,000
Contribution to approved 30,000 Withdrawal from Revaluation 25,000
research Reserve Fund
Staff welfare Fund 25,000 Agricultural income 40,000
Proposed dividend 75,000 Short term capital gain 36,000
Bad debts 5,000 Dividend 30,000
Provision for doubtful debts 15,000 Miscellaneous income 45,000
Provision for GST 35,000
Provision for ascertained 10,000
liability
Income tax 50,000
Penalty 4,000
Depreciation 85,000
Cultivation expenses 12,000
General reserved 2,000
Long term capital loss 16,000
Net Profit 4,88,000
12,00,000 12,00,000
Other Information:
1. Depreciation includes ` 20,000 on account of revaluation
2. Dividend ` 50,000 paid on 30th September, 2023
3. GST ` 30,000 paid on 31st October, 2023
4. Brought forward items:
Relating for FY 2018-19 Tax Purpose Accounts Purpose
(a) Brought forward business loss 25,000 30,000
(b) Unabsorbed depreciation 15,000 20,000
Calculate the tax liability of Mitra Ltd applying MAT u/s 115JB. [14]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION

3. (a) Mr Gopal, is a salaried employee who submits his income particulars for two
financial years:
Income FY 2022-23 FY 2021-22
(`) (`)
Basic Salary 10,00,000 7,00,000
Dearness allowance (3/4 is part of retirement 2,00,000 1,80,000
benefits)
House Rent Allowance 4,00,000 4,00,000
Rent Paid by Gopal 3,00,000 3,00,000
Arrears of Salary 3,00,000 -
Life insurance Premium 65,000 63,500

You are required to calculate amount of exemption allowed in respect in HRA,

amount of deduction in respect of life insurance premium and amount of relief in
respect of arrears of salary u/s 10(13A), u/s 80C and u/s 89(1) respectively. [7]

(b) Smile Ltd. shifts its industry from urban area in Jaipur to a remote village in
Rajasthan state. In the process of shifting the company sells the following assets
and purchases new assets at its new place:
Land (`) Building Plants &
(`) Machinery (`)
Cost of acquisition (as per section 50) NA 8,50,000 4,50,000
Sale proceeds 30,00,000 25,00,000 9,50,000
Transfer expenses 30,000 25,000 9,500
Cost of new assets 12,00,000 8,00,000 4,00,000
(acquired during April 2023)

Land is acquired during 2012-13 for ` 1,00,000 (CII:200). Compute capital gain
and suggest a scheme of tax planning. [7]

4. (a) Examine how do you treat the following items when X Ltd. is merging with Y Ltd.
on 1st January 2023 on the assumption:
A. Condition u/s 2(1B) and u/s 72A does not satisfy
B. Condition u/s 2(1B) satisfy but conditions u/s 72A not satisfy
C. Conditions u/s 2(1B) and u/s 72A are satisfied

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Other Information of X Ltd.:
(i) Business Profits (before adjusting losses and expenses) `60,000
(ii) Expenses on merger `2,00,000
(iii) VRS Compensation (Paid during 2020-21) `4,00,000
(iv) Sale consideration of non-depreciable capital assets `20,00,00
(v) Indexed cost of acquisition of non-depreciable capital assets `12,00,000
(vi) Sale consideration of depreciable assets `10,00,000
(vii) WDV of depreciable assets `7,00,000
(viii) Non-speculation business loss relating to 1994-95 ` 3,00,000
(ix) Unabsorbed depreciation relating to 2020-21 ` 1,50,000
(x) Long term Capital loss relating to 2021-22 ` 2,00,000

Business profits of Y Ltd. (before adjusting losses and expenses) ` 30,00,000 and
long term capital gain of Y Ltd. (before adjusting losses) ` 3,00,000 [7]

(b) A non-resident having branch office in India submits the following information
relating to the branch.
(i) Net total income ` 30,00,000
(ii) Deduction (Chapter VIA) ` 2,00,000
(iii) Brought forward business loss ` 1,00,000
(iv) Brought forward house property loss ` 30,000
(v) Unabsorbed depreciation ` 1,50,000
(vi) Expenses reimbursed by branch to Head office ` 3,00,000
You are required to compute total income of the branch after adjusting the amount
of deduction allowed u/s 44C. [7]

5. (a) An assesse is aggrieved by the following orders:

(i) Order passed u/s 143(3) by the Assessing officer
(ii) Order passed u/s 263 by the commissioner of Income Tax
(iii) Order passed u/s 254 by the Tax Tribunal (ITAT)
The assessee is willing to know the remedies available and the time limit against
each remedy under the Income-Tax Act, 1961. Explain. [7]

(b) The total income of an individual assesse is ` 8 lakhs. Tax deducted by various
payers ` 30,000. Tax is paid by way of self-assessment. ROI (due date 31-07-2023)
submitted on 31-10-23. Assessment completed on 31-12-2023. Discuss with
reasons the interest payable under various provisions. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
6. (a) Analyze the special provisions relating to Double Tax Avoidance Relief in case of
specified associations in India. Explain with suitable example. [7]

(b) Mr. Prabhas, a resident has earned the following incomes for the year 2022-23.
(i) Income from house property in India but received in UK ` 7,00,000
(ii) Royalty on patents outside India ` 5,00,000
(iii) Past untaxed income brought into India ` 2,00,000
(iv) Tax paid in respect of income (i), (ii) and (iii) above ` 90,000, ` 75,000 and
` 20,000 respectively.
Calculate tax liability and relief if there is:
(A) DTAA under tax exemption method
(B) DTAA under tax credit method
(C) NO DTAA. [7]

7. (a) X Ltd, an Indian company, supplies 50,000 products to Y Ltd, a German company
and which associated, at FOB price of ` 4000(after a discount of ` 200) per product.
It also supplies 5000 products of Z Ltd which is not associated, at CIF price of `
5800 (including warranty charges `300) per product. Insurance and freight charges
are ` 600. Profit disclosed by X Ltd is ` 8 Crore. Calculate reasonable profits of X
Ltd by applying ALP if X Ltd is covered u/s 10AA. [7]

(b) X Ltd, an Indian company has borrowed ` 50 crores from Y Ltd, an American
company at an interest rate of 8% pa. X Ltd submits the following particulars:
(i) Net Profit after interest, income tax, depreciation and dividend ` 5 Crore
(ii) Income tax ` 1.5 crore
(iii) Depreciation ` 1 crore
(iv) Dividend ` 0.5 crore.
Compute taxable profits of X Ltd if book value of assets is ` 98 crores. Does it
make any difference if book value of assets is ` 99 crores. [7]

8. (a) X Ltd. has two units, Unit A and Unit B engaged in operating a warehouse for
storage of Computer Peripherals and mobile spares respectively, since the year
2017. Y Ltd. takes over Unit B of X Ltd. by way of Slump Sale for ` 350 lakhs on
01-10-2022. The expenses incurred for this transfer were ` 10,50,000.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 15 SYLLABUS 2022
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Balance sheet (Extract) of X Ltd. as on 30-09-2022

Liability `(in lakhs) Asset

Paid up equity share capital 550 UNIT A
Fixed assets 160
General reserve 180 Debtors 250
Revaluation reserve(Unit B) 110 Inventories 270
Bank Loan(70% for unit B) 115 UNIT B
Fixed assets 280
Creditors (45% for unit B) 280 Debtors 175
Inventories 100
1235 1235
Other information:
(i) Fixed assets of unit B includes a land purchase at `50 lakhs during 2016 and
revalued at ` 160 lakhs. Its stamp duty value is ` 150 lakhs
(ii) Fixed assets of unit B includes a plant and machinery acquired from unit A
for `30 Lakhs

You are required to analyse and answer following questions:

(A) What is the profit on transfers from unit A to unit B?
(B) What is cost of acquisition for the purpose of computing capital gain?
(C) What is the tax liability on capital gain?
(D) What is the tax liability if above transaction is covered u/s 2(19AA) under
demerger scheme? [7]

(b) Examine the consequences that would follow if the Assessing officer make
adjustment to Arm’s length price in international transactions of the assessee
resulting in increase in taxable income. Discuss the remedies available to the
assessee to dispute such adjustment. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 15
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.
Section A (Question No 1) and Section C (Question No 8) – Compulsory
Section B - Answer any four Question No. 2, 3, 4, 5, 6 and 7

SECTION - A

1. (a) Choose the correct alternative. Provide Justification for your answer. 1 Mark
is allotted for the correct choice and 1 mark for the justification. [2 × 12 =24]

(i) GAAR provisions shall not apply to _______. [Please provide a brief
justification]
a. an arrangement where the tax benefit in the relevant assessment year
arising, in aggregate, to all the parties to the arrangement does not
exceed a sum of ₹ 3 crore
b. an arrangement where the tax benefit in the relevant assessment year
arising, in aggregate, to all the parties to the arrangement does not
exceed a sum of ₹ 5 crore
c. an arrangement where the tax benefit in the relevant assessment year
arising, in aggregate, to all the parties to the arrangement does not
exceed a sum of ₹ 1 crore
d. None of the above
(ii) Uncontrolled transaction means a transaction between ____________,
whether resident or non-resident [Please provide a brief justification]
a. enterprises other than associated enterprises
b. associated enterprises
c. any enterprises
d. none of the above
(iii) The provisions of sec. 92 will apply only if the aggregate value of specified
domestic transactions entered into by the taxpayer during the year exceeds a
sum of ₹ _____. [Please provide a brief justification]
a. 100 crore
b. 5 crore 10
c. 10 crore
d. 20 crore

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 15
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
(iv) In respect of DTAA, generally, India follows: [Please provide a brief
justification]
a. UN Model
b. UK Model
c. OECD Model
d. US Model
(v) ICDS is applicable in case of income under the head: [Please provide a brief
justification]
a. Profits and gains from Business or Profession
b. Capital Gains
c. Income from House Property
d. All heads of income
(vi) Countries that employ explicit policies designed to attract international trade
oriented activities by minimization of taxes and reduction or elimination of
other restrictions on business operations is described as ____________.
[Please provide a brief justification]
a. Tax Havens
b. Tax Planning
c. Tax Evasion
d. Tax Management
(vii) Sakshita Fertilisers P Ltd., is a manufacturer. A factory building has been
constructed for ₹40 lakhs and occupied on 12.02.2020. Additional
depreciation allowable for the said factory building is (including surcharge
and cess) __________. [Please provide a brief justification]
a. Nil
b. ₹ 4,00,000
c. ₹ 2,00,000
d. None of the above
(viii) M/s. KLM Ltd. a company having international transactions of ₹ 7 crores
related to purchase of raw materials from its subsidiary company. M/s.
BL Inc., in USA. M/s. KLM Ltd. is required to keep and maintain certain
information and documents under section 92D for period of years.
[Please provide a brief justification]
a. 8
b. 10
c. 5
d. 14

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 15
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
(ix) ABC & Co. Ltd. earned ₹ 15 lakhs by way of transfer of carbon credit. The
tax liability in respect of carbon credit is______? [Please provide a brief
justification]
a. ₹ 1,56,000
b. ₹ 2,34,000
c. ₹ 4,68,000
d. Nil
(x) When Mr. Arun (age 50) has business loss of ₹ 15 lakhs and unexplained
cash credit of ₹ 20 lakhs, the total tax liability including cess would be
________. [Please provide a brief justification]
a. ₹ 15,60,000
b. ₹ 7,80,000
c. ₹ 6,86,400
d. Nil
(xi) Vikash has advertised on Facebook to promote his business of coaching. He
is required to pay ₹ 20,000 in the previous year 2022-23 to Facebook for the
advertising services availed. What amount is required to be deducted as
equalisation levy. [Please provide a brief justification]
a. ₹ 1,200
b. ₹ 800
c. ₹ 400
d. Nil
(xii) Kumar Industries is engaged in manufacture of leather products. It was set
up in backward area and became eligible for subsidy @ 25% for the
generator, to be used in guest house, acquired by it for ₹ 12 lakhs on
15.12.2022. It received the subsidy in March 2023. The amount of
depreciation for the year at the applicable rate would be _______. [Please
provide a brief justification]
a. ₹ 67,500
b. ₹ 90,000
c. ₹ 1,80,000
d. Nil

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 15
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
SECTION – B

2. (a) Mr. Crown, a non-resident, gives you the following information for the year ended
31-3-2023
Interest on Government securities (gross) ₹ 21,000
Dividend on shares of foreign companies received aboard ₹ 52,000
Interest from deposits in Indian companies (gross) ₹ 30,000
Income from horse races in India ₹ 20,000
He has donated a sum of ₹ 10,000 to Municipal Corporation of Delhi for promotion
of family planning. He has paid ₹ 2,000 by cheque to New India Assurance Co. for
mediclaim for himself. He has also spent ₹ 16,000 on medical treatment of his
minor son who is physically handicapped. Compute total income of Mr. Crown for
the assessment year 2023-24.

(b) Mr. Ramesh, a resident Indian, has derived the following incomes for the previous
year relevant to the A.Y. 2023-24:
a. Income from profession in India ₹ 2,44,000
b. Income from profession in country A (Tax paid in foreign ₹ 4,50,000
country @ 5%)
Compute Indian tax liability of the assessee assuming that as per treaty between
India and Country A, ₹ 4,50,000 is taxable in India. However foreign tax can be set
off against Indian tax liability. [7 + 8 = 15]

3. (a) Krishna Ltd. did not make a claim of ₹ 10 lacs in the return of income filed for
A.Y. 2023-24 which was disallowed in the previous assessment year u/s 43B.
However, the said claim was also not considered by the Assessing Officer during
assessment proceedings on the ground that no revised return was filed. Suggest the
assessee in respect of making such claim before the appellate authority?

(b) ABC India Limited (‘the Company’) is engaged in the business of import and sales
of computers, laptops & printers. The company is a 100% subsidiary ABC Inc.,
USA. The company purchases laptops from ABC Inc., USA at negotiated rates and
sells to independent customers in India under its own terms and conditions.
The company also trades in computers and printers which it procures from
independent vendors in USA and sell to its own customers in India under its own
terms and condition.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
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DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Below is the profit and loss account of the company.
Particulars ₹ in cr Particulars ₹ in cr
Opening stock Sales
- Computers 500 - Computers 8,000
- Printers 200 - Printers 2,000
- Laptops 800 - Laptops 11,000
Purchases (Imports) Closing Stock
- Computers 5,000 - Computers 800
- Printers 1,300 - Printers 250
- Laptops 6,000 - Laptops 1,200
Gross profit c/f 9,450
23,250 23,250
Gross profit c/f 9,450
Salary 2,000
Rent 1,000
Fright Outward 250
Travel and Conveyance 300
PBITD 5,900
9,450 9,450

Other relevant information:

1. Credit period of 2 months is allowed for customers of computers and printers
and hence 2% extra margin towards interest cost is factored in sale price.
2. Purchase of materials accounted at landed costs. It is estimated that around
20% of the purchase cost reported in P&L is towards customs duty and
clearing charges.
3. Delivery of computers and printers made at company’s cost. For laptop, the
customers collect the goods for company premises.
4. For laptop purchases, the company has incurred ocean freight (around ₹ 300)
whereas for computer and printers the terms of import are CIF, Chennai.
On the basis of aforesaid information answer the following:
1. Identify the Associated Enterprise in the scenario?
2. Identify the International transaction?
3. Which is the comparable uncontrolled transaction here?
4. What is the normal gross profit margin on the comparable transactions?
5. What is the price of laptop being purchased from the AE, is resold to
unrelated enterprise?

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
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DIRECT TAX LAWS AND INTERNATIONAL TAXATION
6. What is the resultant cost of sales after deducting ‘Normal Gross Profit
Margin’
7. What are the expenses incurred in connection with purchase?
8. What are the functional difference, including accounting practices, between
the international transaction and the comparable uncontrolled transaction,
which could materially affect the amount of gross profit margin?
9. What is the cost of sale after adjustment made as per 7 & 8 above?
10. How is the arm’s length purchase price determined?
11. Is the purchase price at arm’s length?
[5 + 10 = 15]

4. (a) Analyze the following different situation and determine the penalty leviable u/s
270A:
Return Income u/s Assessed
Case Assessee
Filed 143(1)(a) Income
i Individual Yes 6,00,000 10,00,000
ii Firm Yes 17,00,000 20,00,000
iii Firm Yes (8,00,000) 20,00,000
iv Individual Yes (9,00,000) (3,00,000)
v Individual No N.A. 7,50,000

(b) Write a brief note on thin capitalization u/s 94B. [10 + 5 = 15]

5. (a) (i) What are the essentials of the Tax Planning.

(ii) Write a brief note on assessment u/s 10 of the Black Money (Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015?

(b) Brain Inc. London has 35% equity in Salem Ltd. The company Salem Ltd. is
engaged in development of software and maintenance of customers across the
globe, which includes Brain Inc.
During the year 2022-23, Salem Ltd. spent 2000 men hours for developing and
maintaining a software for Brain Inc. and billed at ₹ 1,000 per hour. The cost
incurred for executing maintenance work to Brain Inc. for Salem Ltd. amount to ₹
15,00,000. Similar such work was done for unrelated party Try Ltd. in which the
profit was at 50%.
Brain Inc. gives technical support to Salem Ltd. which can be valued at 8% of gross
profit. There is no such functional relationship with try Ltd.

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 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
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DIRECT TAX LAWS AND INTERNATIONAL TAXATION
Salem Ltd. gives credit period of 90 days the cost of which is 3% of the normal
billing rate which is not given to other parties.
Analyze in the light of the related provisions of Income Tax Law and compute
ALP under cost plus method in the hands of Salem Ltd. and the impact of the same
on the total income. [(3+4)+8=15]

6. (a) X Ltd. has several undertakings carrying on several businesses. During the year
2022-23, the company sold one of its undertaking (as it was continuously
generating loss since last 5 years) for a lump sum value of ₹ 300 lacs without
assigning value to individual asset and liabilities. Book value of sundry assets and
liabilities of the undertaking as on the date of sale is as under:
Items Book Value Market Value
Land ₹ 50 lacs (Value for the purpose of Stamp duty ₹ ₹ 100 lacs
70,00,000)
Machinery ₹ 70 lacs (WDV as per IT Act ₹ 60 lacs) ₹ 100 lacs
Furniture ₹ 50 lacs (WDV as per IT Act ₹ 90 lacs) ₹ 75 lacs
Stock ₹ 30 lacs ₹ 35 lacs
Debtors ₹ 40 lacs ₹ 40 lacs
Creditors ₹ 50 lacs
Brokerage on transfer paid @ 5%. Analyse the amount of capital gain in the hands
of X Ltd. for the assessment year 2023-24 in accordance with the related provisions
of Law.

