(Download) UPSC IAS Mains Optional Commerce And Accountancy (Paper -1 & Paper -2) Exam Paper - 2016

(Download) UPSC IAS Mains Optional Commerce And Accountancy (Paper -1 & Paper -2) Exam Paper - 2016

Exam Name: UPSC IAS Mains

Year: 2016

Subject:Commerce And Accountancy

Exam Date: 9-12-2016

Commerce And Accountancy Paper-1



1. Answer the following in about 150 words each : 10x5=50 marks

(a) Discuss the provisions of Indian Accounting Standards regarding the accounting treatment of Research and Development costs. 10 marks
(b) Distinguish between the techniques of Cost Control and Cost Reduction and also explain their implications on decision-making. 10 marks
(c) Explain Pooling of Interest method of amalgamation of companies.  10 marks
(d) What are the various deductions made from Gross Total Income? 10 marks
(e) “Audit of divisible profits enables the stakeholders to judge the philosophy of majority shareholders." Comment. 10 marks

2.(a) RS Ltd. issued a prospectus inviting applications for 20,000 shares of 10 each at a premium of 2 per share payable as under :

On Application    Rs. 2
On Allotment   Rs. 5 (including premium)
On First call  Rs. 3
On Second and Final call   Rs. 2

Applications were received for 30,000 shares and pro-rata allotment was made on the applications for 24,000 shares. Excess money paid on applications was utilised towards allotment money. Kherwa, to whom 400 shares were allotted, failed to pay the allotment money. On her subsequent failure to pay the first call, her shares were forfeited. Suri, the holder of 600 shares, failed to pay the two calls, and her shares were forfeited after the second call. Out of these forfeited shares, 800 shares were reissued to Gopal, credited as fully paid for 3 9 per share, the whole of Kherwa's shares being included. Pass the necessary Journal entries in the books of RS Ltd. 20 marks

(b) Two manufacturing companies, which have the following operating details, decided to merge :


   Company No. 1  Company No. 2
Capacity Utilization (in %) 90 60
Sales ( lakhs)  540 300
Variable Cost (= lakhs) 396 225
Fixed Cost (lakhs) 80 50

Assuming that the proposal is implemented, calculate :

(i) Break-even sales of the merged plant and the capacity utilization at that stage
(ii) Profitability of the merged plant at 80% capacity utilization.
(iii) Sales turnover of the merged plant to earn a profit of Rs. 75 lakhs. 15 marks

(c) "An assessee not only pays tax on his own incomes but also on others' incomes." Explain this statement. 15 marks

3.(a) The Cost Accountant of a company was given the following information regarding the overheads for February, 2016 :

(1) Overhead cost variance: Rs. 1,400 adverse
(2) Overhead volume variance : Rs. 1,000 adverse
(3) Budgeted hours for February, 2016: 1,200 hours
(4) Budgeted overheads for February, 2016: 6,000
(5) Actual rate of recovery of overheads : 8 per hour

You are required to assist him in computing the following for February, 2016:

(i) Overhead expenditure variance
(ii) Actual overheads incurred
(iii) Actual hours for actual production
(iv) Overhead capacity variance
(v) Overhead efficiency variance
(vi) Standard hours for actual production 20 marks

(b) State four items which are not to be included in determining the cost of inventories in accordance with Paragraph 6 of Accounting Standards 2 (Revised). 15 marks

(c) An NGO operating in Delhi had collected large scale donations for flood victims. The donations so collected were sent to different NGOs operating in Bihar for relief operations. The NGO operating in Delhi has appointed you to audit its accounts for the year in which it collected and remitted donations for flood victims. Draft a programme for audit of receipts of donations and remittance of the collected amount to different NGOs. Mention five points each, peculiar to the situation, which you would like to incorporate in your audit programme for audit of the said receipts and remittances of donations. 15 marks

4.(a) Dr. Sharma is a Chief Medical Officer. He receives a salary of 15,000 per month and Dearness Allowance @ 25%. He contributes 15% of his salary to a Recognised Provident Fund. The employer also contributes an equal amount. He is provided with a Rent Free House in a city with a population of 5 lakhs. Fair rental value of the house is 6,000 per month. He receives Hostel Allowance of 500 per month for his child. He has let out his own house at 500 per month and paid 3 2,000 for Municipal tax of the house. He has the following incomes too :

