Financial Management: Special Issue On

VOL 21 NO.
7 PAGES 36 DECEMBER 2017 50
The Institute
of Chartered
Accountants of
India
(Set up by an act of
Parliament) Your monthly guide to CA news, information and events
SPECIAL ISSUE ON
FINANCIAL MANAGEMENT
GLIMPSES
ICAI President, CA. Nilesh S. Vikamsey inaugurates the New Reading Pilot Project on Virtual Management and Communication Skills
Room at Aurangabad Branch of WIRC of ICAI. Central Council Course: Chairman, Board of Studies, CA. Atul K. Gupta, Vice-
Members, CA. Prafulla Chajjed, CA. Anil Bhandari, Vice Chairman Chairman, CA. Mangesh Kinare, CA. Dinesh Bahl (Faculty) and the
Board of Studies, CA. Mangesh Kinare, Aurangabad Branch Chairman, Director, Board of Studies, CA. Vandana D. Nagpal at the launching of
CA. Alkesh Rawka, WICASA Chairman, CA. Rohan Achalia, WIRC the Project in New Delhi.
Vice Chairman, CA. Sarvesh Joshi also seen.
Pilot Project on Virtual Management and Communication Skills Faculty Development Programme on AICITSS (Adv. IT) Course:
Course: Director, Board of Studies, CA. Vandana D. Nagpal along with Board of Studies Vice-Chairman, CA. Mangesh Kinare interacting with
Dr. Mitali Pathak, Assistant Secretary, Board of Studies, presenting a the Faculty members at ITT centre, RVG, Andheri West, Mumbai.
memento to CA. Ajay Bahl (Faculty).
Faculty Development Programme on AICITSS (Adv. IT) Course: Immediate Past President, ICAI, CA. M. Devaraja Reddy with the Faculty and
Officials at the Centre of Excellence, Hyderabad.
02 December 2017 The Chartered Accountant Student

PRESIDENT’S COMMUNICATION
try to keep yourself abreast with the current developments

in the matter. The current world order defining the world
economy is rapidly changing, thanks to technology and other
developments, exhorting big industrial conglomerates and
multi-national companies to re-examine their strategies giving
rise to several mergers and acquisitions in the larger interests
of the companies. Studying and analyzing such events and
developments affecting the economy, industry and profession is
My Dear Students, particularly important to determine thrust areas where you can
A
develop and enhance your knowledge to chart a comprehensive
s the year 2017 draws to an end, it is time to introspect, trajectory for a fulfilling career in the long run. Remember - An
to take stock of your achievements as well as what investment in Knowledge pays the best interest. Knowledge is
still remains to be achieved in your to do list. Make a the key that unlocks the door to opportunities. So become a
list of your achievements and the attributes & events true knowledge seeker.
leading to such achievements, and the outcomes. As you reflect
upon your activities/events in the last 11 months, you would BOS: Your guide to the future
realize that positive outcomes are a result of good guidance, Board of Studies is organizing Six Days Course on GST and Ind
meticulous planning and impeccable execution of your action AS through a combination of Webcasts from Head Office and
plan. Any activity, big or small, important or mundane, needs physical classes at Regional Councils and Branch(es) with an
clarity of thought, sincere and timely efforts, attention to details objective to introduce the new tax regime GST and Ind AS to
and good intent to yield desirable results. enable our students to comprehend the essential concepts and
For all those who have just written their November 2017 exams, intricacies.
I extend my heartiest good wishes. It is the period when you can The refresher course will not only enhance your knowledge
to relax to de-stress your mind and provide the much-needed but also your career prospects/employability. I am sure that
vigor and vitality to constructively think and plan ahead for your you shall register in large numbers and make the most of this
career and professional pursuits. Remember, “There is virtue learning opportunity. Kindly note that you have to register
in work and there is virtue in rest. Use both and overlook online. The detailed schedule is available at the link: https://
neither.” You can seek guidance from your Principal, your resource.cdn.icai.org/47460bos37242.pdf
mentor regarding your professional aspirations, technical/skill
training and preparation for better career prospects. Those of As students, you must strive to learn new skills and improve
you who are yet to complete the training programs viz. ICITSS the existing skills to gradually inch towards your goal. Prepare
(ITT and Orientation Programme) and AICITSS (Advanced yourself to accept challenges as they help you to become wiser,
ITT and MCS) can seek/register for the said batches. smarter and more mature. Challenges are stepping-stones that
exhort you to devise your own mechanism to tackle problems/
Assess your Performance difficult situations, harnessing your strengths thus unleashing
Amidst relaxation, delayed celebrations and festivities, you your hidden potential and helping you to explore new pathways
must make time to self assess your performance in the recent to learning. In words of Emerson, “Every wall is a door”.
examination. Identify your shortcomings and problem areas. Every challenge is a hidden opportunity beckoning you. Never
This exercise gives you a critical insight helping you to re- underestimate yourself. Remember- you are unique, endowed
calibrate your effort and re-align your preparation for the with immense inherent potential. You simply need to realize
next examination. It helps you to re-design your preparation and harness your hidden potential to achieve success in all
strategy for the next level/exam based on your performance in spheres of life. As Zig Ziglar puts it, “It’s not what you’ve got;
the recent exam to ensure that you do not repeat the mistakes. it’s what you use that makes a difference”.
Update/Enhance your Knowledge I extend my heartiest best wishes for a peaceful, warm and
wonderful Christmas!
This is the right time to update your knowledge beyond
curricula. You should read at least one national and business
daily to update yourself about the prevailing political, economic
and business environment. Gradually you would be able to co-
relate your theoretical learnings with regulatory changes and
their impact on economy. With GST having been implemented CA. NILESH S. VIKAMSEY
recently, business magazines and newspapers reporting PRESIDENT
the challenges and key implementation issues, you must ICAI, NEW DELHI
The Chartered Accountant Student December 2017 03