(b) State the disclosure requirements of ICDS VII. [9 + 6 = 15]

7. (a) J Inc. of Korea and CD Ltd, an Indian Company are associated enterprises. CD Ltd
manufactures Cell Phones and sells them to J.K.& F Inc., a Company based at
Nepal. During the year CD Ltd. supplied 2,50,000 Cellular Phones to J Inc. Korea
at a price of ₹ 3,000 per unit and 35,000 units to JK & F Inc. at a price of ₹ 5,800
per unit. The transactions of CD Ltd with JK & F Inc. are comparable subject to
the following considerations:
Sales to J Inc. are on FOB basis, sales to JK & F Inc. are CIF basis. The freight and
insurance paid by J Inc. for each unit @ ₹ 700. Sales to JK & F Inc. are under a
free warranty for Two Years whereas sales to J Inc. are without any such warranty.
The estimated cost of executing such warranty is ₹ 500. Since J Inc.’s order was

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 15
DIRECT TAX LAWS AND INTERNATIONAL TAXATION
huge in volume, quantity discount of ₹ 200 per unit was offered to it.
Analyse the Arm’s Length Price and the subsequent amount of increase in the Total
Income of CD Ltd, if any.
(b) A non-resident foreign company has a permanent establishment (PE) in India, in
respect of which royalty ₹ 101 lakh was earned from an Indian company in
pursuance of an agreement dated 10th June, 2016 (expenditure incurred on PE in
India ₹ 12,37,600). Examine the gross tax liability of foreign company ignoring
TDS/advance tax for the assessment year 2023-24, assuming that there is no other
income of the company for the year.
(c) The net result of the business carried on by a branch of foreign company in India
for the year ended 31.03.2023 was a loss of ₹ 50 lacs after charge of head office
expenses of ₹ 100 lacs allocated to the branch. Compute income of the branch for
the assessment year 2023-24. [5 + 5 + 5 = 15]

SECTION – C

8. (a) Arvind, a textile merchant and resident Indian is doing business in India and
abroad. During the previous year 2022-23, he disclosed the following information:
₹
Income from business in India 27,00,000
Income from business in Country- A with which
India does not have agreement for avoidance of double taxation 15,00,000
Income-tax levied by government in Country-A 5,00,000
Loss from business in Country-B with which also
India does not have agreement for avoidance of double taxation (4,00,000)
Contribution to public provident fund 1,50,000
Payment of life insurance premium on the life of his Father and 20,000
mother
On the basis of aforesaid information, you are requested to submit a report
highlighting the qualifications of your answer which should be integrated with
related tax laws:
1. What will be his tax liability before any relief u/s 90 or 91?
2. What is his average rate of tax?
3. State the eligible amount of relief u/s 90 or 91

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 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
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DIRECT TAX LAWS AND INTERNATIONAL TAXATION

(b) Following is the profit and loss account of Z Ltd. for the year ended on 31-3-2023
Particulars Amount Particulars Amount
To Raw material consumed 20,00,000 By Sale
To Rent 5,00,000 Export 50,00,000
To Salary & Wages 10,00,000 Domestic 30,00,000
To Depreciation 5,00,000 By Closing Stock 10,00,000
To Provision for contingencies 75,000
To Wealth Tax of earlier year 50,000
To Loss of subsidiary co. 50,000
To Custom Duty 40,000
To Proposed dividend 1,00,000
To Provision for Income tax 1,05,000
To Net Profit 45,80,000
90,00,000 90,00,000
Additional Information
(1) Interest on bank loan relating to year 2020-21 has been paid during the
previous year ₹ 1,00,000.
(2) Whole of Custom duty is unpaid.
(3) Company is entitled to get deduction u/s 80G ₹ 1,00,000
(4) For the purpose of Income tax, depreciation is ₹ 4,00,000.
(5) Turnover of the company during the previous year was ₹ 65 crores and it is
life time highest turnover achieved by the company.
(6) In past few years, company had suffered losses, following balances are still
unabsorbed:
As per Income tax Act As per books of Accounts
Depreciation -- ₹ 3,50,000
Losses ₹ 42,50,000 ₹ 4,00,000
Formulate the tax liability of the company with the facts of the case.
[8+8 = 16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 16
STRATEGIC COST MANAGEMENT

Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A : STRATEGIC COST MANAGEMENT FOR DECISION MAKING

Answer to Question No. 1 & 6 in Section A, are compulsory.
Further, answer any 3 from Question nos. 2, 3, 4 & 5.

1. (a) Choose the most appropriate answer to the following questions with
justification. 1 mark will be awarded for correct answer and 1 mark for
justification.: [8 × 2 = 16]
(i) The cost incurred to ensure that failures do not happen is known as
______________. Provide a justification for your answer.
a. External failure cost
b. Internal failure cost
c. Prevention cost
d. None of the above
(ii) Which of the following is not the quality parameter for service organizations
and why?
a. Consistency
b. Friendliness
c. Durability
d. Promptness
(iii) Which one of the following is not a standard definition of ‘Quality’ and why?
a. Conformance to Specifications
b. Fitness for Use
c. Psychological Criteria
d. Physiological Criteria
(iv) Prevention costs are all costs incurred in the process of preventing poor
quality from occurring. Which one of the following is not included in
Prevention cost? Provide a justification.
a. Cost of creating and maintaining quality circles
b. Cost related to statistical process control activities
c. Costs related to System Development for prevention
d. WIP testing and inspecting

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
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STRATEGIC COST MANAGEMENT

(v) The best way to define the principles that guide Lean Accounting and form
the foundation for all of accounting’s work and interaction with the
organization are ________________. Provide a justification for your answer.
a. Customer value:
b. Continuous improvement:
c. Respect for people:
d. All of the above.
(vi) A company is considering to accept a one-year contract which will require
four skilled employees. The four skilled employees could be recruited on a
one-year contract at a cost of ` 40,000 per employee. The employees would
be supervised by an existing manager who earns ` 60,000 per annum. It is
expected that supervision of the contract would take 10% of the manager’s
time.
Instead of recruiting new employees, the company could retrain some
existing staff who currently earns `30,000 per year. The training would cost
`15,000 in total but if those employees were used they would need to be
replaced at a total cost of `100,000. The relevant labour cost of the contract
is _____________.
a. ` 1,15,000
b. `1,00,000
c. ` 85,000
d. ` 1,10,000
(vii) A firm has some material which originally cost ` 45,000. It has a scrap value
of `12,500 but if reworked at a cost of ` 7,500 it could be sold for `17,500.
What would be the incremental effect of reworking and selling the material?
a. A Loss of ` 27,500
b. B Loss of `2,500
c. C Profit of ` 5,000
d. D Profit of `10,000
(viii) The product of XYZ Company is sold at a fixed price of `1,500 per unit. As
per company’s estimate, 500 units of the product are expected to be sold in
the coming year. If the value of investments of the company is `15 lakhs and
it has a target ROI of 15%, the target cost would be_________________.
a. ` 930
b. ` 950
c. ` 1,050
d. ` 1,130

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2. (a) Answer both the questions

(i) ‘Value chain is a powerful tool for disaggregating a company into its
strategically relevant activities’ - explain the elements of the value chain.
(ii) “Value chain analysis help an organization in gaining competitive advantage”
– Explain the validity of the above statement in a dynamic business world.
[4+2=6]

(b) Answer both the questions

(i) “A traditional approach to quality management is that there is an optimal
level of quality effort, that minimizes total quality costs, and there is a point
beyond which spending more on quality yields a benefit that is less than the
additional cost incurred”.
Describe the principles of Total Quality Management (TQM) in the above
context? Distinguish those from the traditional approach to quality
management?
(ii) Explain the notion of continuous improvement. What is the cornerstone of
continuous improvement? [3+3=6]

3. (a) A Company manufacturing a highly successful line of cosmetics intends to

diversify the product line to achieve fuller utilization of its plant capacity. As a
result of considerable research made the company has been able to develop a new
product called ‘EMO’. EMO is packed in tubes of 50 grams capacity and is sold to
the wholesalers in cartons of 24 tubes at ` 240 per carton. Since the company uses
its spare capacity for the manufacture of EMO, no additional fixed expenses will
be incurred. However, the cost accountant has allocated a share of ` 4,50,000 per
month as fixed expenses to be absorbed by EMO as a fair share of the company’s
present fixed costs to the new production for costing purposes. The company
estimated the production and sale of EMO at 3,00,000 tubes per month and on this
basis the following cost estimates have been developed
` per carton
Direct Materials 108
Direct Wages 72
All overheads 54
Total costs 234

After a detailed market survey, the company is confident that the production and
sales of EMO can be increased to 3,50,000 tubes and the cost of empty tubes,
purchased from outside will result in a saving of 20% in material and 10% in direct

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
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wages and variable overhead costs of EMO. The price at which the outside firm is
willing to supply the empty tubes is `1.35 per empty tube. If the company desires
to manufacture empty tubes in excess of 3,00,000 tubes, new machine involving an
additional fixed overheads ` 30,000 per month will have to be installed.
Required:
(i) Discuss with reasons as the Cost Accountant of the company whether it
should make or buy the empty tubes at each of the three volumes of
production of EMO namely 3,00,000; 3,50,000 and 4,50,000 tubes.
(ii) At what volume of sales will it be economical for the company to install the
additional equipment for the manufacture of empty tubes?
(iii) Determine the profitability on the sale of EMO at each, of the aforesaid three
levels of output based on your decision and showing the cost of empty tubes
as a separate element of cost. [3+2+3=8]

(b) A company makes three products X, Y and Z. All three products use the same type
of labour which is limited to 1,000 hours per month. Individual details are as
follows;
Product X Y Z
Contribution/unit ` 25 ` 40 `32
Labour hours/unit 5 6 8
Maximum demand 50 100 400
Suggest the management on the optimal product mix. [4]

4. (a) Mr Belle has recently developed a new improved video cassette and shown below
is a summary of a report by a firm of management consultants on the sales potential
and production costs of the new cassette. Sales potential: The sales volume is
difficult to predict and will vary with the price, but it is reasonable to assume that
at a selling price of `10 per cassette, sales would be between 7,500 and 10,000
units per month. Alternatively, if the selling price was reduced to `9 per cassette,
sales would be between 12,000 and 18,000 units per month. Production costs: If
production is maintained at or below 10,000 units per month, then variable
manufacturing costs would be approximately `8.25 per cassette and fixed costs
`12,125 per month. However, if production is planned to exceed 10,000 units per
month, then variable costs would be reduced to `7.75 per cassette, but the fixed
costs would increase to `16,125 per month. Mr. Belle has been charged `2,000 for
the report by the management consultants and, in addition, he has incurred `3,000

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 16
STRATEGIC COST MANAGEMENT

development costs on the new cassette. If Mr. Belle decides to produce and sell the
new cassette it will be necessary for him to use factory premises which he owns,
but are leased to a colleague for a rental of `400 per month. Also he will resign
from his current post in an electronics firm where he is earning a salary of `1,000
per month.

Required:
a) Draw inference from the information given above and identify the following
(i) an opportunity cost,
(ii) a sunk cost.
b) Making whatever calculations you consider appropriate, analyze the report
from the consultants and advise Mr. Belle of the potential profitability of the
alternatives shown in the report.
c) You are required to analyze the basis on which the above decisions are
applied and state the assumptions considered necessary or matters which may
require further investigation or comment should be clearly stated.
[2+4+2=8]

(b) Company X is forced to choose between two machines A and B. The two machines
are designed differently but have identical capacity and do exactly the same job.
Machine A costs `1,50,000 and will last for 3 years. It costs `40,000 per year to
run. Machine B is an ‘economy’ model costing only `1,00,000, but will last only
for 2 years, and costs `60,000 per year to run. These are real cash flows. The costs
are forecasted in rupees of constant purchasing power. Ignore tax. Opportunity cost
of capital is 10%. Suggest the management as to which machine it should buy. [4]

5. (a) You have been provided with the following data for S plc for September:
Accounting method: Absorption Marginal
Variances (`) (`)
Selling Price 1,900 (A) 1,900 (A)
Sales Volume 4,500 (A) 7,500 (A)
Fixed overhead expenditure 2,500 (F) 2,500 (F)
Fixed overhead volume 1,800 (A) n/a
During September production and sales volumes were as follows:

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MODEL QUESTION PAPER TERM – JUNE 2023
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Sales Production
Budget 10000 10000
Actual 9500 9700
Required:
a) Calculate:
(i) the standard contribution per unit;
(ii) the standard profit per unit;
(iii) the actual fixed overhead cost total.
b) Using the information presented above, analyze how different variances are
calculated on the basis of the choice of marginal or absorption costing.
[6 + 2=8]

(b) From past experience a company operating a standard cost system has accumulated
the following information in relation to variances in its monthly management
accounts:

Percentage of total number of variances

1. Its variances fall into two categories:
Category 1: those that are not worth investigating 64%
Category 2: those that are worth investigating 36%
100%
2. Of Category 2, corrective action has elimiated 70 per cent of the vairances,
but the remainder have continued.
3. The cost of investigation averages `350 and that of correcting variances
averages `550.
4. The average size of any variance not corrected is `525 per monthsnd the
company’s policy is to assess the present value of such costs at 2% per month
for a period of five months.
You are required to prepare two decsion trees, to represent the position if an
investigation is
(i) carried out;
(ii) not carried out. [2+2=4]

6. SBA is a company that produces televisions and components for televisions. The
company has two divisions, Division S and Division B. Division S manufactures

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components for televisions. Division S sells components to Division B and to external

customers. Division B uses five of the components in each of the televisions that it
manufactures, and sells televisions directly to external customers.
Division S
Budgeted Variable manufacturing cost per component `
Direct Material 14
Direct Labour 18
Variable Overhead 12

The following information relating to next year is also available

Fixed Cost `5,60,000
Production Capacity 175000 components
External demand 150000 components
Potential demand from Division B 80000 components
The anticipated external market price for a component is ` 50

Division B
Sales Price ` 450
Budgeted variable manufacturing cost per television
Direct Material ` 40
Direct Labour ` 62
Variable overhead `16

In addition to the variable costs above, each television produced needs five components.
Fixed costs are budgeted to be `14,60,000 for next year. Annual sales of televisions are
expected to be 16,000 units.
Transfer pricing policy
Transfer prices are set at opportunity cost.
Division S must satisfy the demand of Division B before selling components externally.
Division B is allowed to purchase components from Division S or from external
suppliers.

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Required:
1. Assuming that Division B buys all the components it requires from Division S:
Produce a profit statement for each division detailing sales and costs, showing
external sales and internal company transfers separately where appropriate.
2. A specialist external supplier has approached Division B and offered to supply
80,000 components at a price of `42 each. The components fulfill the same function
as those manufactured by Division S. The manager of Division B has accepted the
offer and has agreed to buy all the components it requires from this supplier.
 Develop and submit a revised profit statement for each division and for the
total SBA company
3. Discuss the potential implications for SBA of outsourcing the production of one
type of component that it manufactures [8]

SECTION – B : QUANTITATIVE TECHNIQUES IN DECISION MAKING

Answer to Question No. 7 & 11 in Section B, are compulsory.
Further, answer any 2 from Question nos. 8, 9 & 10.

7. Choose the most appropriate answer to the following questions giving justification.
[2 + 2 = 4]

(i) Optimistic time and pessimistic time of an activity are respectively 4 days and 16
days. Variance of duration of the activity will be –
a. 4 days
b. 2 days
c. 3 days
d. None of the above.
(ii) Dummy row or column is added in an assignment problem –
a. To prevent a solution to become degenerate.
b. To reduce the total cost of assignment.
c. To increase the profit function.
d. To balance total activities and total resources.

8. (a) An animal feed company must produce 200 kg. of a mixture consisting of
ingredients X1 and X2. The ingredient X1 cost `3 per kg. and X2 cost `5 per kg. Not

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more than 80 kg. of X1 can be used and at least 60 kg. of X2 must be used. Find the
minimum cost mixture, using LP technique. [6]

(b) Consider a problem of assigning four officers to four tasks. The time (hours)
required to complete the tasks is given below:
Tasks
Officer A B C D
Officer 1 4 7 5 6
Officer 2 - 8 7 4
Officer 3 3 - 5 3
Officer 4 6 6 4 2
Officer 2 cannot be assigned to task A and officer 3 cannot be assigned to task B.
Find all the optimal assignment schedules. [8]

9. (a) Infer the optimum solution of the Game using Dominance Principle
15 2 3
[ 6 5 7] [8]
−7 4 0

(b) (i) What do you mean by Data Mining

(ii) Discuss briefly applications of R Programming in the real world. [3+3=6]

10. (a) Z.P.L.C experience difficulty in its budgeting process because it finds it necessary
to quantify the learning effect as new products are introduced.
Substantial product changes occur and result in the need for retraining.
An order for 30 units of a new product has been received by Z.P.L.C so far, 14 have
been completed; the first unit required 40 direct labour hours and a total of 240
direct labour has been recorded for the 14 units. The production manager expects
an 80% learning effect for this type of work.
The company uses standard absorption costing. The costs attributed to the centre
in which the unit is manufactured are as follows:
Head Cost (`)
Direct Material ` 30.00 per unit
Direct Labour ` 6.00 per unit
Variable Overhead ` 0.50 per direct labour hour
Fixed Overhead ` 6,000 per 4 week operating period.

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There are ten direct employees working a five-day week, eight hours per day.
Personal and other downtime allowances account for 25% of total available time.
The company usually quotes a four-week delivery period for orders. You are
required to:
Determine whether the assumption of an 80% learning effect is a reasonable one in
this case, by using the standard formula Y = axb
Where Y = the cumulative average direct labour time per unit (productivity).
a = the average labour time per unit for the first batch.
x = the cumulative number of batches produced.
b = the index of learning.

(i) Calculate the number of direct labour hours likely to be required for an
expected second order of 20 units.
(ii) Use the cost data given to produce an estimated product cost for the initial
order, examine the problems.

Use logarithmic tables to find the values of Logarithm and Anti-Logarithm.

