Financial Institutions and Market-NMIMS Solution

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Financial Institutions and Market

NMIMS Solution-Dec 17

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Q1. The following is the Trial Balance as on 31st March 2017 prepared by GSA Ltd. (Rs. in crores)

Particulars                                                                         Debit ( )               Credit ( )

Capital                                                                                  6,000

Drawings                                                                                                            1,000

Cash on hand                                                                     50

Cash at bank                                                                                                      1,250

Sales                                                                                                                  10,000

Purchases                                                                                                           4,000

Loan taken on mortgage                                              1,000

Patents                                                                                                                500

Land & building                                                               3,000

Creditors                                                                                                             500

Advertisement                                                                 5,000

Debtors                                                                               1,800

Rates & taxes                                                                     40

Insurance                                                                           150

Carriage inwards                                                             260

Carriage outwards                                                                                          250

Legal expenses                                                                 200

Total                                                                                   17,500                  17,500

However the auditors of GSA Ltd. did not approve of this trial balance. You are required to rectify and prepare the new trial balance. Justify your answer as to which errors can be detected through the trial balance.

 

 

Q2. Classify the following into revenue, capital and deferred revenue expenditure and interpret your results: (10 Marks)

  1. Amortisation of Patents
  2. Goodwill of another business acquired
  3. Underwriting commission paid in a public issue of company’s shares
  4. Loss on sale of Plant and Machinery
  5. Cost of market research of a new product
  6. Purchase of second-hand laptops for office use

 

Q3. Following are the balance sheets of Suzuki Ltd. & Honda Ltd. as on 31st March 2017 together with the additional information for the year ended on that date:

Liabilities Suzuki Ltd. Honda Ltd. Assets Suzuki Ltd. Honda Ltd.
Equity Share

Capital

20,00,000 30,50,000 Goodwill 300,000 400,000
Reserves 50,500 60,000 Furniture 3,20,000 2,40,000

 

Profit & Loss

A/c

12,250 1,02,200 Plant &

Machinery

659,000 7,29,000
9% Debentures 3,50,000 2,50,000 Office premises 10,27,000 19,00,000
Bank overdraft 11,250 14,800 Stock 66,000 93,000
Sundry Creditors 36,000 58,000 Debtors 85,000 1,75,000
Provision for tax 20,000 15,000 Miscellaneous

expenses

23,000 13,000

 

24,80,000 35,50,000 24,80,000 35,50,000

 

Additional Information (Extract of Profit & Loss A/c)

Particulars                                                         Suzuki Ltd.                         Honda Ltd.

Sales for the year                                            8,40,000                              10,50,000

Stock on 31st March 2016                          60,000                                  1,07,000

Gross Profit                                                    2,10,000                              2,50,000

Administrative expenses                             55,000                                  65,000

Selling expenses                                             23,000                                  58,000

Net profit (after tax)                                     85,000                                  87,000

Market price of Suzuki Ltd. Rs. 23 per share and Honda Rs. 28 per share. Dividend paid by Suzuki Ltd. 9.5% p.a. and Honda is 9.8% p.a.

  1. A) Compute any three relevant ratios and comment upon the solvency and financial stability of the two companies. (5 Marks)
  2. B) Which company would you recommend for investment? (Support your answers with the computation of any three relevant ratios). (5 Marks)