Dividend from a domestic company Rs. 5,000
Interest on debentures of a cooperative society Rs. 3,000
Dividend from a foreign company Rs. 1,000
Share in the profits of A.O.P. Rs. 2,000

He paid Rs. 12,000 for his own medical health insurance by cheque. He donated 1,500 to a national fund and 1,500 for promoting family planning programmes. Compute the total income for the Assessment Year 2016 – 17.  20 marks

(b) The information given below has been taken from the costing records of a company in respect of Job No. 303 :

Materials : 4,010

Wages :

Dept. A : 60 hours @ Rs. 3 per hour

Dept. B : 40 hours @ Rs. 72 per hour

Dept. C : 20 hours @ Rs. 5 per hour

Overhead expenses for these departments were estimated as follows:

Variable overheads :

Dept. A: Rs. 5,000 for 5000 labour hours

Dept. B: Rs. 3,000 for 1500 labour hours

Dept. C : Rs. 2,000 for 500 labour hours

Fixed overheads : Estimated at 720,000 for 10,000 normal working hours. You are required to calculate the cost of Job No. 303 and also calculate the selling price to earn a profit of 25%. 15 marks

(c) Enumerate the steps to be taken by an auditor before declaring an account as Non-Performing Asset (NPA) in a bank audit. 15 marks


5. Answer the following in about 150 words each: 10x5=50 marks

(a) Explain the relevance of time value of money in financial decisions. 10  marks
(b) Diagrammatically present the Du Pont chart to calculate return on equity. 10 marks
(c) Explain briefly the propositions made in Modigliani and Miller approach on cost of capital.  10 marks
(d) Explain the current Monetary Policy  10 marks
(e) Evaluate the role of Credit Rating Agencies. 10 marks


6.(a) Using the following information, prepare the Balance Sheet:  20 marks

(i) Total debt to net worth 1:2
(ii) Total assets turnover 2
(iii) Gross profit on sales  30%
(iv) Average collection period (Assume360 days year) 40 Days
(v) Inventory turnover ratio based on cost of goods sold and year-end inventory 3
(vi) Acid test ratio 0.75
(vii) Equity share capital  Rs. 4,00,000
(viii) Reserves and Surplus  Rs.6,00,000

(b) X Ltd. and Y Ltd. have the same level of business risk and their market values and earnings are summarized below:

Particulars X Ltd. (Rs.) Y Ltd. (Rs.)
Equity 6,00,000 3,00,000
Debt - 2,50,000
  6,00,000 5,50,000
Earnings 90,000 90,000
Less : Interest - 22,000
  90,000 68,000

 Calculate the post-tax cost of equity, cost of debt and weighted average cost of capital of both the companies. Assume that the income tax rate on the company is 35% and the additional tax on dividend distribution is 20%. 15 marks

(c) Write the important reforms that have taken place in the following sectors after 1991:         15 marks

(i) Banking Sector
(ii) Primary and Secondary Stock Market
(iii) External Financial Market

7.(a) XY Ltd, wants to install a new machine in place of an existing old one which has become obsolete. The company made extensive enquiries and from the proposals received, short-listed two offers. The two models differ in cost, output and anticipated net revenue. The estimated life of both the machines is five years. There will be only negligible salvage value at the end of the fifth year. Further details are as follows:



Anticipated after-tax cash flow



Year 1

Year 2

Year 3

Year 4

Year 5
















The company's cost of capital is 16%. You are required to make an appraisal of the two offers and advise the firm by using the following:  20 marks

(i) Payback Period
(ii) Net Present Value
(iii) Profitability Index
(iv) Internal Rate of Return

(b) Shree Ltd. has current sales of Rs. 20,00,000. The company is planning to introduce a cash discount policy of 2/10, net 30. As a result, the company expects the average collection period to go down by 10 days and 80% of the sales to opt for the cash discount facility. If the company's required return on investment in receivables is 20%, should it introduce the new discount policy?  15 marks

(c) Examine various measures taken by SEBI for the development of Foreign Institutional Investors and Venture Capitalists. 15 marks