[4+4=8]

(b) Assume the Cost in Rupee term for manufacturing x number of a product per day
is C(x) = 14400 + 550x + 0. 01x2.Suggest the no. of units of the product that should
be manufactured per day so that the Average Cost is minimum. Also find the
Average Cost and the total cost at this level of production. [6]

Case study

11. Problems of Linear Programming with objective of minimizing Total Cost of

transportation of a particular commodity from different Sources to various Destinations
is solved using the methodology of Transportation technique. Traditionally such
problems involve one Objective function. But in real life, problems involve more than
one Objective function. An example of such type, is transportation of perishable items or
deteriorating items. For these items minimization of deterioration is equally important
along with that of cost of transportation.

Egg is a commodity which comes under the category of deterioration in the form of its
breakage. Any broken egg is of zero value to the manufacturing firms. Thus minimization

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of breakage of eggs during transportation is one of the most important objectives of the
egg transportation problem. At the same time there are the other important objectives too,
like minimization of distance travelled to supply, optimization of time taken to supply
etc. In fact, these factors are all related to the minimization of deterioration. As eggs are
traditionally transported through roads in our country, which are not of best possible
quality as far as smoothness is concerned, chances of breakage increase with increased
distance travelled. Similarly, optimization of time taken to reach the Destination (which
has a relationship with the speed of the transporting vehicle) is important because more
the speed of the vehicle less is the time taken to reach but with a higher chance of
breakage of eggs. So it is quite clear that logistics and supply chain for eggs is a multi-
objective problem of transportation.

Help of software is needed to find solution of such problems without any hassle. In fact,
the solutions obtained are heuristic type where some compromise among the optimum
values of the individual functions is done to reach the ultimate goal.

A problem of transportation of eggs is given as follows –

Suppose there are three sources A, B & C with capacities (in lakhs of eggs) 8, 5 & 3
respectively to supply eggs to three destinations I, II & III having respective demands (in
lakhs of eggs) of 5, 3 and 2. The distance in kilometres between the sources and
destinations are given in the following matrix.

To Destination
From Source
I II III
A 551 314 280
B 521 267 341
C 396 142 193

Software provided the following optimal allocation of eggs to the different cells of the
matrix while going for distance minimization: - A – III = 2, B – I = 2, B – II = 3 and C –
I=3
Based on the above, the minimum distance to be travelled is given to be 1464 Kms. which
has the beak-up of (280 + 521 + 267 + 396).

The objective of minimization of Percentage Breakage of eggs is taken care of based on

the following data

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To Destination @ 30 To Destination @ 35 To Destination @ 40

From
Kmph Kmph Kmph
Source
I II III I II III I II III
A 5.00 2.85 2.54 5.50 3.13 2.80 6.00 3.42 3.05
B 4.77 2.42 3.10 5.20 2.66 3.40 5.67 2.91 3.71
C 3.61 1.29 1.75 3.95 1.42 1.93 4.13 1.55 2.00
Optimal allocations for different Speeds of vehicles as provided by the software are given
in the tables below.
To Destination @ To Destination @ 35 To Destination @ Supply
From
30 Kmph Kmph 40 Kmph in
Source
I II III I II III I II III Lakhs
A 2 2 2 8
B 2 3 2 3 2 3 5
C 3 3 3 3
Demand 5 3 2 5 3 2 5 3 2
in Lakhs

Using the methodology similar to that of Distance minimization, the total breakage
percentage for a speed of 30 Kmph is found to be 13.34 and the average breakage
percentage is 3.335.
Total Transportation cost is found to be ` 2,80,000/-
Based on the above information answer the following questions –
1. Instead of using the software if the problem is to be solved manually then formulate
the first step.
2. Is the figure of average breakage percentage correct for a speed of 30 Kmph?
Justify.
3. What is the Transportation Cost of an egg per kilometre of distance travelled?
4. Formulate a matrix for minimizing the time taken to supply when the vehicle speed
is 35 Kmph. [8]

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Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A : STRATEGIC COST MANAGEMENT FOR DECISION MAKING

Answer to Question No. 1 & 6 in Section A, are compulsory.
Further, answer any 3 from Question nos. 2, 3, 4 & 5.

1. (a) Choose the most appropriate answer to the following questions with
justification. 1 mark will be awarded for correct answer and 1 mark for
justification.: [8 × 2 = 16]
(i) The cost incurred to ensure that failures do not happen is known as
______________. Provide a justification for your answer.
a. External failure cost
b. Internal failure cost
c. Prevention cost
d. None of the above
(ii) Which of the following is not the quality parameter for service organizations
and why?
a. Consistency
b. Friendliness
c. Durability
d. Promptness
(iii) Which one of the following is not a standard definition of ‘Quality’ and why?
a. Conformance to Specifications
b. Fitness for Use
c. Psychological Criteria
d. Physiological Criteria
(iv) Prevention costs are all costs incurred in the process of preventing poor
quality from occurring. Which one of the following is not included in
Prevention cost? Provide a justification.
a. Cost of creating and maintaining quality circles
b. Cost related to statistical process control activities
c. Costs related to System Development for prevention
d. WIP testing and inspecting

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(v) The best way to define the principles that guide Lean Accounting and form
the foundation for all of accounting’s work and interaction with the
organization are ________________. Provide a justification for your answer.
a. Customer value:
b. Continuous improvement:
c. Respect for people:
d. All of the above.
(vi) A company is considering to accept a one-year contract which will require
four skilled employees. The four skilled employees could be recruited on a
one-year contract at a cost of ` 40,000 per employee. The employees would
be supervised by an existing manager who earns ` 60,000 per annum. It is
expected that supervision of the contract would take 10% of the manager’s
time.
Instead of recruiting new employees, the company could retrain some
existing staff who currently earns `30,000 per year. The training would cost
`15,000 in total but if those employees were used they would need to be
replaced at a total cost of `100,000. The relevant labour cost of the contract
is _____________.
a. ` 1,15,000
b. `1,00,000
c. ` 85,000
d. ` 1,10,000
(vii) A firm has some material which originally cost ` 45,000. It has a scrap value
of `12,500 but if reworked at a cost of ` 7,500 it could be sold for `17,500.
What would be the incremental effect of reworking and selling the material?
a. A Loss of ` 27,500
b. B Loss of `2,500
c. C Profit of ` 5,000
d. D Profit of `10,000
(viii) The product of XYZ Company is sold at a fixed price of `1,500 per unit. As
per company’s estimate, 500 units of the product are expected to be sold in
the coming year. If the value of investments of the company is `15 lakhs and
it has a target ROI of 15%, the target cost would be_________________.
a. ` 930
b. ` 950
c. ` 1,050
d. ` 1,130

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2. (a) Answer both the questions

(i) ‘Value chain is a powerful tool for disaggregating a company into its
strategically relevant activities’ - explain the elements of the value chain.
(ii) “Value chain analysis help an organization in gaining competitive advantage”
– Explain the validity of the above statement in a dynamic business world.
[4+2=6]

(b) Answer both the questions

(i) “A traditional approach to quality management is that there is an optimal
level of quality effort, that minimizes total quality costs, and there is a point
beyond which spending more on quality yields a benefit that is less than the
additional cost incurred”.
Describe the principles of Total Quality Management (TQM) in the above
context? Distinguish those from the traditional approach to quality
management?
(ii) Explain the notion of continuous improvement. What is the cornerstone of
continuous improvement? [3+3=6]

3. (a) A Company manufacturing a highly successful line of cosmetics intends to

diversify the product line to achieve fuller utilization of its plant capacity. As a
result of considerable research made the company has been able to develop a new
product called ‘EMO’. EMO is packed in tubes of 50 grams capacity and is sold to
the wholesalers in cartons of 24 tubes at ` 240 per carton. Since the company uses
its spare capacity for the manufacture of EMO, no additional fixed expenses will
be incurred. However, the cost accountant has allocated a share of ` 4,50,000 per
month as fixed expenses to be absorbed by EMO as a fair share of the company’s
present fixed costs to the new production for costing purposes. The company
estimated the production and sale of EMO at 3,00,000 tubes per month and on this
basis the following cost estimates have been developed
` per carton
Direct Materials 108
Direct Wages 72
All overheads 54
Total costs 234

After a detailed market survey, the company is confident that the production and
sales of EMO can be increased to 3,50,000 tubes and the cost of empty tubes,
purchased from outside will result in a saving of 20% in material and 10% in direct

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wages and variable overhead costs of EMO. The price at which the outside firm is
willing to supply the empty tubes is `1.35 per empty tube. If the company desires
to manufacture empty tubes in excess of 3,00,000 tubes, new machine involving an
additional fixed overheads ` 30,000 per month will have to be installed.
Required:
(i) Discuss with reasons as the Cost Accountant of the company whether it
should make or buy the empty tubes at each of the three volumes of
production of EMO namely 3,00,000; 3,50,000 and 4,50,000 tubes.
(ii) At what volume of sales will it be economical for the company to install the
additional equipment for the manufacture of empty tubes?
(iii) Determine the profitability on the sale of EMO at each, of the aforesaid three
levels of output based on your decision and showing the cost of empty tubes
as a separate element of cost. [3+2+3=8]

(b) A company makes three products X, Y and Z. All three products use the same type
of labour which is limited to 1,000 hours per month. Individual details are as
follows;
Product X Y Z
Contribution/unit ` 25 ` 40 `32
Labour hours/unit 5 6 8
Maximum demand 50 100 400
Suggest the management on the optimal product mix. [4]

4. (a) Mr Belle has recently developed a new improved video cassette and shown below
is a summary of a report by a firm of management consultants on the sales potential
and production costs of the new cassette. Sales potential: The sales volume is
difficult to predict and will vary with the price, but it is reasonable to assume that
at a selling price of `10 per cassette, sales would be between 7,500 and 10,000
units per month. Alternatively, if the selling price was reduced to `9 per cassette,
sales would be between 12,000 and 18,000 units per month. Production costs: If
production is maintained at or below 10,000 units per month, then variable
manufacturing costs would be approximately `8.25 per cassette and fixed costs
`12,125 per month. However, if production is planned to exceed 10,000 units per
month, then variable costs would be reduced to `7.75 per cassette, but the fixed
costs would increase to `16,125 per month. Mr. Belle has been charged `2,000 for
the report by the management consultants and, in addition, he has incurred `3,000

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development costs on the new cassette. If Mr. Belle decides to produce and sell the
new cassette it will be necessary for him to use factory premises which he owns,
but are leased to a colleague for a rental of `400 per month. Also he will resign
from his current post in an electronics firm where he is earning a salary of `1,000
per month.

Required:
a) Draw inference from the information given above and identify the following
(i) an opportunity cost,
(ii) a sunk cost.
b) Making whatever calculations you consider appropriate, analyze the report
from the consultants and advise Mr. Belle of the potential profitability of the
alternatives shown in the report.
c) You are required to analyze the basis on which the above decisions are
applied and state the assumptions considered necessary or matters which may
require further investigation or comment should be clearly stated.
[2+4+2=8]

(b) Company X is forced to choose between two machines A and B. The two machines
are designed differently but have identical capacity and do exactly the same job.
Machine A costs `1,50,000 and will last for 3 years. It costs `40,000 per year to
run. Machine B is an ‘economy’ model costing only `1,00,000, but will last only
for 2 years, and costs `60,000 per year to run. These are real cash flows. The costs
are forecasted in rupees of constant purchasing power. Ignore tax. Opportunity cost
of capital is 10%. Suggest the management as to which machine it should buy. [4]

5. (a) You have been provided with the following data for S plc for September:
Accounting method: Absorption Marginal
Variances (`) (`)
Selling Price 1,900 (A) 1,900 (A)
Sales Volume 4,500 (A) 7,500 (A)
Fixed overhead expenditure 2,500 (F) 2,500 (F)
Fixed overhead volume 1,800 (A) n/a
During September production and sales volumes were as follows:

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Directorate of Studies, The Institute of Cost Accountants of India
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MODEL QUESTION PAPER TERM – JUNE 2023
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Sales Production
Budget 10000 10000
Actual 9500 9700
Required:
a) Calculate:
(i) the standard contribution per unit;
(ii) the standard profit per unit;
(iii) the actual fixed overhead cost total.
b) Using the information presented above, analyze how different variances are
calculated on the basis of the choice of marginal or absorption costing.
[6 + 2=8]

(b) From past experience a company operating a standard cost system has accumulated
the following information in relation to variances in its monthly management
accounts:

Percentage of total number of variances

1. Its variances fall into two categories:
Category 1: those that are not worth investigating 64%
Category 2: those that are worth investigating 36%
100%
2. Of Category 2, corrective action has elimiated 70 per cent of the vairances,
but the remainder have continued.
3. The cost of investigation averages `350 and that of correcting variances
averages `550.
4. The average size of any variance not corrected is `525 per monthsnd the
company’s policy is to assess the present value of such costs at 2% per month
for a period of five months.
You are required to prepare two decsion trees, to represent the position if an
investigation is
(i) carried out;
(ii) not carried out. [2+2=4]

6. SBA is a company that produces televisions and components for televisions. The
company has two divisions, Division S and Division B. Division S manufactures

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components for televisions. Division S sells components to Division B and to external

customers. Division B uses five of the components in each of the televisions that it
manufactures, and sells televisions directly to external customers.
Division S
Budgeted Variable manufacturing cost per component `
Direct Material 14
Direct Labour 18
Variable Overhead 12

The following information relating to next year is also available

Fixed Cost `5,60,000
Production Capacity 175000 components
External demand 150000 components
Potential demand from Division B 80000 components
The anticipated external market price for a component is ` 50

Division B
Sales Price ` 450
Budgeted variable manufacturing cost per television
Direct Material ` 40
Direct Labour ` 62
Variable overhead `16

In addition to the variable costs above, each television produced needs five components.
Fixed costs are budgeted to be `14,60,000 for next year. Annual sales of televisions are
expected to be 16,000 units.
Transfer pricing policy
Transfer prices are set at opportunity cost.
Division S must satisfy the demand of Division B before selling components externally.
Division B is allowed to purchase components from Division S or from external
suppliers.

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Required:
1. Assuming that Division B buys all the components it requires from Division S:
Produce a profit statement for each division detailing sales and costs, showing
external sales and internal company transfers separately where appropriate.
2. A specialist external supplier has approached Division B and offered to supply
80,000 components at a price of `42 each. The components fulfill the same function
as those manufactured by Division S. The manager of Division B has accepted the
offer and has agreed to buy all the components it requires from this supplier.
 Develop and submit a revised profit statement for each division and for the
total SBA company
3. Discuss the potential implications for SBA of outsourcing the production of one
type of component that it manufactures [8]

SECTION – B : QUANTITATIVE TECHNIQUES IN DECISION MAKING

Answer to Question No. 7 & 11 in Section B, are compulsory.
Further, answer any 2 from Question nos. 8, 9 & 10.

7. Choose the most appropriate answer to the following questions giving justification.
[2 + 2 = 4]

(i) Optimistic time and pessimistic time of an activity are respectively 4 days and 16
days. Variance of duration of the activity will be –
a. 4 days
b. 2 days
c. 3 days
d. None of the above.
(ii) Dummy row or column is added in an assignment problem –
a. To prevent a solution to become degenerate.
b. To reduce the total cost of assignment.
c. To increase the profit function.
d. To balance total activities and total resources.

8. (a) An animal feed company must produce 200 kg. of a mixture consisting of
ingredients X1 and X2. The ingredient X1 cost `3 per kg. and X2 cost `5 per kg. Not

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more than 80 kg. of X1 can be used and at least 60 kg. of X2 must be used. Find the
minimum cost mixture, using LP technique. [6]

(b) Consider a problem of assigning four officers to four tasks. The time (hours)
required to complete the tasks is given below:
Tasks
Officer A B C D
Officer 1 4 7 5 6
Officer 2 - 8 7 4
Officer 3 3 - 5 3
Officer 4 6 6 4 2
Officer 2 cannot be assigned to task A and officer 3 cannot be assigned to task B.
Find all the optimal assignment schedules. [8]

9. (a) Infer the optimum solution of the Game using Dominance Principle
15 2 3
[ 6 5 7] [8]
−7 4 0

(b) (i) What do you mean by Data Mining

(ii) Discuss briefly applications of R Programming in the real world. [3+3=6]

10. (a) Z.P.L.C experience difficulty in its budgeting process because it finds it necessary
to quantify the learning effect as new products are introduced.
Substantial product changes occur and result in the need for retraining.
An order for 30 units of a new product has been received by Z.P.L.C so far, 14 have
been completed; the first unit required 40 direct labour hours and a total of 240
direct labour has been recorded for the 14 units. The production manager expects
an 80% learning effect for this type of work.
The company uses standard absorption costing. The costs attributed to the centre
in which the unit is manufactured are as follows:
Head Cost (`)
Direct Material ` 30.00 per unit
Direct Labour ` 6.00 per unit
Variable Overhead ` 0.50 per direct labour hour
Fixed Overhead ` 6,000 per 4 week operating period.

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 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
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There are ten direct employees working a five-day week, eight hours per day.
Personal and other downtime allowances account for 25% of total available time.
The company usually quotes a four-week delivery period for orders. You are
required to:
Determine whether the assumption of an 80% learning effect is a reasonable one in
this case, by using the standard formula Y = axb
Where Y = the cumulative average direct labour time per unit (productivity).
a = the average labour time per unit for the first batch.
x = the cumulative number of batches produced.
b = the index of learning.

(i) Calculate the number of direct labour hours likely to be required for an
expected second order of 20 units.
(ii) Use the cost data given to produce an estimated product cost for the initial
order, examine the problems.

Use logarithmic tables to find the values of Logarithm and Anti-Logarithm.

[4+4=8]

(b) Assume the Cost in Rupee term for manufacturing x number of a product per day
is C(x) = 14400 + 550x + 0. 01x2.Suggest the no. of units of the product that should
be manufactured per day so that the Average Cost is minimum. Also find the
Average Cost and the total cost at this level of production. [6]

Case study

11. Problems of Linear Programming with objective of minimizing Total Cost of

transportation of a particular commodity from different Sources to various Destinations
is solved using the methodology of Transportation technique. Traditionally such
problems involve one Objective function. But in real life, problems involve more than
one Objective function. An example of such type, is transportation of perishable items or
deteriorating items. For these items minimization of deterioration is equally important
along with that of cost of transportation.