Education is both a tool of social justice as well as a fundamental driver of economic development - Kevin Rudd
VICE PRESIDENT’S COMMUNICATION
advise you to take a pro-active part in this knowledge

sharing activity.
As you know the popularity of the accounting
profession is growing along with a paradigm shift
in our economy. To face the diverse challenges with
confidence, you must hone your skills in the emerging
areas and mould your personality in a holistic manner.
Being the 2nd largest accounting body in the world,
the ICAI set global standards for the profession by
promoting integrative thought, responsible action
and entrepreneurial spirit of innovation in business
and society. Our students learn to think critically,
make decisions responsibly and act flexibly. With
Dear Students,
these skills and integrative mind-set, our students will
I
be able to assume a lasting and sustainable position
t is my great pleasure to communicate with of responsibility in society. I must congratulate our
you as all of you are pumped up with energy Board of Studies for taking a lead role to improve
to celebrate the biggest festival of peace and the managerial, presentation, communication and
joy. I extend my best wishes to all of you for soft skills of the students. The Residential Programs
a wonderful Christmas. I am quite sure that you on Professional Skills & Development have given
would never like to miss even a single moment of excellent value addition to the students. Your active
this joyous occasion as you have just written your participation will encourage us further to hold similar
November 2017 Examinations and are in a mood of and better programs on a continuous basis.
relaxing a bit. I am sure that you must have attempted
your respective papers in a comprehensive manner. Our Institute in all its endeavors ensures to provide
Remember to review your performance and identify you an edge over other professionals for measuring
the areas where you can improve your performance new heights of success. A potential chartered
for next examinations. Have faith in your efforts and accountant gets advantage over his/her professional
do not feel complacent about it. competitors. Our esteemed profession has created
very high standards of accounting and proved to be
I am very happy to inform you that Goa & Nagpur of
very effective in helping businesses. I expect that you
the Western India Regional Council and Chennai of
should also remember that our profession is all about
the Southern India Regional Council are organizing
rich values so uphold these values and bring glory to
CA students Conferences during this month. The
Common theme of these conventions “Nurturing our fascinating profession.
Values & Integrity- Attaining Excellence in
Professional Pursuits” appears to be very relevant Wishing you all the best
in the context of today’s national and the global
scenario. We have to explore continuously varied
areas of knowledge and meet the challenges
ahead on a triumphant note. I have no doubt that
the organization of these conventions will be
intellectually stimulating and worth participating for
you. It will certainly be an excellent opportunity to
interact with the keynote speakers, subject experts,
senior accounting professionals and other students
CA. NAVEEN N. D. GUPTA
participating from far-flung areas of the nation. I VICE PRESIDENT, ICAI, NEW DELHI
An organisation’s ability to learn, and translate the learning into action rapidly, is the ultimate competitive
advantage- Kevin Rudd
CHAIRMAN’S COMMUNICATION
Programme to help the students to progress and specialise

in their professional endeavour. Under the program, certain
Members of the Institute will act as “Mentor” to CA Students
undergoing article training. Mentorship will help in assessing
the value addition in Practical Training by output based
approach.
Network of more than 150 Reading Room for Students

