Paper I — Q7
(a) The following Balance Sheet is given as on 31st March, 2022 : Particulars Amount ₹ I. Equity and Liabilities 1…
(a) The following Balance Sheet is given as on 31st March, 2022 : Particulars Amount ₹ I. Equity and Liabilities 1. Shareholders' Funds : Equity Share Capital 5,00,000 10% Preference Share Capital 1,00,000 Reserves and Surplus 92,000 2. Non-Current Liabilities : 12% Debentures 4,00,000 3. Current Liabilities : Sundry Creditors 1,00,000 Bills Payable 40,000 Provision for Income Tax 1,00,000 Total 13,32,000 II. Assets 1. Non-Current Assets : Fixed Assets : (a) Tangible Assets : Plant & Machinery 2,80,000 Land & Building 2,00,000 Furniture & Fittings 1,56,000 6,36,000 Less : Provision for Depreciation 1,48,000 4,88,000 (b) Intangible Assets : Goodwill 80,000 Investments 3,00,000 2. Current Assets : Current Assets 4,40,000 Prepaid Rent 4,000 Unamortized Preliminary Expenses 20,000 Total 13,32,000 From the given Balance Sheet, calculate the following : (i) Debt-equity Ratio (ii) Proprietary Ratio (iii) Solvency Ratio (iv) Fixed Capital Ratio from Proprietary Capital (v) Capital Gearing Ratio (20 marks) (b) What is the importance of Funds Flow Statement to the management? How is it different from a Cash Flow Statement? (15 marks) (c) What is credit rating? Discuss its objectives, functions and limitations. (15 marks)
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(a) 31 मार्च, 2022 को निम्नलिखित तुलन-पत्र दिया गया है : विवरण राशि ₹ I. इक्विटी एवं दायित्व 1. शेयरधारक निधि : समता अंश पूंजी 5,00,000 10% अधिमान शेयर पूंजी 1,00,000 आरक्षितियाँ एवं अधिशेष 92,000 2. अप्रचलित दायित्व : 12% ऋणपत्र 4,00,000 3. चालू दायित्व : विविध लेनदार 1,00,000 देय विपत्र 40,000 आयकर के लिए प्रावधान 1,00,000 कुल 13,32,000 II. परिसंपत्तियाँ 1. अप्रचलित परिसंपत्तियाँ : स्थायी परिसंपत्तियाँ : (a) मूर्त परिसंपत्तियाँ : संयंत्र एवं मशीनरी 2,80,000 भूमि एवं भवन 2,00,000 फर्नीचर एवं फिटिंग 1,56,000 6,36,000 घटा : मूल्यह्रास के लिए प्रावधान 1,48,000 4,88,000 (b) अमूर्त परिसम्पतियाँ : ख्याति (गुडविल) 80,000 निवेश 3,00,000 2. चालू परिसम्पतियाँ : चालू परिसम्पतियाँ 4,40,000 पूर्वदत्त किराया 4,000 अनवशोषित प्रारम्भिक व्यय 20,000 कुल 13,32,000 दिए गए तुलन-पत्र से निम्नलिखित की गणना कीजिए : (i) ऋण-समता अनुपात (ii) स्वामित्व अनुपात (iii) शोधन क्षमता अनुपात (iv) स्थायी सम्पतियों का स्वामित्व कोषों से अनुपात (v) पूँजी दंतिकरण (गियरिंग) अनुपात (20 marks) (b) प्रबंधन के लिए कोष प्रवाह विवरण का क्या महत्व है? यह रोकड़ प्रवाह विवरण से किस प्रकार भिन्न है? (15 marks) (c) साख निर्धारण (क्रेडिट रेटिंग) क्या है? इसके उद्देश्य, कार्य तथा सीमाओं की व्याख्या कीजिए। (15 marks)
Directive word: Calculate
This question asks you to calculate. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.
See our UPSC directive words guide for a full breakdown of how to respond to each command word.
How this answer will be evaluated
Approach
The directive 'calculate' for part (a) requires precise numerical computation with clear formula application, while parts (b) and (c) demand explanatory depth. Allocate approximately 40% time to part (a) given its 20 marks weightage, with 30% each to parts (b) and (c). Structure: present calculations in tabular format for (a), followed by comparative analysis for (b), and conceptual framework with Indian regulatory context for (c).