Egg is a commodity which comes under the category of deterioration in the form of its
breakage. Any broken egg is of zero value to the manufacturing firms. Thus minimization

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 16
STRATEGIC COST MANAGEMENT

of breakage of eggs during transportation is one of the most important objectives of the
egg transportation problem. At the same time there are the other important objectives too,
like minimization of distance travelled to supply, optimization of time taken to supply
etc. In fact, these factors are all related to the minimization of deterioration. As eggs are
traditionally transported through roads in our country, which are not of best possible
quality as far as smoothness is concerned, chances of breakage increase with increased
distance travelled. Similarly, optimization of time taken to reach the Destination (which
has a relationship with the speed of the transporting vehicle) is important because more
the speed of the vehicle less is the time taken to reach but with a higher chance of
breakage of eggs. So it is quite clear that logistics and supply chain for eggs is a multi-
objective problem of transportation.

Help of software is needed to find solution of such problems without any hassle. In fact,
the solutions obtained are heuristic type where some compromise among the optimum
values of the individual functions is done to reach the ultimate goal.

A problem of transportation of eggs is given as follows –

Suppose there are three sources A, B & C with capacities (in lakhs of eggs) 8, 5 & 3
respectively to supply eggs to three destinations I, II & III having respective demands (in
lakhs of eggs) of 5, 3 and 2. The distance in kilometres between the sources and
destinations are given in the following matrix.

To Destination
From Source
I II III
A 551 314 280
B 521 267 341
C 396 142 193

Software provided the following optimal allocation of eggs to the different cells of the
matrix while going for distance minimization: - A – III = 2, B – I = 2, B – II = 3 and C –
I=3
Based on the above, the minimum distance to be travelled is given to be 1464 Kms. which
has the beak-up of (280 + 521 + 267 + 396).

The objective of minimization of Percentage Breakage of eggs is taken care of based on

the following data

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 16
STRATEGIC COST MANAGEMENT

To Destination @ 30 To Destination @ 35 To Destination @ 40

From
Kmph Kmph Kmph
Source
I II III I II III I II III
A 5.00 2.85 2.54 5.50 3.13 2.80 6.00 3.42 3.05
B 4.77 2.42 3.10 5.20 2.66 3.40 5.67 2.91 3.71
C 3.61 1.29 1.75 3.95 1.42 1.93 4.13 1.55 2.00
Optimal allocations for different Speeds of vehicles as provided by the software are given
in the tables below.
To Destination @ To Destination @ 35 To Destination @ Supply
From
30 Kmph Kmph 40 Kmph in
Source
I II III I II III I II III Lakhs
A 2 2 2 8
B 2 3 2 3 2 3 5
C 3 3 3 3
Demand 5 3 2 5 3 2 5 3 2
in Lakhs

Using the methodology similar to that of Distance minimization, the total breakage
percentage for a speed of 30 Kmph is found to be 13.34 and the average breakage
percentage is 3.335.
Total Transportation cost is found to be ` 2,80,000/-
Based on the above information answer the following questions –
1. Instead of using the software if the problem is to be solved manually then formulate
the first step.
2. Is the figure of average breakage percentage correct for a speed of 30 Kmph?
Justify.
3. What is the Transportation Cost of an egg per kilometre of distance travelled?
4. Formulate a matrix for minimizing the time taken to supply when the vehicle speed
is 35 Kmph. [8]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15 x 2=30]

(i) Which of the following is not a secondary activity of Value Chain?

a) Procurement
b) Human Resource Development
c) Service
d) Technology Development

(ii) The break-even point of a manufacturing company is ₹1,60,000. Fixed cost is ₹48,000.
Variable cost is ₹12 per unit. The PV ratio will be:
a) 20%
b) 40%
c) 30%
d) 25%

(iii) The higher the actual hours worked __________________________________.

a) The lower the capacity usage ratio.
b) The higher the capacity usage ratio.
c) The lower the capacity utilization ratio.
d) The higher the capacity utilization ratio.

(iv) The Tech Company has fixed costs of ` 400,000 and variable costs are 75% of the selling
price. To realize profits of ` 100,000 from sales of 5,00,000 units, the selling price per
unit________________.
a) must be `1.00
b) must be `4.80
c) must be `4.00
d) cannot be determined

(v) X Ltd. has 1000 units of an obsolete item which are carried in inventory at the original
price of ` 50,000. If these items are reworked for ` 20,000, they can be sold for ` 36,000.
Alternatively, they can be sold as a scrap for ` 6,000 in the market. In a decision model
used to analyse the reworking proposal, the opportunity cost should be taken as
____________________.

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 FINAL EXAMINATION SET - 1
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STRATEGIC COST MANAGEMENT
a) ` 16,000
b) ` 6,000
c) ` 30,000
d) ` 20,000

(vi) A Ltd. Plans to introduce a new product and issuing the target cost approach. Projected
sales revenue is ` 90,00,000 (`45 per unit) and target costs are ` 64,00,000. What is the
desired profit per unit?
a) ` 13
b) ` 17
c) ` 32
d) ` 10

(vii) AP Products sells product A at a selling price of ``40 per unit. AP’s cost per unit based on
the full capacity of 5,00,000 units is as follows:
Direct material 6
Direct Labour 3
Indirect Manufacturing Expense 60% of which is fixed 10
Total 19

A one-time only special order offering to buy 50,000 units was received from an overseas
distributor. The only other costs that would be incurred on this order would be ` 4 per unit
for shipping. AP has sufficient existing capacity to manufacture the additional units. In
negotiating a price for the special order, AP should consider that the minimum selling price
per unit should be _______________.
a) ` 17
b) ` 19
c) ` 21
d) ` 23

(viii) Ankit Ltd., operates throughput accounting system. The details of product A per unit are
as under:
Selling Price: ` 75
Material Cost: ` 30
Conversion Cost: `20
Time to bottleneck resources: 10 minutes
What is the throughput contribution per bottleneck resource per hour?
a) ` 270
b) ` 150
c) ` 120
d) ` 90

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 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT
(ix) Efficiency Ratio is ____________________________________.
a) Available working days ÷ Budgeted working days × 100
b) Budgeted hours ÷ Maximum hours in budgeted period × 100
c) Standard hours ÷ Actual hours × 100
d) None of the above

(x) Which of the following statement is incorrect?

a) Microsoft Excel is most popular among all the available spreadsheets.
b) Zoho Analytics is a tool used for Financial Data analysis.
c) Visualisation Tools are the Reporting Tools.
d) None of the above.

(xi) Prescriptive Analytics is very important because –

a) It tells about the action to be taken.
b) It tells about what is likely to happen.
c) It tells about how something has happened.
d) It tells about what has happened.

(xii) The information relating to the direct material cost of a company is as follows:
Standard price per unit ₹7.20
Actual quantity purchased in units 1600
Standard quantity allowed for actual production in units 1450
Material price variance on purchase (Favourable) ₹480 What is the actual purchase price
per unit?
a) ₹ 7.50
b) ₹ 6.40
c) ₹ 6.5
d) ₹ 6.90

(xiii) The Normal duration and Normal cost of an activity are respectively 10 days and ` 350.
The cost slope is ` 75 per day. If the Crash duration is 8 days then what is the Crash cost
of the activity?
a) ` 400
b) ` 500
c) ` 600
d) ` 650

(xiv) Optimization is the method of finding ________________.

a) The maximum point
b) The minimum point
c) The critical point
d) All of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT
(xv) The actual demand for a period is 100 units. But forecast demand was 90 units. The forecast
error is –
a) – 10
b) 10
c) 5
d) None of the above

SECTION – B

(Answer any 5 questions out of 7 questions given. Each question carries 14 marks.)

[5 x 14 = 70]

2. A manufacturing company currently operating at 80% capacity has received an export order from
Middle East, which will utilise 40% of the capacity of the factory. The order has to be either taken
in full and executed at 10% below the current domestic prices or rejected totally. The current
sales and cost data are given below: [14]
Sales ` 16.00 lakhs
Direct Material ` 5.80 lakhs
Direct Labour ` 2.40 lakhs
Variable Overheads ` 0.60 lakhs
Fixed Overheads ` 5.20 lakhs

The following alternatives are available to the management:

A. Continue with domestic sales and reject the export order.
B. Accept the export order and allow the domestic market to starve to the extent of excess of
demand.
C. Increase capacity so as to accept the export order and maintain the domestic demand by:
(i) Purchasing additional plant and increasing 10% capacity and thereby increasing
fixed overheads by ` 65,000, and
(ii) Working overtime at one and half time the normal rate to meet balance of the
required capacity.
Required: Evaluate each of the above alternatives and suggest the best one.

3. (a) Division A is a profit centre which produces three products X, Y and Z. Each product has
an external market. The details are as follows:
X Y Z
External market price per unit (`) 48 46 40
Variable cost of production in division A (`) 33 24 28
Labour hours required per unit in division A 3 4 2
Product Y can be transferred to Division B, but the maximum quantity that might be
required for transfer is 300 units of Y.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT

X Y Z
The maximum external sales are: 800 Units 500 Units 300 Units
Instead of receiving transfers of Product Y from Division A, Division B could buy similar
product in the open market at a slightly cheaper price of ` 45 per unit.
Compute the transfer price for each unit, for 300 units of Y, if the total labour hours
available in Division A are?
(a) 3800 hours
(b) 5600 hours. [7]
(b) A company has estimated the unit variable cost of a Product to be ` 10, and the selling
price is ` 15 per unit. Budgeted sales for the year are 20,000 units. Estimated fixed costs
are as follows:
Fixed Cost p.a.(`) 50,000 60,000 70,000 80,000 90,000
Probability 0.1 0.3 0.3 0.2 0.1
Assess the probability that the company will equal or exceed its target profit of ` 25,000
for the year? [7]

4. (a) T Ltd, produces a product which passes through two processes - cutting and finishing. The
following information is provided: [7]
Cutting Finishing
Hours available per annum 50,000 60,000
Hours needed per unit of product 5 12
Fixed operating costs per annum excluding direct material (`) 10,00,000 10,00,000
The selling price of the product is ` 1,000 per unit and the only variable cost per unit is
direct material, which costs ` 400 per unit. There is demand for all units produced.
Evaluate each of the following proposals independent of each other:
(i) An outside agency is willing to do the finishing operation of any number of units
between 5,000 and 7,000 at ` 400 per unit.
(ii) Another outside agency is willing to do the cutting operation of 2,000 units at ` 200
per unit
(iii) Additional equipment for cutting can be bought for ` 10,00,000 to increase the
cutting facility by 50,000 hours, with annual fixed costs increased by ` 2 lakhs.
(b) Discuss the significance of lean accounting. [7]
5. Compute the missing data indicated by the Question marks from the following: [14]
Product ‘R’ Product ‘S’
Sales quantity
Std.(units) ? 400
Actual (Units) 500 ?
Price (Unit)
Standard ` 12 ` 15
Actual ` 15 ` 20
Sales price variance ? ?

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT
Sales volume
` 1,200 F ?
variance
Sales value variance ? ?
Sales mix variance for both the products together was ` 450 F. ‘F’ denotes Favorable.

6. (a) The past data of demand per week (in '00 kgs.) of a confectionery item is given below –

Demand/Week 0 5 10 15 20 25
Frequency 2 11 8 21 5 3
Using the sequence of random numbers – 35, 52, 13, 90, 23, 73, 34, 57, 35, 83, 94, 56, 67,
66 generate the demand for the next 10 weeks. Also determine the average demand per
week
[7]
(b) A retired person has plans to invest in shares. He has been suggested by one of his friends
who plays in the share market to invest in two shares A and B which gives dividends @
12% and 4% p.a. respectively. For an investment of ` 1, the growth in the market value of
the shares A and B are respectively 10 paise and 40 paise in one year. The retired person
wants to invest such that the dividend income is at least ` 600 p.a. and the growth of initial
investment in one year is at least ` 1000.
(i) Formulate it as a Linear Programming Problem.
(ii) Write its Dual. [7]

7. (a) The following table gives data on normal time & cost as well as crash time & cost for a
project.
You need to draw the Network diagram and identify the Critical Path.
Also compute the Normal duration of the project and the corresponding Total Cost
associated with it.
Crash the relevant activities systematically and determine the optimum completion time of
the project. Also determine the corresponding cost when it is given that the Indirect Cost
is `100 per day. [7]

Normal Crash
Activity
Time (days) Cost (`) Time (days) Cost (`)
1—2 6 600 4 1,000
1—3 4 600 2 2,000
2—4 5 500 3 1,500
2—5 3 450 1 650
3—4 6 900 4 2,000
4—6 8 800 4 3,000
5—6 4 400 2 1,000
6—7 3 450 2 800
(b) A firm received an order to make and supply eight units of standard product which involves
intricate labour operations. The first unit was made in 10 hours. It is understood that this
type of operation is subject to an 80% learning rate. The workers are getting wages at the
rate of `12 per hour.
(i) What is the total time and labour cost required to execute the above order?
(ii) If a repeat order of 24 units is also received from the same customer, calculate the
labour cost necessary for the second order. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT

8. (a) Solve the Game using Dominance Principle

Player B
15 2 3 
 
Player A  6 5 7 
 -7 4 0 
 
[7]

(b) Calculate the Seasonal Indices for the following quarterly data in certain units.
Appropriate method for finding the Indices has to be decided by you with due explanation.
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2020 39 21 52 81
2021 45 23 63 76
2022 44 26 69 75
2023 53 23 64 84
[7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15 x 2=30]

(i) Which of the following is not a term normally used in value analysis?
a. Resale value
b. Use value
c. Esteem value
d. Cost value

(ii) DMIADV is a methodology associated with

a. Pareto Analysis
b. PRAISE
c. Six Sigma
d. None of the above

(iii) XYZ Ltd. has the following alternative planned activity levels.
Level E F G
Total cost (`) 1,00,000 1,50,000 2,00,000
No. of units produced 5000 10000 15000

If fixed overhead remains constant, then fixed overhead cost per unit at Level E is:
a. ` 20
b. ` 15
c. `13.33
d. ` 10

(iv) A company has a breakeven point when sales are ` 3,20,000 and variable cost at that level of sales
are ` 2,00,000. How much would contribution margin increase or decrease if variable expenses are
dropped by `30,000?
a. Increase by 27.5%
b. Increase by 9.375%
c. Decrease by 9.375%
d. Increase by 37.5%

(v) H Group has two divisions, Division P and Division Q. Division P manufactures an item that is
transferred to Division Q. The item has no external market and 6000 units produced are transferred
internally each year. The costs of each division are as follows:
Division P Division Q
Variable Cost (`) 100 per unit 120 per unit
Fixed cost each year (`) 1,20,000 90,000

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
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STRATEGIC COST MANAGEMENT
Head Office management decided that a transfer price should be set that provides a profit of `30,000
to Division P. What should be the transfer price per unit?
a. `145
b. `125
c. `120
d. `135

(vi) A company has the capacity of producing 80000 units and presently sells 20000 units at ` 100 each.
The demand is sensitive to selling price and it has been observed that with every reduction of ` 10
in selling price the demand is doubled. What should be the target cost if the demand is doubled at
full capacity and profit margin on sale is taken at 25%?
a. `75
b. `90
c. `25
d. `60

(vii) A factory can make only one of the three products X, Y or Z in a given production period. The
following information is given:
Per Unit ` X Y Z
Selling Price 1500 1800 2000
Variable Cost 700 950 1000
Assume that there is no constraint on resource utilization or demand and similar resources are
consumed by X, Y and Z. The opportunity cost of making one unit of Z is:
a. `850
b. `800
c. `1,800
d. `1,500

(viii) Twin Ltd. uses JIT and back flush accounting. It does not use a raw material stock control account.
During September 2021, 10000 units were produced and sold. The standard cost per unit is ` 150
which includes materials of ` 60. During September 2021, ` 9,90,000 of conversion costs were
incurred. The debit balance in cost of goods sold account for September 2021 is:
a. ` 14,00,000
b. ` 14,80,000
c. ` 15,90,000
d. ` 16,20,000
(ix) The following figures are extracted from the books of a company:
Budgeted O/H ` 10,000 (Fixed ` 6,000, Variable ` 4,000)
Budgeted Hours 2000
Actual O/H ` 10,400 (Fixed ` 6,100, Variable ` 4,300)
Actual Hours 2100
Variable O/H cost variance and Fixed O/H cost variance will be:
a. 100 (A) and 200 (A)
b. 100 (F) and 200 (F)
c. 100 (A) and 200 (F)
d. 200 (A) and 100 (F)

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 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT

(x) Tableau is a –
a. Business Intelligence Tool
b. Visualisation Tool
c. Both (a) and (b)
d. None of the above

(xi) Which one of the following is a Key feature of SAS language?

a. Capability of handling data analysis related to Operations Research and Project
Management.
b. Capability of report formation with perfect graphs.
c. Capability to interact with multiple host systems
d. All the above

(xii) A feasible solution of LPP –

a. Must satisfy all the constraints simultaneously.
b. Need not satisfy all the constraints, only some of them.
c. Must be a corner point of the feasible region
d. All the above

(xiii) A PERT activity has an optimistic time of 3 days, pessimistic time of 15 days and an expected time
of 7 days. What is the most likely time of the activity?
a. 10 days
b. 6 days
c. 5 days
d. None of the above

(xiv) MR is
a. First order derivative of TC
b. Second order derivative of TR
c. First order derivative of TR
d. Second order derivative of TC

(xv) The equations of the two lines of Regression are 4x + 3y + 7 = 0 and 3x + 4y + 8 = 0. The Coefficient
of Correlation between x and y is –
a. 1.25
b. 0.25
c. – 0.75
d. 0.92

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Directorate of Studies, The Institute of Cost Accountants of India
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STRATEGIC COST MANAGEMENT
SECTION – B
Answer any “5” Questions from Question No. 2 to Question No. 8 in Section “B”. Each Question Carries
14 marks. [5 x 14 = 70]

2. Forward and Foundry Ltd. is feeling the effects of a general recession in the industry. Its budget for the
coming half year is based on an output of only 500 tons of casting a month which is less than half of its
capacity. The prices of casting vary with the composition of the metal and the shape of the mould, but they
average ` 175 a ton. The following details are from the Monthly Production Cost Budget at 500 tone levels:

Core Making Melting and Pouring Moulding Cleaning and Grinding

` ` ` `
Labour 10,000 16,000 6,000 4,500
Variable overheads 3,000 1,000 1,000 1,000
Fixed overhead 5,000 9,000 2,000 1,000
18,000 26,000 9,000 6,500
Labour and O.H rate
9.00 6.50 6.00 5.2
per direct labour hour

Operation at this level has brought the company to the brink of break-even. It is feared that if the lack of
work continues, the company may have to lay off some of the most highly skilled workers whom it would
be difficult to get back when the volume picks up later on. No wonder, the work’s Manager at this Juncture,
welcomes an order for 90,000 casting, each weighing about 40 lbs., to be delivered on a regular schedule
during the next six months. As the immediate concern of the Works Manager is to keep his work force
occupied, he does not want to lose the order and is ready to recommended a quotation on a no-profit and
no-loss basis.