Dear Students, very soon we are launching the online
Dear Students, application wherein you can see and block your seat across
T
he Calendar Year 2017 is drawing to an end, left with India in over 150 reading rooms operated by Branches,
only a couple of weeks to look back and analyze what Regional Councils and Board of Studies. It will help students
we had planned and what we have achieved so far. This while visiting outstation of audit assignment to make effective
issue of the journal would reach when all those of you who use of precious time in evening after the office working hours
appeared for the November 2017 examinations would be in wherein they can simply see seats available in nearby reading
a more relaxed state of mind post examination. We would room and block their seat on a very nominal fee.
like to convey our best wishes to all of you for success in the
exams. At the same time as a matter of abundant caution, Specialised training program with participation
students who feel they have not performed well or have not certificate in GST and Ind-AS
been able to give their best should stay in touch with their Someone rightly said, “if you want to become powerful in
studies. It is not mere luck which is a determining factor, but life, educate yourself ”. To enrich knowledge of our students
your efforts, perseverance, hard work and discipline in life in specialised area, your Board of Studies is starting a new
will set your destiny. You should not look for short-cuts and initiative wherein six days special courses will be organised
work for the success. Somebody once quoted that the only along with a online test. Once you participate in virtual
place where success comes before work is a dictionary. and live classes for six days and qualify test, there will be a
participation certificate which will be awarded as recognition
Practical Training: Take it seriously to students. First of that lot we are organising in Goods and
Your course and examination pattern; especially in new Services Tax (GST) and Ind-AS starting from December
scheme, is designed in such manner that practical training 10th. Our request will be to participate in large number and
plays a pivotal role in developing competence apart from make use of these endeavours. These training programme
clearing examination. Practical training exposes you to apart from supporting examination, even will assist you in
diverse practical situations and enables you to acquire skills rendering services post qualification, whether for Practice or
and expertise the CA profession demands. It is this unique in employment.
method of full-time training on the job through which
a student is gradually introduced to the contours of the Survey of ICAI students
professional world. It provides a platform to interact with The Board of Studies has also decided to conduct a survey
clients and make informed professional decisions at a very among the CA students to understand the profile, needs and
young age; it helps the students apply practically the very expectations of the students. A deeper knowledge about the
same concepts that will appear in the examination. Most students will help the Board of Studies to create appropriate
importantly, article training equips you to stand on your strategies for imparting education and training. The survey
feet and to remain cool under pressure- attributes which are will also help the Board to customize its activities and take a
crucial while writing the examination. In the new scheme big leap forward to help the students.
when you will be appearing in elective paper with open book
and case study based paper, it will be practical training only, Wish you all a happy and wonderful Christmas.
that will enable you to get success.
Mentorship Program for CA Students

Ever since its inception, the ICAI has remained as a trend
setter in various student friendly initiatives. We are happy
to share with you a new beginning wherein Board of Studies CA. ATUL K GUPTA
in recent meeting decided to introduce a Mentorship CHAIRMAN, BOARD OF STUDIES, ICAI

Financial literacy is just as important in life as the other basics. - John W. Rogers, Jr.
CONTENTS
EDITORIAL BOARD INSIDE

President and Editor-in-Chief 02 Glimpses
CA. Nilesh Shivji Vikamsey, Mumbai
Vice President
03 President’s Communication
CA. Naveen N. D. Gupta, New Delhi 04 Vice-President’s Communication
Chairman and Editor
CA. Atul Kumar Gupta, New Delhi 05 Chairman’s Communication
Vice-Chairman 07 Financial Management
CA. Mangesh Pandurang Kinare, Mumbai
Members
26 CA Students Conference - Kanpur
CA. Babu Abraham Kallivayalil, Kochi
CA. (Dr.) Debashis Mitra, Guwahati 27 CA Students Conference - Ahmedabad
CA. Dhiraj Kumar Khandelwal, Mumbai
CA. Jay Chhaira, Surat 28 CA Students Conference - Rourkela
CA. K. Sripriya, Chennai
CA. Madhukar Narayan Hiregange, Bangalore 29 CA Students Conference - Ludhiana
CA. Manu Agrawal, Kanpur
CA. M. Devaraja Reddy, Hyderabad 30 CA Students Conference - Allahabad
CA. M. P. Vijay Kumar, Chennai
CA. Mukesh Singh Kushwah, Ghaziabad 31 National Conference - Mumbai
CA. Nandkishore Chidamber Hegde, Mumbai
CA. Prafulla Premsukh Chhajed, Mumbai 32 CA Students Conference - Aurangabad
CA. Prakash Sharma, Jaipur
CA. Rajesh Sharma, New Delhi 33 Announcements
CA. Ranjeet Kumar Agarwal, Kolkata
CA. Sanjiv Kumar Chaudhary, New Delhi 36 Crossword
CA. Shyam Lal Agarwal, Jaipur
CA. Sushil Kumar Goyal, Kolkata
CA. Tarun Jamnadas Ghia, Mumbai SWACHH BHARAT - A STEP TOWARDS CLEANLINESS
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Financial Management-A Capsule for Quick Revision
To sustain and grow their financial standing, organisations across the world essentially require managers who are competent in various
domains of finance. One of the fundamental domains of finance, financial management deals with the functions relating to how much
and which assets are to be acquired, how to raise capital to acquire the assets and what is to be done to maximize the shareholder’s wealth.
Financial management comprises the processes of planning and controlling subsystems of funds.
A study in financial management will help the students to understand the functions of financial managers, providing with an overview
of broad issues and problems that financial managers face in various commercial domains of our economy. This subject introduce various
concepts and theories relating to finance, which are fundamental to the methodologies and proficiencies offered as aids to understand,
identify and solve the problems of financial managers. Study of financial management will help the Chartered Accountancy students
to develop an acumen, so as to grow competencies in financing decision, investment decision, dividend decision and working capital
management. Keeping in view the importance of the Subject, Board of Studies (BoS) has decided to bring a capsule on Financial Management.
In the beginning of each topic, a chapter overview has been provided to present a holistic viewpoint on the topic’s coverage. This capsule,
though, facilitates the students in undergoing quick revision, under no circumstances; such revisions can substitute the detailed study of
the material provided by the BoS.
SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

Chapter Overview Short- term Finance
Working capital Management (WCM)
Decisions/Function
Scope of Financial Management:

Scope and Objectives of Role and functions of Chief
Finance Officer (CFO) Determination of size of the enterprise and
Financial Management
determination of rate of growth.
Relations of Financial
Profit Maximisation vis-a
Management with other
vis Wealth Maximisation
disciplines of accounting Determining the composition of assets of the enterprise.
Meaning of Financial Management Determining the mix of enterprise’s financing i.e., consideration
of level of debt to equity, etc. and short term functions/decisions
Financial management comprises the forecasting, planning,
organizing, directing, co-ordinating and controlling of all activities
relating to acquisition and application of the financial resources of an
undertaking in keeping with its financial objective. Analysis, planning and control of financial
affairs of the enterprise.
Two Basic Aspects of Financial Management

Procurement of Funds:
There are two basic aspects of financial management viz.,
procurement of funds and an effective use of these funds to achieve Since funds can be obtained from different sources, therefore their
business objectives. procurement is always considered as a complex problem by business
concerns. Some of the sources for funds for a business enterprise are:
Procurement of funds
Debentures and Bonds
Aspects of Financial Management
Utilization of Funds
Owner’s Funds Hire Purchases & Leasing

Finance functions/ finance decision
Value of a firm will depend on various finance functions/decisions.
It can be expressed as Commercial Banks Angel Financing
(Short, Medium & Long)
V = f (I,F,D).
Venture Capital
The finance functions are divided into long term and short term
functions/decisions
Effective Utilisation of Funds:
Investment
Decisions (I) The Finance Manager has to point out situations where the funds are
being kept idle or where proper use of funds is not being made. All
the funds are procured at a certain cost and after entailing a certain
amount of risk.
Long term
Finance
Function Utilization for Fixed
Decisions Assets
Dividend Financing
Utilization for Working
Decisions(D) Decisions (F) Capital

Evolution of Financial Management Conflict between Profit versus Value maxi-

The evolution of financial management is divided into three phases.
misation Principle:
Financial Management evolved as a separate field of study at the
beginning of the century. The three stages of its evolution are As a normal tendency, the management may pursue its own personal
goals (profit maximization). But in an organization where there is
a significant outside participation (shareholding, lenders etc.), the
Stages of Evolution of Financial Management management may not be able to exclusively pursue its personal goals
due to the constant supervision of the various stakeholders of the
company-employees, creditors, customers, government, etc.
Traditional Phase Transitional Phase Modern Phase
The below table highlights some of the advantages and disadvantages
of both profit maximisation and wealth maximization goals
Objectives of Financial Management
Goal Objective Advantages Disadvantages
Profit Large (i) Easy to (i) Emphasizes
Profit Maximization amount of calculate the short
Maximisation Wealth / Value profits profits term gains
maximisation (ii) Easy to (ii) Ignores risk
determine or
the link uncertainty
between (iii)Ignores the
financial timing of
decisions and returns
How do we measure the value/wealth of a profits. (iv) Requires
immediate
firm? resources.
Shareholders Highest (i) Emphasizes (i) Offers
Stockholders hire managers to run their firms for them...... Wealth market the long term no clear
Maximisation value of gains relationship
shares (ii) Recognises between
Managers set aside their interest and maximise stock prices... risk or financial
uncertainty decisions and
(iii) Recognises share price.
the timing of (ii) Can lead to
Stockholders wealth is maximised... returns management
(iv) Considers anxiety and
shareholders’ frustration.
Firm value is maximised.... return.
Societal wealth is maximised... Role of Finance executive in today’s World

vis-a-vis in the past
Today, the role of chief financial officer, or CFO, is no longer confined
Value of a firm (V) = Number of Shares (N) × Market price of to accounting, financial reporting and risk management. Some of
shares (MP) the key differences that highlight the changing role of a CFO are as
Or follows
V = Value of equity (Ve) + Value of debt (Vd)
What a CFO used to do? What a CFO now does?
Budgeting Budgeting
Three Important Decisions for Achievement
Forecasting Forecasting
of Wealth Maximisation
Accounting Managing M & As
Treasury (cash management) Profitability analysis (for example,
Investment by customer or product)
Decisions Preparing internal financial Pricing analysis
reports for management.
Financing Preparing quarterly, annual Decisions about outsourcing
Decisions filings for investors.
Tax filing Overseeing the IT function.
Tracking accounts payable and Overseeing the HR function.
accounts receivable.
Dividend Travel and entertainment Strategic planning (sometimes
Decisions expense management. overseeing this function).
Regulatory compliance.
Risk management.