8.(a) The share capital of a company is 10,00,000 with shares of face value of 10. The company has debt capital of 6,00,000 @ 10% rate of interest. The sales of the firın are 3,00,000 units per annum at a selling price of 5 per unit and variable cost is 3 per unit. The fixed cost amounts to Rs. 2,00,000. The company pays tax at 35%. If the sales increase by 10%, calculate: 20 marks

(i) Percentage increase in EPS
(ii) Degree of financial leverage at the two levels

(b) Explain the Modigliani and Miller approach for corporate dividend policy. 15 marks

(c) What are the various insurance sector reforms that have taken place in India during the period of liberalisation ? 15 marks


Commerce And Accountancy Paper-2


1. Explain the following each in about 150 words :10x5=50 marks

(a) Ritualism  10 marks
(b) Strategy-Structure Relationship 10  marks
(c) Tridimentional Grid 10  marks
(d) Freudian Stages  10 marks
(e) Ethnocentrism 10 marks

2.(a) "Organisations are collectivities of people that have been established for the pursuit of relatively specific objectives on a more or less on continuous basis". Elucidate the implication(s) of this statement. 20 marks
(b)  The criticisms of Neo-classical organisation theory ranges from 'human relations as a tool for Cyrucal puppeteering of people to "human relations no more than a trifling body of empirical descriptive infomation'. Throw light on this statement. 20 marks
(c) Political and legal environment works both as a promoting and as a restraining force in business operations". Examine this statement. 10 marks

3.(a) "Informal organisation is detrimental to the interest of formal organisation and, therefore, it is an evil to be nipped in the bud itself." Comment on this statement and explain how managers should handle informal organisation 20 marks
(b)  "The relative advantages of functional structure of organisations are like two-edged swords." What are the implications of this statement ? 20  marks
(c) How 'power' differs from authority ? Discuss the sources of power in an organisation. 10 marks

4.(a)  "When there is an accident in a factory, the supervisor may treat it as the carelessness of worker(s), while the worker(s) may treat it as the high-handedness of management and lack of adequate provisions of security measures." What is the significance of this Phenomenon, and why people sce the same situation differently? 20  marks
(b)"Biological factors are important in determining the personality of a person." Comment on this statement. 10  marks
(c) What are the various elements in the 'Porter-Lawler Model of motivation ? What are the implications of these elements in motivating a person? 20 marks


5. Explain the following each in about 150 words : 10x5=50  marks

(a) Versatility transfer 10 marks
(b) Burack Smith Model forecasting Human resource needs  10 marks
(c) Measures to control Absenteeisin  10 marks
(d) Dunlop's approach of Industrial Relation 10 marks
(e)Industrial Jurisprudence  10 marks

6.(a) Human resource management practices are culture bound." Discuss this statement and show how different cultures adopt different human resource management practices. 20 marks
(b)  "Placement is a decisive step that affect both the employees and the organisation." Explain the statement. 20 marks
(c) Discuss briefly the various on-the-job and off-the-job training and development methods. 10 marks

7.(a)  "A job description is a word picture of the organisational relationships, responsibilities and specific duties that constitute a given job or position." Discuss the major criteria for a well-made job description that link the underlined factors. 20  marks
(b) The immediate objective of job-evaluation process is to obtain internal and external consistency in wage and salaries." Elucidatc the statement and throw light on the effect of job-evaluation on human relation in an industry. 20  marks
(c) A manufacturing company has about 200 employees in its plant. It undertakes performance appraisal on informal basis. The company wants to adopt a formal appraisal system. Advice the company as to how it should proceed in the matter. 10 marks

8.(a) Why do employees join a trade union ? Discuss a strategy which an organisation can adopt for dealing with the trade union with the possibility of making the company union free 20 . marks
(b) "The objective of arbitration is not compromise but adjudication, though the parties are at liberty to compromise. A wise arbitrator will certainly promote such agreements, but as a rule, there is no place for compromise in the awards." In the light of this statement compare the advantages and disadvantages of settlement approach and arbitration. Also show at which stage of negotiation partics may opt for arbitration  20 marks
(c) Union demands and collective bargaining settlenients in private industry and public sector industries differ significantly. List down the differences and suggest suitable remedies. 10 marks

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