Materials required would cost ` 1 per casting after deducting scrap credits. The direct labour hour per
casting required for each department would be:
Core Making 0.09
Melting and pouring 0.15
Moulding 0.06
Cleaning and Grinding 0.06

Variable overheads would bear a normal relationship to labour cost in the melting and pouring department
and in the moulding department. In core making, cleaning and grinding however, the extra labour
requirements would not be accompanied by proportionate increases in variable overhead. Variable
overhead would increase by `1.20 for every additional labour hour in core making and by 30 paise for
every additional labour hour in cleaning and grinding. Standard wage rates are in operation in each
department and no labour variances are anticipated. To handle an order as large as this, certain increases in
factory overheads would be necessary amounting to ` 1,000 a month for all departments put together.
Production for this order would be spread evenly over the six months period.
You are required to:
(a) Prepare a revised monthly labour and overhead cost budget, reflecting the addition of this order.
(b) Determine the lowest price at which quotation can be given for 90,000 castings without incurring a
loss. [14]

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Directorate of Studies, The Institute of Cost Accountants of India
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STRATEGIC COST MANAGEMENT

3. (a) A Company with two manufacturing divisions is organised on profit centre basis. Division ‘A’ is
the only source for the supply of a component that is used in Division B in the manufacture of a
product KLIM. One such part is used in each unit of the product KLIM. As the demand for the
product is not steady, Division B can obtain orders for increased quantities only by spending more
on sales promotion and by reducing the selling prices. The Manager of Division B has accordingly
prepared the following forecast of sales quantities and selling prices. [7]

Sales units per day Average Selling price per unit of KLIM (`)
1,000 5.25
2,000 3.98
3,000 3.30
4,000 2.78
5,000 2.40
6,000 2.01

The manufacturing cost of KLIM in Division B is `3,750 for first 1,000 units and `750 per 1,000
units in excess of 1,000 units. Division A incurs a total cost of `1,500 per day for an output to 1,000
components and the total costs will increase by `900 per day for every additional 1,000 components
manufactured. The Manager of Division A states that the operating results of his Division will be
optimised if the transfer price of the component is set at `1.20 per unit and he has accordingly set
the aforesaid transfer price for his supplies of the component to Division A.

You are required to:

(a) Prepare a schedule showing the profit at each level of output for Division A and Division B.
(b) Find the profit of the company as a whole at the output level which
(i) Division A’s net profit is maximum.
(ii) Division B’s net profit is maximum.
(c) If the Company is not organised on profit centre basis, what level of output will be chosen
to yield the maximum profit.

(b) A company has estimated the following demand level of its product: [7]
Sales Volume (units) 10000 12000 14000 16000 18000
Probability 0.10 0.15 0.25 0.30 0.20

It has assumed that the sales price of ` 6 per unit, marginal cost of ` 3.50 per unit, and fixed costs
of ` 34,000. What is the probability that:
(a) The company will break-even in the period?
(b) The company will make a profit of at least ` 10,000?

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 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT
4. (a) Modern Co produces 3 products, A, B and C, details of which are shown below: [7]
Particulars A B C
Selling price per unit (`) 120 110 130
Direct material cost per unit (` ) 60 70 85
Variable overhead (` ) 30 20 15
Maximum demand (units) 30,000 25,000 40,000
Time required on the bottleneck resource (hours per unit) 5 4 3
Resources (hours per unit) 12 10 15
There are 3,20,000 bottleneck hours available each month.
Required:
Calculate the optimum product mix based on the throughput concept.

(b) Narrate the principles, practices, and tools of lean accounting. [7]

5. (a) S.V. Ltd. manufactures BXE by mixing three raw materials. For every batch of 100Kg. of BXE,
125 Kg. of raw materials are used. In April 2021, 60 batches were prepared to produce an output of
5,600 Kg. of BXE. The standard and actual particulars for April 2021 are as under:
[7]

Standard Actual
Quantity of raw
Raw material Mix % Price per kg Mix % Price per kg
materials purchased kg
A 50 20 60 21 5,000
B 30 10 20 8 2,000
C 20 5 20 6 1,200
Calculate relevant material variances.

(b) Vinak Ltd. has furnished you the following information for the month of February, 2017.
Budget Actual
Output ( Units) 30,000 32,500
Hours 30,000 33,000
Fixed Overhead `45,000 ` 50,000
Variable overhead 60,000 68,000
Working days 25 26
Calculate Variances. [7]

6. (a) Mr. Lal is on a low cholesterol diet. During lunch at the office canteen he always chooses between
two particular types of meal – Type A and Type B. the table below lists the amount of protein,
carbohydrates and vitamins each meal provides along with the amount of cholesterol (which he is
trying to minimize). He needs at least 200 grams of protein, 960 grams of carbohydrates and 40
grams of vitamins for lunch each month. Over this time period, how many days should he have
Type A meal and how many days the Type B meal so that he gets adequate amount of protein,
carbohydrates and vitamins and at the same time minimizes his cholesterol intake. Formulate LPP.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT
[7]
Type A meal Type B meal
Protein (Grams) 8 16
Carbohydrates (Grams) 60 40
Vitamins (Grams) 2 2
Cholesterol (Milli grams) 60 50

(b) Patients arriving at a village dispensary are treated by a doctor on a first-come-first-served basis.
The inter-arrival time of the patients is known to be uniformly distributed between 0 and 80 minutes,
while their service time is known to be uniformly distributed between 15 and 40 minutes. It is
desired to simulate the system and determine the average time a patient has to be in the queue for
getting service and the proportion of time the doctor would be idle.

Carry out the simulation using the following sequences of random numbers. The numbers have been
selected between 00 and 80 to estimate inter-arrival times and between 15 and 40 to estimate the
service times required by the patients. [7]

Series 1 07 21 12 80 08 03 32 65 43 74
Series 2 23 37 16 28 30 18 25 34 19 21

7. (a) The following table gives the activities and other relevant information related to “Making of a loaf”.
Activity Preceded by Elapsed Time (Minutes)
A - Weigh ingredients - 1
B - Mix ingredients A 3
C - Dough rising time B 60
D - Prepare tins - 1
E - Pre-heat oven - 10
F - Knock back dough and place in tins C&D 2
G - 2nd dough rising time F 15
H - Cooking time E&G 45
Draw a Network diagram. Also find the Earliest and Latest Times of each Event of the Network.
Identify the different paths of the Network and their corresponding durations. Which path is critical?
Find the time required to complete the job. [7]
(b) The usual Learning Curve model is Y = axb where
Y is the average time per unit for x units and ‘a’ is the time for first unit
x is the cumulative number of units
b is the learning coefficient and is equal to (log 0.8)/(log 2) = –0.322 for a learning rate of 80%
Given that a = 10 hours, you are required to Calculate:
(i) The average time for 20 units.
(ii) The total time for 30 units.
(iii) The time for units 31 to 40.
Given that log 2 = 0.301, Antilog of 0.5811 = 3.812
log 3 = 0.4771, Antilog of 0.5244 = 3.345.
log 4 = 0.6021, Antilog of 0.4841 = 3.049. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 16 SYLLABUS 2022
STRATEGIC COST MANAGEMENT

15 2 3
8. (a) Solve the Game using Domine Principle [ 6 5 7] [7]
−7 4 0

(b) Find trend values of the following year wise data of Goods carried by a fleet of trucks of a Transport
Company having pan India network using the Moving Average Method. [Assume a 4 yearly cycle]
[7]
Year 1975 1976 1977 1978
Goods carried (Tons) 2204 2500 2360 2680
Year 1979 1980 1981 1982
Goods carried (Tons) 2424 2634 2904 3098
Year 1983 1984 1985 1986
Goods carried (Tons) 3172 2952 3248 3172

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
PAPER - 16
STRATEGIC COST MANAGEMENT
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A : STRATEGIC COST MANAGEMENT FOR DECISION MAKING

Answer to Question No. 1 & 6 in Section A, are compulsory.
Further, answer any 3 from Question nos. 2, 3, 4 & 5.

1. (a) Choose the most appropriate answer to the following questions with
justification. 1 mark will be awarded for correct answer and 1 mark for
justification.: [8 × 2 = 16]

(i) Which one of the following is not true for a Blue Ocean Strategy?
a. Create uncontested market space
b. Make the competition irrelevant
c. Exploit existing demand
d. Create and capture new demand
Briefly state a reason supporting your selection.
(ii) One of the following is not an advantages of cost control are mainly as:
a. Achieving the expected return on capital employed by maximizing or
optimizing profit.
b. Increasing the productivity of the available resources.
c. Delivering the product or service to the customers at a reasonable price.
d. It is a corrective function, thus corrects an existing situation.
Briefly justify your answer.
(iii) The rules governing the application of the Value Analysis (VA) approach are
a. No cost can be removed if it compromises the quality of the product or
its reliability.
b. Marketability is another issue that cannot be compromised.
c. Any activity that reduces the maintainability of the product increases
the cost of ownership to the customer and can lower the value attached
to the product.
d. None of the above
Briefly state a reason in support of your selection.

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(iv) Which of the following is not a term normally used in value analysis and
why?
a. Exchange value
b. Use value
c. Esteem value
d. Cost value
(v) Which of the three principles guide Lean Accounting and form the foundation
for all of accountants’ work and interaction with the organization and why?
a. Customer value, quality circle, respect for people
b. Supplier value, quality circle, respect for people
c. Customer value, continuous improvement, respect for people
d. Supplier value, continuous improvement, suggestion box
(vi) The standard variable production overhead cost of product B is as follows.
4 hours at ` 1.70 per hour = ` 6.80 per unit
During period 3 the production of B amounted to 400 units. The labour force
worked 1,690 hours, of which 30 hours were recorded as idle time. The
variable overhead cost incurred was ` 2,950. The variable production
overhead efficiency variance for period 3 is
a. ` 102 (F)
b. ` 102 (A)
c. ` 105 (A)
d. ` 153 (A)
(vii) M Co sells product L. An extract from its budget for the four-week period
ended 28 October 2022 shows that it planned to sell 500 units at a unit price
of ` 300, which would give a C/S ratio of 30%. Annual sales were 521 units
at an average selling price of ` 287. The actual C/S ratio averaged 26%. The
sales volume contribution variance (to the nearest ` 1) was
a. ` 1,890 (F)
b. ` 1,808 (F)
c. ` 1,638 (F)
d. ` 1,567 (F)
(viii) A technical writer is to set up her own business. She anticipates working a
40-hour week and taking four weeks' holiday per year. General expenses of
the business are expected to be ` 10,000 per year, and she has set herself a
target of ` 40,000 a year salary. Assuming that only 90% of her time worked
will be chargeable to customers, her charge for each hour of writing (to the
nearest cent) should be
a. ` 26.04
b. ` 30.94
c. ` 28.94
d. ` 29.84

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
PAPER - 16
STRATEGIC COST MANAGEMENT
2. (a) ‘Lean evolved from the manufacturing philosophy of the Toyota Production
System’ – explain the evolution process. In this context explain Lean Accounting
and its three principles. [6]

(b) Explain the principles of Total Quality Management (TQM). Also describe the
essential requirements for the implementation of Total Quality Management
(TQM)? [6]

3. (a) Rags Ltd. manufactures and sells premium quality of sports shoes in India. Noted
sports clubs and its members are the main customers. Finished products show some
rectifiable defects. These problems can be detected and rectified during internal
inspection. Inspection cost is `30 per unit. Rectification cost is `18 per unit.
During 2022, 60000 pairs of shoes were manufactured and sold. After inspection
defect was detected in respect of 5% of output. Inspection cost is ` 30 per pair.
After sales, customers reported defects in respect of 6% of output. These shoes
were received back from customers at a transportation cost of ` 10 per pair. Due to
negative publicity arising out of sale of defective materials, loss in sales is expected
in next year to the extent of 5% of external failures.
Required:
a. Calculate the cost of quality showing the elements separately.
b. If the selling price per pair of shoes is ` 600 and variable cost is 60% of sales,
fixed cost is ` 5,50,000 p.a., prepare the profitability statement for the
product during 2022. [2 + 3 = 5]

(b) ASA LLP has been approached by a customer who would like a special job to be
done for him and is willing to pay ` 22,000 for it. The job would require materials
A, B, C and D. the details of the material are given below;
Total Units Book Value of Realisable Replacement
Materials units already in units in stock Value Cost
required inventory (` per unit) (` per unit) (` per unit)
A 1000 0 - - 6
B 1000 600 2 2.5 5
C 1000 700 3 2.5 4
D 200 200 4 6 9
The following information are also furnished.
(i) Material B is used regularly by X Ltd. and if stocks were required for this
job, they would need to be replaced to meet other production demand.

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 FINAL EXAMINATION SET 2
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(ii) Materials C and D are in stock as the result of previous excess purchase and
they have a restricted use. No other use could be found for material C but
material D could be used in another job as substitute for 300 units of material
which currently costs ` 5 per unit (of which the company has no units in stock
at the moment.)
(iii) Assume all other expenses on this contract to be specially incurred besides
the relevant cost of material is ` 550.
Analyze the relevant costs of material, in deciding whether or not to accept the
contract? [7]

4. (a) Kobe Co manufactures electronic mobility scooters. The company is split into two
divisions: the scooter division (Division S) and the motor division (Division M).
Division M supplies electronic motors to both Division S and to external
customers. The two divisions run as autonomously as possible, subject to the
group’s current policy that Division M must make internal sales first before selling
outside the group; and that Division S must always buy its motors from Division
M. However, this company policy, together with the transfer price which Division
M charges Division S, is currently under review.
Details of the two divisions are given below.
Division S
Division S’s budget for the coming year shows that 35 000 electronic motors will
be needed. An external supplier could supply these to Division S for ` 800 each.
Division M
Division M has the capacity to produce a total of 60 000 electronic motors per year.
Details of Division M’s budget, which has just been prepared for the forthcoming
year, are as follows:
Budgeted sales volume (units) 60 000
Selling price per unit for external sales of motors ` 850
Variable costs per unit for external sales of motors ` 770
Maximum external demand for the motors is 30 000 units per year.
Required:
Assuming that the group’s current policy could be changed, determine, using
suitable calculations, the number of motors which Division M should supply to
Division S in order to maximize group profits. Calculate the transfer price or prices
at which these internal sales should take place. Note: All relevant workings must
be shown
The variable cost per unit for motors sold to Division S is ` 30 per unit lower due
to cost savings on distribution and packaging. [4]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
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STRATEGIC COST MANAGEMENT
(b) AB Ltd. Has two divisions Alfa & Beta. Alfa produces components, two units of
which are required for one unit of final product produced by Beta. Alfa has a
capacity to produce 20000 units and entire quantity is supplied to Beta @ ` 200 per
unit. Variable cost component at Alfa is ` 190 & fixed cost ` 20 per unit. For final
product of Beta, per unit variable cost excluding component is ` 700, fixed cost `
200 and selling price is ` 1500.
Alfa has placed a proposal for increasing the transfer price to ` 220 i.e. the market
price. Facility at Alfa can be rented out @ ` 3.00 Lacs p.a. Manager at Alfa wants
to opt for this alternative
 Beta can buy this component from outside market @ ` 210
 If capacity of Alfa is augmented to 40000 units with an additional investment
of ` 15 lacs, it can sell 20000 units to external market and balance to Beta @
` 210 per unit. Fixed cost for Alfa will be up by ` 1.00 lac.
Evaluate and give your opinion under the following decision options.
a. Facility of Alfa is rented out and Beta buys from market @ ` 210 per unit
b. Alfa sells to outside market @ ` 220 and Beta buys @ 210 per unit from
market
c. Capacity enhancement with cost of capital @ 12 % [8]

5. (a) The summarized results of a company for the two years ended 31st December 2021
and 2022 are given below:
2021 (` in Lakhs) 2022 (` in Lakhs)
Direct Materials 324 300
Sales 770 600
Direct Wages 137 120
Variable Overheads 69 60
Fixed Overheads 150 80
Profit 90 40

As a result of re-organization of production methods and extensive advertisement

campaign, the company was able to secure an increase in the selling prices by
10% during the year 2022 as compared to the previous year.
In the year 2022, the company consumed 1,20,000 Kgs. of raw materials and used
24,00,000 hours of direct labour. In the year 2023, the corresponding figures were
1,35,000 kgs of raw materials and 26,00,000 hours of direct labour.
You are required to:

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
PAPER - 16
STRATEGIC COST MANAGEMENT
Use information given for the year 2022 as the base year information to analyze
the results of the year 2023 and to show in a form suitable to the management the
amount each factor has contributed by way of price, usage and volume to the
change in profit in 2023. [8]

(b) At the beginning of 2023, ASA Inc. set a standard marginal cost for its major
product of ` 25 per unit. The standard cost is recalculated once each year. Actual
production costs during August 2023 were ` 3,04,000, when 8,000 units were
made. With the benefit of hindsight, the management of ASA Inc. realizes that a
more realistic standard cost for current conditions would be ` 40 per unit. The
planned standard cost of ` 25 is unrealistically low.

Required
(i) Calculate the planning and operational variances.
(ii) What is the implication of planning and operational variances against
traditional variance? State your answer in particular reference to the
information given in the above situation. [4]

6. E Ltd manufactures a metal trimming device which has been sold at ` 16 per unit for a
number of years. The selling price is to be reviewed and the following information is
available on costs and likely demand. The standard variable cost of manufacture is ` 10
per unit and an analysis of the cost variances for the past 20 months show the following
pattern which the production manager expects to continue in the future. Adverse
variances of +10% of standard variable cost occurred in ten of the months. Nil variances
occurred in six of the months. Favourable variances of –5% of standard variable cost
occurred in four of the months. Monthly data Fixed costs have been ` 4 per unit on an
average sales level of 20 000 units but these costs are expected to rise in the future and
the following estimates have been made for the total fixed cost:

Monthly data Fixed costs have been ` 4 per unit on an average sales level of 20 000 units
but these costs are expected to rise in the future and the following estimates have been
made for the total fixed cost:

`
Optimistic estimate (Probability 0.3) 82,000
Most likely estimate (Probability 0.5) 85,000
Pessimistic estimate (Probability 0.2) 90,000

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
PAPER - 16
STRATEGIC COST MANAGEMENT
The demand estimates at the two new selling prices being considered are as follows:
If the selling price/unit is demand would be: ` 17 ` 18
Optimistic estimate (Probability 0.2) 21 000 units 19 000 units
Most likely estimate (Probability 0.5) 19 000 units 17 500 units
Pessimistic estimate (Probability 0.3) 16 500 units 15 500 units

It can be assumed that all estimates and probabilities are independent. You are required
to
 Advise management, based only on the information given above, whether they
should alter the selling price and, if so, the price you would recommend;
 Calculate the expected profit at the price you recommend and the resulting margin
of safety, expressed as a percentage of expected sales;
 Criticize the method of analysis you have used to deal with the probabilities given
in the question;
 Describe briefly how computer assistance might improve the analysis. [8]

SECTION – B : QUANTITATIVE TECHNIQUES IN DECISION MAKING

Answer to Question No. 7 & 11 in Section B, are compulsory.
Further, answer any 2 from Question nos. 8, 9 & 10.