Relationship of financial management with Decision – Chief focus of an accountant is to
related disciplines: making collect data and present the data.
The financial manager’s primary
Financial management is not a totally independent area. It draws responsibility relates to financial
heavily on related disciplines and areas of study namely economics, planning, controlling and decision
accounting, production, marketing and quantitative methods. Even making.
though these disciplines are inter-related, there are key differences
among them.
Financial Management and Other Related
Financial Tre atment In accounting, the measurement Disciplines:
Management of Funds of funds is based on the accrual
and principle. Financial management also draws on other related disciplines such
Accounting: as marketing, production and quantitative methods apart from
accounting. For instance, financial managers should consider the
The treatment of funds in financial impact of new product development and promotion plans made in
management is based on cash the marketing area since their plans will require capital outlays and
flows. have an impact on the projected cash flows.
TYPES OF FINANCING
Chapter Overview Sources of Finance
Sources of Finance Long-term
Equity Preference Loans 1. Share capital or Equity shares

Share Share Retained Debentures/ from
Earnings Bonds Others 2. Preference shares
Capital Capital Financial
Institution 3. Retained earnings
4. Debentures/Bonds of different types
5. Loans from financial institutions
Classification of Financial Sources 6. Loans from State Financial Corporations
7. Loans from commercial banks
There are mainly two ways of classifying various financial sources
(i) Based on basic Sources (ii) Based on Maturity of repayment period 8. Venture capital funding
9. Asset securitisation
10. International financing like Euro-issues, Foreign currency loans
Sources of Finance based on Basic Sources Medium-term
Based on basic sources of finance, types of financing 1. Preference shares

can be classified as 2. Debentures/Bonds
3. Public deposits/fixed deposits for duration of three years
4. Medium term loans from Commercial banks, Financial Institutions,
State Financial Corporations
5. Lease financing/Hire-Purchase financing
Sources of Finance 6. External commercial borrowings
7. Euro-issues
8. Foreign Currency bonds
Short-term
Internal Sources External Sources
1. Trade credit
2. Accrued expenses and deferred income
3. Short term loans like Working Capital Loans from Commercial banks
4. Fixed deposits for a period of 1 year or less
5. Advances received from customers
Mainly retained Debt or Borrowed Share Capital 6. Various short-term provisions
earnings Capital
Owner’s Capital or Equity Capital:

Loan from A public limited company may raise funds from promoters or from the
Others Financial Debentures Preference Equity
Shares investing public by way of owner’s capital or equity capital by issuing
Institutions Shares ordinary equity shares.
Preference Share Capital:

Sources of Finance based on Maturity of Payment
These are a special kind of shares; the holders of such shares enjoy
Sources of finance based on maturity of payment can be classified as priority, both as regards to the payment of a fixed amount of dividend
and also towards repayment of capital on winding up of the company

Debt Securitisation:
Securitization is a process in which illiquid assets are pooled into

marketable securities that can be sold to investors. The process leads
to the creation of financial instruments that represent ownership Bank
interest in, or are secured by a segregated income producing asset or Trade Credit
Advances
pool of assets.
Lease Financing: Accrued

Certificates of Expenses &
Leasing is a general contract between the owner and user of the asset Deposit Deferred
over a specified period of time. The asset is purchased initially by Income
the lessor (leasing company) and thereafter leased to the user (lessee
company) which pays a specified rent at periodical intervals.
Advances
Treasury
from
Bills
Short term Sources of Finance: Customers
There are various sources available to meet short- term needs of Commercial
finance. The different sources are as shown alongside Paper
FINANCIAL ANALYSIS AND PLANNING - RATIO ANALYSIS

Chapter Overview
Liquidity Ratios*/
RATIO ANALYSIS Short-term Solvency
Ratios
Capital Structure
Application of Ratio Leverage Ratios/ Ratios
Types of Ratio Analysis in dicision Long term Solvency
making Ratios
Coverage Ratios
Types of Ratios
* Liquidity Ratio/Short term Activity Ratios/

Solvency Ratio Efficiency Ratios/
Relation of financial Performance Ratios/
* Leverages Ratio/Long Turnover Ratios* Related to Sales
term Solvency Ratios manegment with other
*Activity Ratio/Efficiency disciplines of accounting.
Related to overall
Ratios/Performance Return on Investment
*Profitability Ratios (Assets/ Capital
Profitability Ratios Employed/ Equity)
Required for analysis

from Owner’s point
Ratio and its Types: of view
Related to Market/
Valuation/ Investors
Ratio analysis is a comparison of different numbers from the
balance sheet, income statement, and cash flow statement against
the figures of previous years, other companies, the industry, or
even the economy in general for the purpose of financial analysis.
Summary of Ratios:
Types of the Ratios is as given slongside:
Summary of the ratios has been tabulated as under
Ratio Formulae Comments

Liquidity Ratio
Current Ratio Current Assets A simple measure that estimates whether the business can pay
Current Liabilities short term debts. Ideal ratio is 2 : 1.
Quick Ratio Quick Assets It measures the ability to meet current debt immediately. Ideal
Current Liabilities ratio is 1 : 1.
Cash Ratio (Cash and Bank Balances + It measures absolute liquidity of the business.
Marketable Securities )
Current Liabilities

Basic Defense Interval Ratio ( Cash and Bank Balances + It measures the ability of the business to meet regular cash
Marketable Securities) expenditures.
Operating Expenses – No. of days

Net Working Capital Ratio Current Assets – Current Liabilities It is a measure of cash flow to determine the ability of business to
survive financial crisis.
Capital Structure Ratio
Equity Ratio Shareholders’ Equity It indicates owner’s fund in companies to total fund invested.
Capital Employed
Debt Ratio Total Outside Liablilities It is an indicator of use of outside funds.
Total Debt + Net Worth