Key points expected
- Part (a): Correct calculation of all five ratios with proper identification of components—Long-term Debt (₹4,00,000), Shareholders' Funds (₹6,92,000), Total Assets (₹13,32,000), Tangible Assets (₹4,88,000), Capital Employed, and Fixed Assets
- Part (a): Accurate formulas—Debt-equity Ratio (Long-term Debt/Shareholders' Funds), Proprietary Ratio (Shareholders' Funds/Total Assets), Solvency Ratio (Total Assets/Total External Liabilities), Fixed Capital Ratio (Fixed Assets/Proprietary Funds), Capital Gearing Ratio (Funds bearing fixed interest & dividend/Equity Shareholders' Funds)
- Part (b): Distinction between Funds Flow (working capital concept, accrual basis) and Cash Flow (cash concept, cash basis) with minimum 5-6 differences; managerial utility for financing decisions, dividend policy, and capital budgeting
- Part (c): Definition of credit rating as opinion on debt instrument/issuer's creditworthiness; objectives (investor protection, market efficiency, regulatory compliance); functions (risk assessment, pricing benchmark, market development); limitations (rating lag, conflict of interest, herd behavior)
- Part (c): Indian context—SEBI (Credit Rating Agencies) Regulations 1999, CRISIL, ICRA, CARE, Brickwork Ratings; examples of rating failures (IL&FS, DHFL) and regulatory reforms post-2008 crisis
Evaluation rubric
| Dimension | Weight | Max marks | Excellent | Average | Poor |
|---|---|---|---|---|---|
| Demand-directive understanding | 20% | 10 | Demonstrates precise understanding that part (a) requires calculation with formula-statement and working notes, part (b) requires comparative explanation with tabular differentiation, and part (c) requires definitional clarity followed by multi-dimensional analysis; no confusion between 'funds' (working capital) and 'cash' concepts | Addresses all three parts but with some directive confusion—treats (a) as purely theoretical or (b) as merely descriptive without systematic comparison; minor mixing of funds flow and cash flow concepts | Fundamental misreading of directives—attempts to 'discuss' calculations without numbers, or 'calculate' for theoretical parts; conflates funds flow with cash flow entirely; ignores comparative requirement in (b) |
| Content depth & accuracy | 25% | 12.5 | All five ratios in (a) computed correctly with accurate component identification (e.g., treating 10% Preference Shares as equity for Debt-equity but fixed dividend for Capital Gearing); part (b) covers minimum 6-7 differences with managerial implications; part (c) includes SEBI regulatory framework and post-2019 amendments | 3-4 ratios correct in (a) with minor errors in component classification; part (b) lists 4-5 differences without depth on managerial utility; part (c) covers basics but omits regulatory specifics or recent Indian developments | Multiple calculation errors in (a) with wrong formula application; part (b) merely defines without comparison; part (c) generic without Indian context; significant factual errors on ratio components or rating agency functions |
| Structure & flow | 20% | 10 | Clear tripartite structure with labeled sections (a), (b), (c); calculations presented in statement format with 'Formula → Working → Result' for each ratio; comparative table for (b); numbered points for objectives/functions/limitations in (c); seamless logical progression | All parts addressed but with inconsistent formatting—calculations jumbled, (b) as prose without tabulation, (c) as undifferentiated paragraphs; some organizational clarity but examiner must search for information | Disorganized presentation with calculations and theory intermixed; no clear part demarcation; random sequencing of points; illegible or cramped working notes that impede evaluation |
| Examples / case-law / data | 20% | 10 | Part (a) supported by interpretation of what ratios indicate about firm's capital structure; part (b) illustrated with hypothetical funds flow statement excerpt; part (c) cites specific Indian examples—CRISIL's rating of NHAI bonds, IL&FS downgrade from AAA to D, SEBI's 2021 circular on rating disclosures | Part (a) has bare calculations without interpretation; part (b) generic without illustration; part (c) names CRISIL/ICRA/CARE but no specific instruments or regulatory actions; limited application of examples | No examples anywhere; part (c) omits all Indian rating agencies; no reference to SEBI regulations; calculations presented without any narrative context or business implication |
| Conclusion & analytical edge | 15% | 7.5 | Synthesizes ratio results in (a) to assess firm's financial health (moderate debt-equity, adequate proprietary coverage); part (b) concludes with integrated view of both statements for comprehensive analysis; part (c) critically evaluates rating effectiveness post-2008 and COVID-19, suggesting reforms like unsolicited ratings and ESG integration | Brief concluding remarks for each part without synthesis; restates main points; limited critical perspective on rating limitations or statement utility | Abrupt ending without conclusion; or single generic conclusion ignoring all three parts; no critical evaluation; purely descriptive throughout without analytical insight |
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