7. Choose the most appropriate answer to the following questions giving justification.
[2 + 2 = 4]
2
(i) For a Cost Function TC = 3Q + 7Q + 12, MC is –
a. 6Q
b. 6Q + 7
c. 3Q + 12
d. None of the above
(ii) Which of the following is related to Financial Data Analytics and why?
a. Value driver analytics
b. Financial ratio analytics
c. Predictive sales analysis
d. All the above

8. (a) Write the dual of the following linear programming problem:

Minimize Z = 5x1 – 6x2 + 4x3
Subject to the constraints

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
PAPER - 16
STRATEGIC COST MANAGEMENT
3x1 + 4x2 + 6x3 ≥ 9
x1 + 3x2 + 2x3 ≥ 5
7x1 – 2x2 – x3 ≤ 10
x1 – 2x2 + 4x3 ≥ 4
2x1 + 5x2 – 3x3 = 3
x1 ≥0, x2 ≥ 0, x3 ≥0. [7]

(b) A multi-plant company has three manufacturing plants, A, B and C. It sells

products in two markets X and Y. Production cost at A, B and C is ` 1,500; 1,600;
and 1,700 per piece respectively. Selling prices in X and Y are ` 4,400 and ` 4,700
respectively. Demands in X and Y are 3,500 and 3,600 piece respectively.
Production capacities at A, B and C are 2,000; 3,000 and 4,000 pieces respectively.
Transportation costs are as shown in the table below. Build a mathematical model.
Plant Market
X Y
A 1,000 1,500
B 2,000 3,000
C 1,500 2,500
[7]

9. (a) At a service station a study was made over a period of 50 days to determine both
the number of automobiles being brought in for service and the number of
automobiles serviced. The results are given in the adjoining table:
No. of automobiles arriving for service Frequency of Frequency of
or completing services/day arrival daily serviced
0 4 6
1 8 4
2 20 24
3 10 6
4 6 8
5 2 2
Simulate the arrival service pattern for a ten-day period and estimate the mean
number of automobiles that remain in service for more than a day.
Use the following series of random numbers:
For arrivals 09 54 42 01 80 06 06 26 57 79
For Service 49 16 36 76 68 91 97 85 56 84
[8]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
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STRATEGIC COST MANAGEMENT
(b) The following table gives data on normal time & cost. You need to develop the
Network diagram and briefly discuss with reason the Critical Path.
Also find out the Normal duration of the project and analyse the corresponding
Total Cost associated with it.
. Activity Normal
Time (days) Cost (₹)
1–2 6 600
1–3 4 600
2–4 5 500
2–5 3 450
3–4 6 900
4–6 8 800
5–6 4 400
6–7 3 450
[6]

10. (a) From the following past data of Sales (in lakhs rupees) of a company estimate the
same for the year 2025.
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sales 15.3 14.6 16.8 17.3 17.2 20.9 22.3 20 23.1 24.5

Assume the trend line to be linear. What is the monthly rate of increase of sales.
[7]

(b) A company produces two products x and y. The total Profit (in ₹ ‘000) earned by
the company is expressed algebraically by the function ∏ = 100x – x2 – 2xy + 200y
– 3y2. Critically assess the Profit maximizing quantities of the products. Also
determine the maximum profit with justification in support of your determined
value. [7]

Case Study
11. Human performance of activities typically shows improvement when the activities are
done on a repetitive basis. The time required to perform a task decreases with increasing
repetitions. The degree of improvement and the number of repetitions needed to realize
the major portion of the improvement is a function of the task being done. If the task is
short and somewhat routine, only a modest amount of improvement is likely to occur and
it generally occurs during the first few repetitions. If the task is fairly complex and has a
longer duration, improvements will occur over a large number of repetitions.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER
PAPER - 16
STRATEGIC COST MANAGEMENT

Any kind of surgery comes under the category of fairly complex or complex task.
Surgeons require large number of repetitions of a particular type of surgery to master it.
This is due to the fact that random complications may arise due to the patients`
conditions. Hence it is important to know the number of repetitions required for a surgeon
to stabilize the operating times and the complication rates.
Dr. X of ABC Hospital reported the results of 100 consecutive operations for
laparoscopic hernia repair on 98 patients. Approximately two thirds of the surgeries were
unilateral (left / right) and the remaining one third were bilateral involving contra lateral
defects, many unsuspected before surgery. The average surgery time (from skin incision
to skin closure) was 46 minutes for unilateral and 62 minutes for bilateral. Surgery times
for the unilateral procedure began to level off after 50 operations. The average surgery
times (in minutes) reported by the doctor for each quartile of the 100 operations,
classified by the type of operation are as provided in the table below

1st 2nd 3rd 4th

Type of Surgery
Quartile Quartile Quartile Quartile
Unilateral 59 45 38 37
Bilateral 69 67 58 52

At the end of the study the times had levelled off at 58 minutes (operating time) including
37 minutes of surgical time for Unilateral type which are considered to be the historical
times for open repair. Complication rates were also reduced in an approximately
exponential manner, beginning to level off at 50 operations and becoming stable after 75.
It is also reported that the 1st to 4th quartile of the Unilateral type surgery are represented
by the 8th, 24th, 40th and 58th observations respectively and those of Bilateral are 4th,
12th, 20th and 28th observations respectively.

(1) Analyse the incidence described above and formulate a set of brief explanations to
ascertain which particular phenomenon of human behaviour the above incidence
refers to?
(2) How you can decide which one of the two types of surgeries was grasped faster by
the surgeon? Explain.
(3) What type of relationship exists between the Average time required to complete a
particular operation with the number of operations done by the surgeon?
(4) Design with brief reasons the procedure to determine the time required by the
surgeon to complete 59th Unilateral type surgery and 27th Bilateral type surgery.
[8]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15 x 2 = 30]

(I) (i) Majority of audit committee members of a company shall be__________________.

a. Executive director
b. Non-executive
c. Independent
d. None of the above

(ii) CFO is compulsorily to be appointed as one of the KMPs if the paid up capital is
minimum ₹ ______.
a. 5 crore
b. 10 crore
c. 15 crore
d. 20 crore

(iii) Change of registered office within a city, town or village requires______________.

a. Special Resolution
b. Board Resolution
c. Approval of Central Govt.
d. None of the above

(iv) The main authority under Competition Act is_____________.

a. Ministry of finance
b. Competitions Commission of India
c. RBI
d. NCLT

(v) In case of private company, internal auditor has to be appointed if the turnover
is_____________.
a. 100 cr or more
b. 150 cr or more
c. 200 cr or more
d. 300 cr or more

(vi) If a unit has investment in plant and equipment of ₹55 crore and turnover of ₹ 300
crore. It will be classified as _______________unit.
a. micro
b. small
c. medium
d. none of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS

(vii) FIU stands for:

a. Financial Intelligence unit
b. Financial Issue unit
c. Featured Intelligence Unit
d. None of the above
(viii) In case of triple bottom line approach, three Ps are:
a. people, profit and progress
b. people profit and planet
c. person, profit and planet
d. people, price and planet
(ix) A foreign entity cannot be:
a. implementing agency of CSR project in India
b. advisor
c. trainer
d. consultant
(x) SLR stands for:
a. Special Liquidity Ratio
b. Statutory Liquidity Reserve
c. Special Liquidity Reserve
d. None of the above
(xi) Automatic route in FDI means.
a. Prior permission of RBI not required
b. Prior permission of Central Govt. not required
c. Prior permission of neither RBI nor Central Govt.is required
d. None of the above
(II) CSR Ltd. is a Public Limited Company with the following details. Mr. Rajesh Kumar is
the Managing Director, with Sunil Arora and Rajiv Verma as full-time directors. Ms.
Khurana is a nominee director of the State Bank of India. Mr. Sabir Ali is an independent
director. During the year 2023-2024, an amount of ₹3.5 Crore could not be spent out of
the budget for CSR, leading to shortfall to that extent. (₹in Cr.)
Year Turnover Net Worth Profit
2021-2022 280 188 5
2022-2023 300 192 12
2023-2024 360 212 34
2024-2025 (Projected) 390 2220 42
Based on the above case study, you are required to answer the questions no. from (xii) to
(xv).
(xii) Company is CSR complaint company because of _____________.
a. Turnover
b. Net Worth
c. Profit
d. All of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS

(xiii) The minimum Budget for CSR for the year 2024-2025 will be ________________.
a. ₹8.2 cr.
b. ₹4.2 cr.
c. ₹10.2 cr.
d. ₹11 cr.

(xiv) CSR Committee shall constitute of –

a. MD and Full-Time Directors
b. MD and Ms. Khurana
c. MD, any of the Directors or Ms. Khurana and Mr. Sabir Ali
d. Both Full-Time Directors (or one full time director, Ms. Khurana) and Mr. Sabir
Ali

(xv) Unspent Amount of CSR budget, during last year, is to be _____________.

a. kept aside
b. added to Next Years’ Budget
c. deposited with Income Tax Authorities
d. deposited in a Special Account under Schedule VII

SECTION – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks)

2. (a) Discuss the disqualifications of an Auditor of a public limited company.

(b) ‘There was persistent demand from the small shareholders to have a director
nominated by them to look after the interest of small shareholders.’ – discuss
procedure of appointment of such director. [7 + 7 =14]

3. (a) Describe the procedure of inspection of minute books of a general meeting.

(b) Merger and Amalgamation of Companies as per Section 232 of the Companies
Act,2013 – discuss. [7 + 7 =14]

4. (a) Fair Tech Ltd is a public limited company formed 15 days before, to manufacture
computer parts , having a small factory at Durgapur, West Bengal and registered
office at Kolkata. There 4 directors, two from promoter and balance 2 as
professionals, one being full time and the other as non-functional. One of the

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS
promoter director is named as MD. Advise the company by interpreting the
provisions of Company law, and help the by clarifying the following.
(i) Is there any necessary to call a Board meeting?
(ii) If so, within what time?
(iii) Suggest at least two important agenda item for the meeting.
(iv) 3 directors want the meeting to be held in Delhi. Examine the legal provision.
(v) Is necessary to appoint a CFO?
(vi) Is written notice necessary?
(vii) If so, how many days’ notice?

(b) United Social Services Ltd is company formed by 10 professionals with one lakh
paid capital by each promoter. The company intends to give various services to
NGOs and social sector organisations with marginal profit. Though the registered
office is Delhi, the company wants to work pan India. Interpret the following
perception of the company, in line with provisions of law.
(i) The company claims that it’s a non-profit company.
(ii) If not, can it be converted as NPO?
(iii) What is to be done for conversation?
(iv) Once converted, would the promoters get dividend out of profit? [7+7=14]

5. (a) Discuss the provisions of Companies Act, 2013 on right of member to copies of
Audited Financial Statement.

(b) Gainwel Finance Ltd. (GFL) is registered as NBFC for last 10 years. The company
extended a loan of 10 crores to Hindustan Wires Ltd.(HWL) as normal course of
business. The loan was long term for equipment financing and equipment were
actually purchased. HWL repaid only one crore and stopped paying further
instalments. The company had to operation for various reasons. Examine the
situation in context of IBC code to get the following queries.
(i) Which type of creditor GFL shall be classified?
(ii) Where the application can be made?
(iii) Is IP necessary?
(iv) Can GFL make a petition on its own?
(v) What CIRP in this context?
(vi) What time is expected to resolve?
(vii) Can HWL itself apply for taking over the company? [7+7 =14]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS

6. (a) Describe what do you understand by three Ps. List the benefits of Sustainability
Management.

(b) Summarize the work process of business intelligence and list the benefits of
business intelligence. [7+7=14]

7. (a) Describe the restrictions on communication and trading by insiders.

(b) Discuss Anti-Competitive Agreement and it’s types. [7+7=14]

8. (a) Discuss the procedure of Investigation under the Prevention of Money Laundering
Act.

(b) Discuss the procedure for registration of an Asset Reconstruction Company.

[7+7=14]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.

SECTION – A (Compulsory)

1. Multiple Choice Question: [2 × 15 = 30]

(I) (i) ABC Ltd. has 35% shares in XYZ Ltd. The majority of directors of XYZ Ltd.
are appointed and removed by ABC Ltd. XYZ Ltd. is:
a. Subsidiary of ABC Ltd.
b. Not a subsidiary of ABC Ltd.
c. Depends on Board of ABC Ltd.
d. Depends on Board of XYZ Ltd.

(ii) Once declared in AGM, dividend-

a. May be revoked
b. Cannot be revoked
c. May be reduced
d. Payment can be delayed

(iii) Under Insolvency Bankruptcy code 2016 where extension of time is

requested, the Corporate Resolution process shall be completed within a
period of ......................... from the date of admission of the application to
initiate such process.
a. 60 days
b. 90 days
c. 180 days
d. 240 days

(iv) Corporate Governance practices are almost……………….by companies in

India.
a. formalized
b. regulated
c. accepted
d. rejected

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS

(v) The recommendation of the Audit Committee:

a. may not be accepted by Board of Directors
b. has to be accepted by Board
c. In case not accepted, Board has to records the reasons
d. Recommendation need not go to Board meeting.
(vi) At the time of IPO, the issuer has to have a:
a. CFO
b. MD
c. Designated Compliance Officer
d. At least one independent director.

(vii) SEBI has three functions rolled into one body. Which of the following is not
the function of SEBI?
a. Quasi-legislative
b. Quasi –judicial
c. Quasi – executive
d. Quasi- official

(viii) The Competition Act has replaced-

a. Companies Act, 1956
b. Consumer Protection Act
c. MRTP Act, 1969
d. None

(ix) Zenith Ltd is accompany registered in UK, issues share to citizen of UK.
Under the Indian law, the shares are;
a. foreign security
b. Indian security
c. any of the above
d. none of the above

(x) According to Banking Regulation Act 1949, no Banking Company shall pay
dividend on its shares until all its –
a. Depreciation is fully written off.
b. “Capitalized expenses” have been completely written off
c. Bad debts are provided in full.
d. Contingent liability is settled.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS
(xi) a unit has investment in plant and equipment of ₹55 crore and turnover of
₹300 crores. It will be classified as:
a. micro
b. small
c. medium
d. none of the above

(II) ABC limited is a company with paid up capital of ₹ 50 cr. and turnover of ₹310
cr. Mr. Rajesh Kumar, who is promoter and MD of the company wants to run the
company complying with all laws and regulations. The chairman is non-executive
and is an eminent academician. There are two more directors, one is Director
(Finance), Mr Joshi and Director (commercial) Mr. Nirmal Kumar, who is related
to the promoter. Company is in the process of taking substantial loan for capital
investment from SBI, where SBI will nominate a director in the Board.

Based on the above case study, you are required to answer the questions no. from
(xii) to (xv).

(xii) Is the present Board properly constituted? - Which statement is correct.

a. Company is an unlisted company with four directors, the present Board
is properly constituted.
b. Company is an unlisted company with four directors, which is properly
constituted, but since the turnover is more than ₹300 cr., a woman
director is required.
c. Company is an unlisted company with four directors, which is properly
constituted, but need of one resident director who has stayed in India
for a total period of not less than 182 days in the financial year.
d. Company is an unlisted company, which is properly constituted with
a MD.
(xiii) Can Mr. Nirmal Kumar be considered as independent director?
a. Yes, since he is related to the promoter.
b. No, since he is related to the promoter.
c. Yes, since he is commercial Director.
d. Yes, since he is a whole time /functional Director.
(xiv) Is there any need of women director?
a. Yes, since the turnover is more than ₹300 cr.
b. No, since the paid up capital is not more than ₹100 cr.
c. No, SBI will nominate a director in the Board.
d. None of the above.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS

(xv) What will be the status of the director nominated by SBI, if she is a woman?
a. She will be classified as Nominee Director.
b. She will be classified as Interested Director.
c. SBI has no right to nominate any women director in the Board.
d. None of the above.

SECTION – B

(Answer any five questions out of seven questions given. Each question carries 14 marks.)

2. (a) Describe the classes of companies which are outside the purview of the Company
Auditor Report Order (CARO) under the Companies Act 2013.
(b) Summarize the disqualifications of a director under section 164 of the Companies
Act 2013. [7 + 7 = 14]

3. (a) “A casual meeting of the directors, even at the office of the company, cannot be
treated as a board meeting” – analyse the legal provisions relating to board meeting
under the Companies Act 2013?
(b) Explain who shall bear the cost of investigation under section 225. under the
Companies Act 2013? [7 + 7 = 14]

4. (a) Three Board meeting of A Ltd. were held on 01.01.2022, 01.04.2022, 01.07.2022.
In the fourth Board meeting scheduled for 27.10.2022, no matter could be discussed
since the required quorum was not present, and so it was adjourned till 03.11.2022.
In the adjourned Board meeting held on 03.11.2022, 5 matters were discussed and
voted upon. Assess the situation, Has the company contravened any of the
provisions of the Companies Act ,2013?
(b) X & Co. is a LLP firm wants to convert their firm into a corporate entity as per the
provisions contained in Sec. 366 of the Companies Act ,2013 and the Companies
(Authorized to registered) Rules, 2014. They have conducted a meeting for
conversion of and to decide the name of the company summoned for the purpose of
registering the LLP. In the meeting 1/4th partners want for the conversion into a
Pvt. Ltd company, and ¾ th partners want for a new corporate entity with the word
“Public Limited”. There are 6 partners in the firm. Recommend an appropriate
decision and steps to be taken by the firm. [7+7=14]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 13 SYLLABUS 2022
CORPORATE AND ECONOMIC LAWS

5. (a) Illustrate the process of appointment of first auditors in the case of Government
Company under section 139(7) of “The Companies Act ,2013”.
(b) Nature India Limited filed a petition under Insolvency and Bankruptcy Code ,2016
with National Company Law Tribunal (NCLI) against Tulip Limited and the
petition was admitted. After that, Nature India Limited wanted to withdraw the
petition based on a settlement arrived between the parties. Examine whether it is
permissible to withdraw the petition after it has been admitted? and also infer the
legal provision relating to the admission and rejection of application by an
adjudicating authority under the Insolvency and Bankruptcy Code, 2016.
[7+7=14]

6. (a) Discuss the benefits of Sustainable report.