Debt to equity Ratio Total Outside Liabilities It indicates the composition of capital structure in terms of debt
and equity.
Shareholders’ Equity
Debt to Total assets Ratio Total Outside Liabilities It measures how much of total assets is financed by the debt.
Total Assets
Capital Gearing Ratio ( Preference Share Capital + It shows the proportion of fixed interest bearing capital to equity
Debentures shareholders’ fund. It also signifies the advantage of financial
+ Other Borrowed Funds) leverage to the equity shareholder.
( Equity Share Capital +

Reserves & Surplus – Losses)
Proprietary Ratio Prorietary Fund It measures the proportion of total assets financed by
Total Assets shareholders.
Coverage Ratios
Debt Service Coverage Ratio Earnings available for debt service It measures the ability to meet the commitment of various debt
(DSCR) services like interest, installment etc. Ideal ratio is 2.
Interest + Instalments
Interest Coverage Ratio EBIT It measures the ability of the business to meet interest. Ideal ratio
Interest is > 1.
Preference Dividend Coverage Net Profit/Earning after taxes (EAT) It measures the ability to pay the preference shareholders’
Ratio Preference dividend liability dividend. Ideal ratio is > 1.
Fixed Charges Coverage Ratio EBIT + Depreciation This ratio shows how many times the cash flow before interest
Interest + Re-payment of loan and taxes covers all fixed financing charges. The ideal ratio is > 1.
1 – tax rate
Activity Ratio/ Efficiency Ratio/ Performance Ratio/ Turnover Ratio
Total Asset Turnover Ratio Sales/COGS A measure of total asset utilisation. It helps to answer the question -
What sales are being generated by each rupee’s
Average Total Assets
worth of assets invested in the business?
Fixed Assets Turnover Ratio Sales/COGS This ratio is about fixed asset capacity. A reducing sales or profit
Fixed Assets being generated from each rupee invested in fixed assets may
indicate overcapacity or poorer-performing equipment.
Capital Turnover Ratio Sales/COGS This indicates the firm’s ability to generate sales per rupee of long
Net Assets term investment.
Working Capital Turnover Sales/COGS It measures the efficiency of the firm to use working capital.
Ratio Working Capital
Inventory Turnover Ratio COGS/Sales It measures the efficiency of the firm to manage its inventory.
Average Inventory
Debtors Turnover Ratio Credit Sales It measures the efficiency at which firm is managing its
Average Accounts Receivable receivables.

Receivables (Debtors’) Velocity Average Accounts Receivable It measures the velocity of collection of receivables.
Average Daily Credit Sales
Payables Turnover Ratio Annual Net Credit Purchases It measures the velocity of payables payment.
Average Accounts Payables
Profitability Ratios based on Sales
Gross Profit Ratio Gross Profit This ratio tells us something about the business’s ability
x 100
Sales consistently to control its production costs or to manage the
margins it makes on products it buys and sells.
Net Profit Ratio Net Profit It measures the relationship between net profit and sales of the
x 100
Sales business.
Operating Profit Ratio Operating Profit It measures operating performance of business.

x 100
Sales
Expenses Ratio
Cost of Goods Sold (COGS) COGS
x 100
Ratio Sales
Operating Expenses Ratio Administrative exp. +

Selling & Distribution OH
x 100 It measures portion of a particular expenses in comparison to
Sales sales.
Operating Ratio COGS + Operating Expenses x 100
Sales
Financial Expenses Ratio Financial Expenses x 100

Sales
Profitability Ratios related to Overall Return on Assets/ Investments
Return on Investment (ROI) Return/ Profit / Earnings x 100 It measures overall return of the business on investment/ equity
Investments funds/ capital employed/ assets.
Return on Assets (ROA) Net Profit after taxes x 100 It measures net profit per rupee of average total assets/ average
Average Total Assets tangible assets/ average fixed assets.
Return on Capital Employed EBIT It measures overall earnings (either pre-tax or post tax) on total
x 100
ROCE (Pre-tax) Capital Employed capital employed.
Users and Objective of Financial Analysis : A Bird’s Eye view

Financial Statement analysis is useful to various shareholders to obtain the derived information about the firm
S.No. Users Objectives Ratios used in general

1. Shareholders Being owners of the organisation they are interested • Mainly Profitability Ratio [In particular
to know about profitability and growth of the Earning per share (EPS), Dividend per
organization share (DPS), Price Earnings (P/E), Dividend
Payout ratio (DP)]
2. Investors They are interested to know overall financial health of • Profitability Ratios
the organisation particularly future perspective of the • Capital structure Ratios
organisations. • Solvency Ratios
• Turnover Ratios
3. Lenders They will keep an eye on the safety perspective of their • Coverage Ratios
money lended to the organisation • Solvency Ratios
• Turnover Ratios
• Profitability Ratios