(b) Classify the major categories of cyber-crimes and summarize them with examples.
[7+7=14]

7. (a) Discuss “connected person” in context of insider trading.

(b) Analyse the duties and power of the director general of Competition Commission
of India? [7+7=14]

8. (a) “Money Laundering is the process of conversion of such proceeds of crime, the
‘dirty money’, to make it appear as ‘legitimate’ money”- examine the validity of
statement by the rules and regulations of the act “The Prevention of Money
Laundering Act, 2002”
(b) Describe the role of Reserve Bank of India in management of foreign exchange.
[7+7=14]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 13
CORPORATE AND ECONOMIC LAWS
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.
Answer Question No. 1 and 8 are compulsory and any four from Question No. 2, 3, 4, 5, 6 & 7.

SECTION – A

Please answer the following questions with brief justification as directed

and/or reference to the relevant legal provision as appropriate.

1. (a) Multiple Choice Question: [10 × 2 = 20]

(i) Section 8 companies cannot:

a. Generate surplus
b. Make Profit
c. Distribute dividend
d. Profit is given to Govt.
Briefly state the rationale behind your selection.
(ii) The adjudicating authority in case of personal insolvency is:
a. NCLT
b. Debt Recovery Tribunal
c. RBI
d. SEBI
Briefly justify with reference to the legal provision.
(iii) A foreign entity cannot be:
a. Implementing agency of CSR project in India
b. Advisor
c. Trainer
d. Consultant
Briefly justify with reference to the legal provision
(iv) Which of the following is not the function of SEBI and why?
a. Quasi-legislative
b. Quasi-judicial
c. Quasi-executive
d. Quasi-official

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 13
CORPORATE AND ECONOMIC LAWS
(v) Selling products/services below the cost is called _______________.
a. Undercut pricing
b. Under pricing
c. Predatory pricing
d. Introductory pricing
Briefly explain your answer with reference to the legal provision
(vi) DPIIT comes under
a. Industry and Commerce
b. Finance
c. Corporate Affairs
d. None of the above
Briefly state the rationale behind your selection
(vii) In which of the following years IRDAI was established?
a. 1999
b. 2000
c. 2001
d. 2002
(viii) While calculating the value of assets for ascertaining the classification, the
value of the following is excluded.
a. Any sales
b. Domestic sales
c. Exports
d. None of the above
Briefly state the reason for your selection.
(ix) Which of the following is not a Cyber Offence to the Government and why?
a. Terrorism
b. Warfare
c. Piracy
d. All of the above
(x) In which of the court the cases under PMLA can be tried in and why?
a. Common courts
b. High courts only
c. Special designated courts
d. None of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 13
CORPORATE AND ECONOMIC LAWS
SECTION – B

2. (a) Explain the doctrine of “Indoor Management”. How is it opposite to doctrine of

“Constructive Notice”?

(b) Demonstrate the stepwise procedure for merger and amalgamation under the
Companies Act, 2013 u/s 233. [10 + 6 =16]

3. (a) Analyze in the light of The Companies Act, 2013, the role of SFIO in investigation
into the affairs of any company.

(b) Prepare a list of powers of Central Government to prevent Oppression and

Mismanagement. [8 + 8 = 16]

4. (a) Analyze various provisions concerning related parties in to the matter of corporate
debtor as provided under the IBC Code, 2016.

(b) The leadership team of a company is confused on the point whether it is wise for
any company to practice good governance which comes with additional cost.
Please advise the company with your comprehensive answer quoting appropriate
examples and the relevant provisions of law. [8 + 8 = 16]

5. (a) Examine disclosure norms in respect of take over under SEBI Laws and
Regulations.

(b) Examine the provision of Anti Competitive Agreement in light of The Competition
Act, 2002. [10 + 6 =16]

6. (a) Demonstrate the prohibited items of LRS and briefly explain what is the rationale
for such regulation.

(b) Prepare a list of the functions of an Asset Reconstruction Company (ARC).

[8 + 8 = 16]

7. (a) Demonstrate with examples the major measures taken to promote MSME sector
units. Do you think those would help to achieve the objective.

(b) Examine with reference to the legal provisions and related rationale for the purpose
of Information Technology (Reasonable Security Practices and Procedures and
Sensitive Personal Data or Information) rules, 2011. [8 + 8 = 16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 2
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 13
CORPORATE AND ECONOMIC LAWS

GROUP - C

8. IVAN Industries Ltd. is manufacturing cables and wires. It has issued 10% Non-
convertible debentures of ₹50 Crores in 2018 maturing in 2028. Due to changes in
technology, this could not be adapted by the company, it lost market share and incurred
huge loss in last 5 years. Company wants to make a compromise with the Debenture
holders by which ₹50 will be converted into 5 Equity Shares of ₹10 each, at par and
balance shall be repaid in 2028, the original redemption date. Such proposal has been
approved by Board.
Formulate your opinion on each of the following issues with specific reference to the
related provision
(i) Is a scheme of arrangement necessary from corporate governance perspective?
(ii) Whose consent is required, once the Board have agreed?
(iii) Will it require going to NCLT or IRDAI?
(iv) What will happen if adequate mandate of shareholders is not received?
(v) Is there any specific procedure of sending notices of this meeting?
(vi) Is any legal clearance required under PMLA? Explain.
(4 x 2)+(2 x 2)+ 4 = 16]

4
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.
Question No. 1 and 8 are compulsory; Answer any four from Question No. 2, 3, 4, 5, 6 & 7.

SECTION - A
1. (a) Choose the correct alternative. Provide Justification for your answer. 1 Mark
is allotted for the correct choice and 1 mark for the justification. [2 × 10 =20]

(i) An investor buys a call option contract for a premium of ` 150. The exercise
price is ` 15 and the current market price of the share is ` 12. If the share
price after three months reaches ` 20, what is the profit made by the option
holder on exercising the option? Contract is for 100 shares. Ignore the
transaction charges.
a. ` 300
b. ` 350
c. ` 400
d. ` 450
(ii) The declining market is called bear market because of the __________.
Provide a justification.
a. Long hibernation period of bears
b. Traditional usage
c. Fur coat of the bears
d. Attacking manner of bears
(iii) An investor has three alternatives of varying investment values. The data
available for each of these alternatives are given below:
Alternative Expected Return (%) Standard Deviation of Return
I 23 8.00
II 20 9.50
III 18 5.00
Which alternative would be the best if coefficient of variation is used?
a. Alternative I
b. Alternative II
c. Alternative III
d. None of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
(iv) The strike price and the current stock price of a European put option are `
1,000 and ` 925 respectively. What is its theoretical minimum price after 6
months, if the risk-free rate of interest is 5% p.a.?
a. `50.3053
b. `50.2056
c. `51.2125
d. `52.4125
(v) If ROA is 0.20 and leverage factor is 1.5, the ROE of the company is
a. 0.25
b. 0.30
c. 0.45
d. 0.50
(vi) According to the stock market psychology
a. Investors forget the past
b. History repeats itself
c. More faith is placed in predictions of the future
d. Both (A) and (B)
(vii) The concept of securitisation is associated with ___________. Provide
justification for your selection.
a. Capital market
b. Money market
c. Debt market
d. Foreign exchange market
(viii) __________ is/are a private arrangement between lending banks and a
borrower. Provide justification for your selection.
a. Club loan
b. Multiple component facility
c. Syndicated Euro credit
d. All of the above
(ix) Which of the following is not an assumption of perfect capital market? Why?
a. No transaction cost
b. No taxes
c. Information is available to all
d. None of the above
(x) Hedging through 'currency of invoicing' results in ___________. Why?
a. The exporter covering forex exposure
b. The importer covering forex exposure
c. Both exporter and importer covering forex exposure
d. Either exporter or importer covering forex exposure

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
SECTION - B
2. (a) PQR Ltd. has a capital budget of ` 20,000,000 for the year. From the following
information relating to six independent proposals, recommend the projects to be
selected if (i) the projects are divisible and (ii) projects are indivisible in order to
maximise the NPV.
Proposal Investment (`) NPV (`)
I 8,500,000 5,000,000
II 3,500,000 2,600,000
III 6,000,000 2,000,000
IV 4,000,000 2,500,000
V 6,000,000 5,000,000
VI 8,000,000 (2,500,000)

(b) XY Manufacturing Ltd. desires to acquire a diesel generating machine set costing
` 40 lakh which has an economic life of 10 years at the end of which the asset is
not expected to have any residual value. The company is considering two
alternatives: (A) taking the machine on lease (B) purchasing the asset outright by
raising a loan. Lease payments are equal annual amounts and have to be made in
advance and the lessor requires the asset to be completely amortized over its useful
period. The loan carries an interest 16% p.a. The loan has to be paid in 10 equal
annual instalments becoming due at the beginning of the first year. Average rate of
income tax is 50%. It is expected that the operating costs would remain the same
under either method. The company allows straight line method of depreciation and
the same is accepted for tax purposes.
Assume tax benefits at the end of the respective years and for end of year zero, tax
benefit may be considered at the end of the first year. Use 8% discount rate for p.v.
factors. Prepare a statement showing discounted values of annual cash flows to the
nearest rupee under alternative (B), only for end of years 0 to 2 and year 10. What
should be the maximum annual lease rental for which the lease option may be
preferred if you are given that the present value under the loan option is `
26,57,029? The present value of an annuity of one Rupee:
Year 8%
1 to 9 6.247
1 to 10 6.71
Present value of Rupee one at 8%
Year 0 1 2 3 4 5 6 7 8 9 10
PV 1.00 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463
[7 + 9 = 16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
3. (a) Delta Corporation is considering an investment in one of following two mutually
exclusive proposals:
Project A: requiring initial outlay of ` 1,80,000.
Project B: requiring initial outlay of ` 1,60,000.

The certainty equivalent approach is employed in evaluating risky investment. The

current yield on treasury bill is 5% and the company uses this as riskless rate.
Expected values of net cash inflow with their respective certainty equivalents are:

Project A Project B
Year
Cash in flow Certainty Equivalents Cash in flow Certainty Equivalents
1 92,000 0.8 92,000 0.9
2 1,02,000 0.7 92,000 0.8
3 1,12,000 0.5 1,02,000 0.6

Analyse the above information to determine the following:

(i) Which Project should be acceptable to the Company?
(ii) Which Project is riskier and why? Explain.
(iii) If the company uses the risk adjusted discount rate method, which project
would be discounted with higher rate?

(b) Briefly discuss the components of digital finance. [10 + 6 = 16]

4. (a) (i) Discuss the key determinants of price-earnings multiple.

(ii) A company has an EPS of `10 for the current year and a DPS of `4. The
earnings growth rate during the past four years was 4% and earnings are
expected to grow at 2% a year in the long run. Currently the shares of the
company are trading at 7 times its earnings. If the required rate of return is
14%, compute an estimate of the P/E ratio. Also calculate the long run growth
rate implied by the current P/E ratio.

(b) A mutual fund has an NAV of ` 12.50 per unit at the beginning of the year. At the
end of the year the NAV increases to ` 13.40. In the meanwhile, the Fund distributes
` 1.55 as dividend. Calculate the fund's rate of return during the year. Assuming
that the investor had 240 units and that the distributions have been reinvested at an
average NAV of ` 12.80, find out the rate of return. [(6 + 5) + 5 = 16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
5. (a) The returns on Stock PQ and market portfolio for a period of 4 years are as follows:
Year Return on PQ (%) Return on Market portfolio (%)
1 12 8
2 15 12
3 11 11
4 2 (-)4
You may opt to use the following additional information:
Particulars PQ Market
Mean Return (%) 10 6.75
Standard Deviation (%) 4.84 6.38
Covariance of stock with market = 29.75
You are required the determine the Characteristic Line for Stock PQ. Find the
expected return on PQ when market return improves to 5% in year 5 or decreases
to - 8% in the 5th year.

(b) The following particulars are furnished about three mutual funds scheme A, B and
C.
Particulars Scheme A Scheme B Scheme C
Dividend Distributed ` l.60 - ` 1.15
Capital Appreciation ` 2.77 ` 3.33 ` 1.79
Opening NAV ` 30 ` 25.15 ` 21.50
Beta 1.40 1.10 1.35

Analyse the performance of the schemes based on Jensen's Alpha, if government

of India Bonds carry an interest rate of 6.64% and the NIFTY has increased by
12%. [8 + 8 = 16]

6. (a) The following data relates to DCB Ltd.'s share prices:

Current Price Per Share ` 180
Price per share in the futures Market - 6 months ` 200
Money can be borrowed from the market at 12% p.a.
Analyse, on the basis of your calculation of the theoretical minimum price of 6
months-Futures contract, whether there exists any arbitrage opportunity.

(b) The equity share of ABC Ltd., is quoted at ` 210. A 3-month call option is available
at a premium of ` 6 per share and a 3-month put option is available at a premium
of ` 5 per share. Ascertain the net pay-offs to the option holder of a call option and

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT
a put option if (i) The strike price in both cases is ` 220 and (ii) The share price on
the exercise days is ` 200, 210 220, 230 and 240. On the expiry day for what
threshold values of share price will each option holder be in the money? [8+8 = 16]

7. (a) What do you mean by ADR? Discuss its advantages and limitations.
(b) X Ltd. has imported goods from USA worth US $ 10 million and it requires 90
days to make the payment. The USA supplier has offered a 60 days interest free
credit period and for additional credit for 30 days interest is to be charged at 8%
per annum. (Consider 360 days p.a.)

The banker of X Ltd. Offers a 30 days loan at 10% per annum and its quotes for
foreign exchange are as follows:
Spot 1 US $ ` 64.50
60 days forward rate for 1 US $ ` 65.10
90 days forward rate for 1 US $ ` 65.50
You are required to evaluate the following options:
(i) Pay the USA supplier in 60 days or
(ii) Avail the supplier's offer of 90 days' credit. Advise X Ltd. accordingly.
[8 + 8 = 16]

SECTION - C
8. Zenith Power. Ltd. is considering a proposal to replace one of its machines. In this
connection, the following information is available:
The existing machine was purchased 3 years ago for ` 20 Lakh. It was depreciated 20
per cent per annum on reducing balance basis. It has remaining useful life of 5 years, but
its maintenance cost is expected to increase by ` 1 Lakh per year from the end of sixth
year of its installation. Its present realizable value is ` 12 Lakh. The company has several
machines having 20% depreciation.

The new machine costs `30 Lakh and is subject to the same rate and basis of depreciation.
On sale after 5 years, it is expected to realize `18 Lakh. With the new machine, the annual
pre-tax operating costs (excluding depreciation) are expected to decrease by `2 Lakh. In
addition, the machine would increase productivity on account of which net pre-tax
revenues would increase by `3 Lakh annually (reckoned at year end). The tax rate
applicable to the company is 40% and the cost of capital is 10 per cent.
Advise the company on the choice of the machine from a financial perspective on the
basis of NPV.

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 14
STRATEGIC FINANCIAL MANAGEMNT

PV Factors (10%)
Year 1 2 3 4 5
PV Factor 0.909 0.826 0.751 0.683 0.621

Present an incremental analysis of using the existing machine versus replacing the
machine with a new one. Present annual discounted cash flows in your answers with
separate calculation showing annual discounted cash flows on account of incremental
depreciation without netting off capital asset outflows or inflows. Calculations are to be
presented to the nearest rupee. P.V. factors with above decimal places should be used.
[16]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A

I. Choose the correct alternative. [15 x 2 =30]

(i) Which of the following techniques is the most suitable, when NPV and IRR lead to inconsistent
ranking due to life disparity between two or more projects?
a. Modified Net Present Value.
b. Modified Internal Rate of Return.
c. Uniform Annual Equivalent Cost/Benefit.
d. Discounted Payback Period.

(ii) The Profitability Index of a project is 1.28 and its cost of investment is ₹ 2,50,000. The NPV of the
project is ___________.
a. ₹ 75,000
b. ₹80,000
c. ₹ 70,000
d. ₹ 65,000

(iii) The following information is available with respect to Project X:

NPV Estimate (₹) 30,000 60,000 1,20,000 1,50,000
Probability 0.1 0.4 0.4 0.1
The expected NPV will be _____________
a. ₹ 1,00,000
b. ₹75,000
c. ₹90,000
d. ₹1,20,000

(iv) The major advantage of leasing is that it _________.

a. provides flexible financing
b. provides lower payments
c. avoids risks of obsolescence.
d. All of the above

(v) It was observed that in a certain month, 6 out of 10 leading indicators and moved up as compared
to 4 indicators in the previous month. The diffusion index for the months was:
a. 20%
b. 40%
c. 60%
d. 80%

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT

(vi) Bond volatility is inversely related to:

a. Term to maturity
b. Yield to maturity
c. Coupon rate
d. Both (b) and (c)

(vii) Mr. X expects 20% return from his investment. The dividend from the stock is ₹2.0 and the
present price is ₹50. What should be the future price of the stock?
(a) ₹ 56.39
(b) ₹ 58.00
(c) ₹ 60.00
(d) ₹ 62.30

(viii) According to the constant growth model, the next year’s dividend is ₹2.00, required rate of return is
15% and the growth rate is 10%, the market price would be:
(a) ₹ 50
(b) ₹45
(c) ₹ 40
(d) ₹ 48

(ix) Which among the following increases the NAV of a mutual fund scheme?
(a) Value of investments
(b) Receivables
(c) Accrued income
(d) All of (a), (b) and (c)

(x) A portfolio comprises two securities and the expected return on them is 12% and 16% respectively.
Determine return of portfolio if first security constitutes 40% of total portfolio.
a. 12.4%
b. 13.4%
c. 14.4%
d. 15.4%

(xi) Plain vanilla interest rate swaps involved:

a. Fixed to fixed rate swap
b. Fixed to floating rate swap
c. Floating to floating rate swap
d. Currency swap

(xii) An investor writes a three-month put on the stock of an oil company at an exercise price of ₹275 per
share at a premium of ₹34. If the expiration date price is ₹280, calculate the gain/loss of put writer.
a. ₹5
b. (̶) ₹5
c. ₹34
d. None of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT
(xiii) The 6-month forward rate for US dollar against Rupee is quoted as ₹49.50 as opposed to a spot
price of ₹48.85. The forward premium on US dollar is:
a. 1.50 %
b. 3.08 %
c. 3.05 %
d. None of the above.

(xiv) The sterling is trading at $1.6400 today. Inflation U.K. is 3.8% and that in U.S.A. is 2.9%. What
would be the spot rate ($/£) after 2 years?
a. $1.6117
b. $1.615
c. $1.625
d. None of the above

(xv) Sharpe’s measure of the portfolio performance is based on:

(a) Systematic risk of the portfolio
(b) Unsystematic risk of the portfolio
(c) Total risk of the portfolio
(d) Market risk of the portfolio

SECTION – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks)
2. (a) Nine Gems Ltd. has just installed Machine – R at a cost of `2,00,000. The machine has a five-year
life with no residual value. The annual volume of production is estimated at 1,50,000 units, which
can be sold at `6 per unit. Annual operating costs are estimated at `2,00,000 (excluding
depreciation) at this output level. Fixed costs are estimated at `3 per unit for the same level of
production.

Nine Gems Ltd. has just come across another model called Machine – S capable of giving the same
output at an annual operating cost of `1,80,000 (exclusive of depreciation). There will be no change
in fixed costs. Capital cost of this machine is `2,50,000 and the estimated life is for five years with
nil residual value.

The company has an offer for sale of Machine – R at `1,00,000, but the cost of dismantling and
removal will amount to `30,000. As the company has not yet commenced operations, it wants to
sell Machine – R and purchase Machine –S.

Nine Gems Ltd. will be a zero-tax company for seven years in view of several incentives and
allowances available. The cost of capital may be assumed at 15%. P.V. factors for five years are as
follows:
Year P.V. Factors
1 0.8696
2 0.7561
3 0.6575
4 0.5717
5 0.4972

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT
(i) Advise whether the company should opt for the replacement.
(ii) Suggest if there be any change in your view, if Machine-R has not been installed but the
company is in the process of selecting one or the other machine?
Support your view with necessary workings. [7]

(b) Fair finance, a leasing company, has been approached by a prospective customer intending to
acquire a machine whose Cash Down price is ₹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 12%.
Calculate the lease rents to be quoted for the lease for three years. [7]

3. (a) A firm has an investment proposal, requiring an outlay of ₹80,000. The investment proposal is
expected to have two years economic life with no salvage value. In year 1, there is a 0.4 probability
that cash inflow after tax will be ₹50,000 and 0.6 probability that cash inflow after tax will be
₹60,000. The probability assigned to cash inflow after tax for the year 2 are as follows:
The cash inflow year 1 ₹ 50,000 ₹60,000
The cash inflow year 2 Probability Probability
₹ 24,000 0.2 ₹ 40,000 0.4
₹ 32,000 0.3 ₹ 50,000 0.5
₹ 44,000 0.5 ₹ 60,000 0.1

The firm uses 8% discount rate for this type of investment.

Required:
(i) Develop a decision tree for the proposed investment project and calculate the expected net
present value (NPV).
(ii) Calculate net present value will the project yield, if worst outcome is realized and also
calculate the probability of occurrence of this NPV.
(iii) Suggest what will be the best outcome and the probability of that occurrence?
(iv) Recommend whether the project be accepted.
(Note: 8% discount factor 1 year 0.9259; 2 year 0.8573) [7]

(b) Consider the equity share of India Incorporated

D0 = Current dividend per share `3.00
n = Duration of the period of super normal growth = 5 years
ga = Growth rate during the period of super normal growth = 25%
gn = Normal growth rate after super normal growth period is over = 7%
k = Investor’s required rate of return = 14%
Calculate the price of the Equity Share under Multiple Growth Rate Model. [7]

4. (a) AB Ltd. is expected to pay a dividend of ₹4.00 at the end of first year, a dividend of ₹7.00 at the
end of second year, a dividend of ₹11.00 at the end of 3rd year. From 4th year onwards, the dividends
are expected to grow at a constant growth rate of 4%. If the required rate of return is 14%, compute
the present value of the stock. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT

(b) Four friends S, T, U, and V have invested equivalent amount of money in four different funds in
tune with their attitude to risk, S prefers to play aggressive and is keen on equity-funds, T is
moderately aggressive with a desire to invest upto 50% of his funds in Equity, whereas U does not
invest anything beyond 20% in Equity. V, however, relies more on movement of market, and prefers
any fund which replicates the market portfolio.
Their investment particulars, returns therefrom and Beta of the fund are given below —
Fund Invested Return for the year Beta Factor
Money Multiplier Fund (100% Equity) 23.50% 1.80
Balanced Growth Fund (50% Equity - 50% Debt) 16.50% 1.25
Safe Money Fund (20% Equity and 80% Debt Funds) 12.50% 0.60

If the Market Return was 16% and the Risk Free Return is measured at 7%, suggest which of the
four friends were rewarded better per unit of risk taken? [7]

5. (a) The beta coefficient of M Ltd. is 1.40. The company has been maintaining 8% rate of growth in
dividends and earnings. The last dividend paid was `4.00 per share. Return on government
securities is 12% and return on market portfolio is 18%. The current market price of the share of M
Ltd. Is `32.00. Calculate be the equilibrium price per share of M Ltd. [7]

(b) From the following information, ascertain the risk of the portfolio — [7]
Securities Standard Deviation Proportion in Portfolio
A 8% 0.30
B 12% 0.50
C 6% 0.20
Correlation Co-efficient
AB = 0.50
AC = - 0.40
BC = + 0.75

6. (a) Given the following information

BSE Index 50,000
Value of Portfolio ₹1,01,00,000
Risk Free Interest Rate 9% p.a.
Dividend Yield on Index 6% p.a.
Beta of Portfolio 2.0

We assume that a futures contract on the BSE index with 4 months maturity is used to hedge the
value of portfolio over next 3 months. One future contract is for delivery of 50 times the index.
Based on the information, calculate:
(a) Price of future contract,
(b) The gain on short futures position if index turns out to be 45,000 in 3 months [7]

(b) Calculate the price of a European put option on a non-dividend-paying stock when the stock price
is ₹ 69, the strike price is ₹ 70, the risk-free interest rate is 5% per annum, the volatility is 35% per
annum, and the time to maturity is six months. [7]

5
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – DECEMBER 2023
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT
7. (a) On 25th March 2023, a customer requested his bank to remit DG 12,50,000 to Netherlands in
payment of import of diamonds under an irrevocable LC. However due to bank strikes, the bank
could affect the remittance only on 2nd April 2023. The inter-bank market rates were as follows:
Date 25.03.2023 02.04.2023
Bombay [$ / `100] 2.2873 - 2.2962 2.3063 - 2.3159
London [US$/Pound] 1.9120 -1.9135 1.9050 - 1.9070
DG /Pound 4.1125 - 4.1140 4.0120 - 4.0130

The bank wishes to retain an exchange margin of 0.25%. Calculate how much does the customer
stand to gain or lose due to the delay? [7]

(b) Exchange rate between Rupee and Swiss franc is ₹33/SFr at the reference period and the forward
rate is found to be ₹33.40/SFr after 9 months. Nine-month interest rate on Rupee is 8% p.a.
Recommend what should have been corresponding interest rate on Swiss franc. Show that interest
rate differential is equal to forward premium or discount. [7]

8. (a) Prepare a short note on Digital Infra Structure. [5]

(b) Discuss who can invest in participatory notes. [5]
(c) Discuss the benefits of Securitization. [4]

6
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

I. Choose the correct option: [15 x 2 =30]

(i) The IRR of a project is 10%. If the annual cash flow after tax is ₹1,30,000 and project duration is 4
years, whatis the initial investment in the project?
(a) `4,10,000
(b) `4,12,100
(c) `3,90,000
(d) `4,05,000

(ii) Which of the following is/are not true regarding the risk adjusted investment appraisal techniques?
i. In the certainty equivalent method, if there is high degree of correlation between the
cashflows for the entire project life the certainty equivalent coefficient is taken as one for all
the years.
ii. In sensitivity analysis, the impact of the changes in one or more variables on the criterion of
merit isstudied.
iii. Simulation does not produce an optimal solution but the user of the technique has to generate
all possible combinations of conditions and constraints to choose the optimal solution.
(a) Only (ii) above.
(b) Only (iii) above.
(c) Both (i) and (ii) above
(d) Both (i) and (iii) above

(iii) Given, expected value of profit without perfect information = `1,600 and expected value of perfect
information =`300, then expected value of profit with perfect information will be .
(a) `1,300
(b) `1,900
(c) `950
(d) None of the above

(iv) The type of lease that includes a third party, a lender, is called as which of the following?
(a) Sale and lease back
(b) Leveraged Lease
(c) Direct leasing arrangement
(d) Operating lease

(v) The current price is `100, the required rate of return is 20% and the dividend paid `3.00 on a
share of`10 face value. What is the expected growth rate?
(a) 15%
(b) 16%
(c) 18%
(d) 17%

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT
(vi) In the bull market:
(a) The stock prices are increasing
(b) Each peak is higher than the previous peak
(c) Each bottom is higher than the previous bottom
(d) Both (b) and (c)

(vii) Mr. X expects 20% return from his investment. The dividend fromthe stock is `2.0 and the present
price is `50. What should be the future price of the stock?
(a) `56.39
(b) `58.00
(c) `60.00
(d) `62.30

(viii) Yield to maturity is same as:

(a) NPV
(b) IRR
(c) Geometric mean
(d) Both (b) and (c)

(ix) If opening units 1,25,000 Units subscribe 2,00,000, Units redeem 50,000 then Closing units?
(a) 3,25,000 units
(b) 2,75,000 units
(c) 3,75,000 units
(d) 2,50,000 units

(x) A portfolio comprises two securities and the expected return on them is 12% and 16% respectively.
Determine return of portfolio if first security constitutes 40% of total portfolio.
(a) 12.4%
(b) 13.4%
(c) 14.4%
(d) 15.4%

(xi) An investor buys 100 shares of a sugar mill at `210 per share and at the same time writes a September
250 call at a premium of `20 per share. If the expiration date price is `280, calculate the net gain/loss.
(a) `20
(b) `40
(c) `60
(d) None of the above

(xii) With respect to capital market theory, the average beta of all assets in the market is:
(a) Less than 1.0.
(b) Equal to 1.0
(c) Greater than 1.0.
(d) None

2
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT

(xiii) The United States Dollar is selling in India at `45.20. If the interest rate for a 6-months borrowing in
India is 10% and the corresponding rate in USA is 4%, what would be the rate of forward
premium/(discount)?
(a) 5.93 %
(b) 5.88 %
(c) (5.17%)
(d) (5.52%)

(xiv) Plain vanilla interest rate swaps involved:

(a) Fixed to fixed rate swap
(b) Fixed to floating rate swap
(c) Floating to floating rate swap
(d) Currency swap

(xv) The portfolio’s risk premium is 12% and the standard deviation of market and the portfolio are
4 and 3, respectively. The fund’s beta value is 1.5. The Treynor index is:
(a) 3.0
(b) 8.0
(c) 4.0
(d) 12

SECTION – B
(Answer any 5 questions out of 7 questions given. Each question carries 14 marks.)

[5 x 14 = 70]
2. (a) X Ltd. an existing profit-making company, is planning to introduce a new product with a projected
life of 8 years. Initial equipment cost will be `120 lakhs and additional equipment costing `10 lakhs
will be needed at the beginning of third year. At the end of the 8 years, the original equipment will
have resale value equivalent to the cost of removal, but the additional equipment would be sold for
`1 lakhs. Working Capital of `15 lakhs will be needed. The 100% capacity of the plant is of 4,00,000
units per annum, but the production and sales- volume expected are as under:
Year Capacity in percentage
1 20
2 30
3-5 75
6-8 50

A sale price of `100 per unit with a profit-volume ratio of 60% is likely to be obtained. Fixed
Operating Cash Cost are likely to be `16 lakhs per annum. In addition to this the advertisement
expenditure will have to be incurred as under:
Year 1 2 3-5 6-8
Expenditure in ` lakhs each year 30 15 10 4

The company is subject to 40% tax, straight-line method of depreciation, (permissible for tax
purposes also) and taking 15% as appropriate after-tax Cost of Capital, should the project be
accepted? [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT

(b) Beta Ltd is considering the acquisition of a personal computer costing `50,000. The effective life
of the computer is expected to be five years. The company plans to acquire the same either by
borrowing `50,000 from its bankers at 15% interest p.a. or on lease. The company wishes to know
the lease rentals to be paid annually, which match the loan option. The following further information
is provided to you:
a) The principal amount of loan will be paid in five annual equal instalments.
b) Interest, lease rentals, principal repayment are to be paid on the last day of each year.
c) The full cost of the computer will be written off over the effective life of computer on a
straight-line basis and the same will be allowed for tax purposes
d) The company’s effective tax rate is 40% and the after-tax cost of capital is 9%
e) The computer will be sold for `1,700 at the end of the 5th Year. The commission on such
sales is 9% on the sale value.
You are required to compute the annual lease rentals payable by Beta Ltd, which will result in
indifference to the loan option. [7]

3. (a) A company is considering two mutually exclusive projects X and Y. Project X costs `3,00,000 and
Project Y `3,60,000. You have been given below the net present value, probability distribution for
each project:
Project X Project Y
NPV Estimate (`) Probability NPV Estimate (`) Probability
30,000 0.1 30,000 0.2
60,000 0.4 60,000 0.3
1,20,000 0.4 1,20,000 0.3
1,50,000 0.1 1,50,000 0.2

Compute the expected net present value of Projects X and Y.

(i) Compute the risk attached to each project i.e., Standard Deviation of each probability
distribution.
(ii) Which project do you consider riskier and why?
(iii) Compute the profitability index of each project. [7]

(b) The rates of return on the Security of company S and Market Portfolio for 10 periods are given below:
Year 1 2 3 4 5 6 7 8 9 10
Return on Security S (%) 20 22 25 21 18 -5 17 19 -7 20
Return on Market Portfolio 22 20 18 16 20 8 -6 5 6 11
i. Compute the beta of Security S?
ii. Determine the Characteristic Line for Security S?
iii. Analyse the Systematic and Unsystematic Risk of Security S? [7]

4. (a) For the first four years, India Incorporated is assumed to grow at a rate of 10%. After four years, the
growth rate of dividend is assumed to decline linearly to 6 percent. After 7 years, it is assumed to
grow at a rate of 6% infinitely. The next year dividend is `2.00 per share and the required rate of
return is 14%. Find the value of the stock. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT

(b) There are two mutual funds viz. X mutual fund and Y mutual fund. Each having closed-ended equity
schemes. NAV as on 31-12-2022 of equity schemes of X mutual fund is `70.71 (consisting 99%
equity and remaining cash balance) and that of Y mutual fund is `62.50 (consisting 96% equity and
balance in cash).
Following is the other information:
Particulars Equity Schemes
X Mutual Fund Y Mutual Fund
Sharpe ratio 2 3.3
Treynor ratio 5 15
Standard deviation 11.25 5
There is no change in portfolios during the next months and annual average cost is `3 per unit for the
schemes of both the mutual funds. For calculation, consider 12 months in a year and ignore number of
days for particular month. Calculate NAV after one month if the market goes down by 5%. [7]

5. (a) Subho has invested in four securities M, N, O and P, the particulars of which are as follows —
Security M N O P
Amount Invested (`) 1,25,000 1,50,000 80,000 1,45,000
Beta (β) 0.60 1.50 0.90 1.30

If RBI Bonds carries an interest rate of 8% and NIFTY yields 14%, compute the expected return on
portfolio. If investment in Security O is replaced by investment in RBI Bonds, what corresponding
change will be there in Portfolio Beta and expected return? [7]

(b) Based on the data provided below, compute and compare the performance of the portfolios
using the Jensen model of the differential return.
Portfolio Realized Return on Portfolio
Portfolio (%) (β)
1 14.5 1.2
2 9.5 0.8
3 18.0 1.4
Return on market portfolio, Rm = 12%

Risk-free rate of interest = 6% [7]

6. (a) Decide which position on the index future gives a speculator, a complete hedge against the following
transitions:
(i) The share of Yes Limited is going to rise. He has a long position on the cash market of `100
Lakhs on the Yes Limited. The beta of the Yes Limited is 1.25.
(ii) The share of No Limited is going to depreciate. He has a short position on the cash market
of `50 Lakhs on the No Limited. The beta of the No Limited is 0.90.
(iii) The share of Fair Limited is going to stagnant. He has short position on the cash market of
`40 Lakhs of the Fair Limited. The beta of the Fair Limited is 0.75. [7]

5
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET - 1
MODEL QUESTION PAPER TERM – JUNE 2024
PAPER – 14 SYLLABUS 2022
STRATEGIC FINANCIAL MANAGEMENT

(b) A put and a call option each have an expiration date 6 months hence and an exercise price `9. The
interest rate for the 6 month period is 3 percent.
(a) If the put has a market price of `2 and share is worth `10 per share, compute the value of the
call.
(b) If the put has a market price of `2 and the call `4. determine the value of the share per share.

If the call has a market value of `5 and market price of the share is `12 per share what is the value of
the put? [7]

7. (a) Following are the details of cash inflows and outflows in foreign currency denominations of M Co.,
an Indian export firm, which have no foreign subsidiaries —
Currency Inflow Outflow Spot rate Forward rate
US $ 4,00,00,000 2,00,00,000 48.01 48.82
French Franc (F Fr) 2,00,00,000 80,00,000 7.45 8.12
UK £ 3,00,00,000 2,00,00,000 75.57 75.98
Japanese Yen 1,50,00,000 2,50,00,000 3.20 2.40
(a) Determine the net exposure of each foreign currency in terms of Rupees.
(b) Are any of the exposure positions off-setting to some extent? [7]

(b) Following are the USD/INR spot and 3-month forward quotes available. Which currency is in forward
premium or discount? Calculate the annualised forward premium or discount.
Spot rate, USD/INR: `75.42/50
3-month swap points: 20/30 [7]

8. Short Notes on:

(a) Advantages of Digital Financial Services. [5]
(b) Participatory Notes. [5]
(c) Sale and Lease back. [4]

6
Directorate of Studies, The Institute of Cost Accountants of India