4. Creditors They are interested to know liability position of the • Liquidity Ratios
organisation particularly in short term. Creditors • Short term solvency Ratios/ Liquidity
would like to know whether the organisation will be Ratios
able to pay the amount on due date.
5. Employees They will be interested to know the overall financial • Liquidity Ratios
wealth of the organisation and compare it with • Long terms solvency Ratios
competitor company. • Profitability Ratios
• Return of investment
6. Regulator / Government They will analyse the financial statements to determine Profitability Ratios
taxations and other details payable to the government.
7. Managers:-
(a) Production Managers They are interested to know various data regarding • Input output Ratio
input output, production quantities etc. • Raw material consumption.
(b) Sales Managers Data related to quantities of sales for various years, • Turnover ratios (basically receivable
other associated figures and produced future sales turnover ratio)
figure will be an area of interest for them • Expenses Ratios
(c) Financial Manager They are interested to know various ratios for their • Profitability Ratios (particularly related to
future predictions of financial requirement. Return on investment)
• Turnover ratios
• Capital Structure Ratios
Chief Executive/ General They will try to find the entire perspective of the • All Ratios
Manager company, starting from Sales, Finance, Inventory,
Human resources, Production etc.
8. Different Industry
(a) Telecom • Ratio related to ‘call’
• Revenue and expenses per customer
(b) Bank • Loan to deposit Ratios
Finance Manager /Analyst will calculate ratios of their • Operating expenses and income ratios
(c) Hotel company and compare it with Industry norms. • Room occupancy ratio
• Bed occupancy Ratios
(d) Transport • Passenger -kilometre
• Operating cost - per passenger kilometre.
COST OF CAPITAL
Chapter Overview Sources of Capital:
Cost of Capital Equity shares
Preference shares
Cost of Cost of Combination Sources of Capital may

Cost of Preference Cost of Retained of Cost and include Debentures/
Debt Share Equity Earning Weight of each Bond/ other debt
source of instruments
Capital
Loan from financial
Weighted institutions
Average Cost
of Capital
(WACC)
Determination of the Cost of Capital:
Cost of capital is the return expected by the providers of capital Explicit/ Implicit: The cost of capital can either be explicit
(i.e. shareholders, lenders and the debt-holders) to the business as or implicit. The cash outflow of an entity towards the
a compensation for their contribution to the total capital. It is also utilization of capital which is clear and obvious is termed
known as Discount rate, Minimum rate of return etc. It can also as explicit cost of capital. On the other hand, Implicit
be stated as the opportunity cost of an investment, i.e. the rate of cost is the cost which is actually not a cash outflow but it
return that a company would otherwise be able to earn at the same is an opportunity loss of foregoing a better investment
risk level as the investment that has been selected. opportunity by choosing an alternative option.

Cost of Preference Share Capital:
The preference share capital is paid dividend at a specified rate
Cost of Equity on face value of preference shares. Payment of dividend to the
preference shareholders are not mandatory but are given priority
over the equity shareholder. The payment of dividend to the
preference shareholders are not charged as expenses but treated as
appropriation of after tax profit. Hence, dividend paid to preference
shareholders does not reduce the tax liability to the company.
Cost of Retained Weighted Average Cost of Cost of Redeemable

Earnings Cost of Capital Pref. Share Capital Preference Share Capital
(WACC) Cost of Preference
Share Capital
Cost of Irredeemable
Preference Share Capital
Cost of Irredeemable Preference Shares:

Cost of Long
term Debt. PD
(Kp) =
P0
Where,
PD = Annual preference dividend
P0 = Net proceeds in issue of preference shares
Cost of Long term Debt:

Cost of Redeemable Preference Shares
Cost of Irredeemable PD+(RV+NP)/n
(Kp) =
Debt RV+NP
Cost of long term Where, 2
Debt PD = Annual preference dividend
Cost of Redeemable RV = Redemption value of preference shares
Debt NP = Net proceeds on issue of preference shares
n = Life of preference shares
Cost of Irredeemable Debentures: Cost of debentures not redeemable Cost of Equity Share Capital:
during the life time of the company
Cost of equity capital is the rate of return which equates the present
I
Kd = (1-t) value of expected dividends with the market share price. Different
NP
methods are employed to compute the cost of equity share capital
Where,
which are as
Kd = Cost of debt after tax
I = Annual interest payment
Dividend Price
NP = Net proceeds of debentures or current market price Approach
t = Tax rate
Earning/ Price
Approach
Cost of Redeemable Debentures: If the debentures are redeemable Cost of Equity Share
after the expiry of a fixed period, the cost of debentures would be: Capital Realized Yield
Approach
Kd = ( RV-NP)
I(1-t)+
n Capital Asset Pricing
Model (CAPM)
( RV+NP)
2
Dividend Price Approach with Constant
Where,
I = Interest payment
Dividend
NP = Net proceeds from debentures in
D
case of new issue of debt or Current Ke =
P
market price in case of existing debt. Where, 0
RV = Redemption value of debentures Ke = Cost of equity
t = Tax rate applicable to the company D = Expected dividend
n = Life of debentures P0 = Market price of equity (ex- dividend)

Dividend Price Approach with Constant Realized Yield Approach:
Growth
According to this approach, the average rate of return realized in
D1 the past few years is historically regarded as ‘expected return’ in
Ke = +g
Po the future. It computes cost of equity based on the past records of
Where, dividends actually realised by the equity shareholders.
D1 = [D0 (1+ g)] i.e. next expected dividend
P0 = Current Market price per share
g = Constant Growth Rate of Dividend Capital Asset Pricing Model Approach
(CAPM):
Earning/ Price Approach with constant
Earning: Ke = Rf + ß (Rm − Rf)
Where,
Ke = Cost of equity capital
Ke = E
P Rf = Risk free rate of return
Where, ß = Beta coefficient
E = Current earnings per share Rm = Rate of return on market portfolio
P = Market share price (Rm – Rf) = Market premium
Earnings/ Price Approach with Growth in Cost of Retained Earnings

Earnings:
Like another source of fund, retained earnings involve cost. It is the
Ke = E +g opportunity cost of dividends foregone by shareholders.
P
Where,
E = Current earnings per share In absence of any information on personal tax (tp):
P = Market price per share Cost of Retained Earnings (KS) = Cost of Equity Shares (Ke)
g = Annual growth rate of earnings. If there is any information on personal tax (tp): KS = Ke -tp
Cash
Investment Investment
opportunity Shareholders opportunities
(real asset) Firm
(financial assets)
Invest Alternative pay Shareholders

dividend to invest for
shareholders themselves
Weighted Average Cost Of Capital (WACC): Marginal Cost of Capital:

It is the cost of raising an additional rupee of capital. Since the
It is an average rate of return expected by all contributors of
capital is raised in substantial amount in practice, marginal cost is
capital taking the weight of each element of capital to total
referred to as the cost incurred in raising new funds.
capital
To calculate the marginal cost of capital, the intended financing

WACC (Ko) = (% Debt × Kd) + (% Preff. Capital × Kp) + proportion should be applied as weights to marginal component
(% Equity Capital × Ke) costs. The marginal cost of capital should, therefore, be calculated
in the composite sense. The marginal weights represent the
proportion of funds the firm intends to employ.

FINANCING DECISIONS-CAPITAL STRUCTURE
Chapter Overview Net Income (NI) Approach:
According to this approach, capital structure decision is relevant to the value of the firm.
Capital Structure
Decision An increase in financial leverage will lead to decline in the weighted average cost of capital
(WACC), while the value of the firm as well as market price of ordinary share will increase.
Conversely, a decrease in the leverage will cause an increase in the overall cost of capital
and a consequent decline in the value as well as market price of equity shares
Capital Structure Theories
Capital Structure
• Net Income (NI) Approach Decision
The value of the firm on the basis of Net Income Approach can be ascertained as follows:
• Traditional Approach
• Net Operating Income (NOI) Approach
• Modigliani- Miller (MM) Approach V = Market Value of Equity + Market Value of Debt
• Trade-off Theory EBIT- EPS Analysis
• Pecking Order Theory EBIT
Overall cost of capital =
Value of the Form
Capital Structure decision refers to deciding the forms of financing (which sources to be
tapped); their actual requirements (amount to be funded) and their relative proportions Traditional Approach:
(mix) in total capitalisation.
This approach favours that as a result of financial leverage up to some point, cost of capital
Replacement comes down and value of firm increases. However, beyond that point, reverse trends
Capital Budgeting Decision Modernisation emerge. The principle implication of this approach is that the cost of capital is dependent
Expansion on the capital structure and there is an optimal capital structure which minimises cost
Diversification of capital.
Internal funds
Need to Raise Funds
Debt Net Operating Income Approach (NOI):
External equity
Any change in the leverage will not lead to any change in the total value of the firm and
Capital Structure Decision the market price of shares, as the overall cost of capital is independent of the degree of
leverage. As a result, the division between debt and equity is irrelevant.
As per this approach, an increase in the use of debt which is apparently cheaper is offset
by an increase in the equity capitalisation rate. This happens because equity investors
Existing Capital Desired Debt seek higher compensation as they are opposed to greater risk due to the existence of fixed
Payout Policy
Structure Equity Mix return securities in the capital structure.
V= NOI
KO
Where,
Effect of Return Effect of Risk
V = Value of the firm
NOI = Net operating Income
Ko = Cost of Capital
Effect of Cost of
Capital Modigliani-Miller Approach (MM):
Optimum Cpital
Structure The NOI approach is definitional or conceptual and lacks behavioral significance. It
does not provide operational justification for irrelevance of capital structure. However,
Modigliani-Miller approach provides behavioral justification for constant overall cost
Value of the Firm of capital and therefore, total value of the firm. This approach indicates that the capital
structure is irrelevant because of the arbitrage process which will correct any imbalance
i.e. expectations will chane and a stage will be reached where arbitrage is not possible.
Capital Structure Theories:

The following approaches explain the relationship between cost of capital, capital Modigliani-Miller (MM)
Approach
structure and value of the firm
Net Income (NI)

Approach
MM Approach MM Approach-
Capital Structure -1958: without
Relevance Theory 1963: with tax
tax
Traditional
Approach
Capital Structure
Theories
Net Operating The Trade-off Theory:
Income (NOI)
Approach
Capital Structure The trade-off theory of capital structure refers to the idea that a company chooses
Irrelevance Theory how much debt finance and how much equity finance to use by balancing the costs
Modigliani and and benefits.
Miller (MM)
Approach

EBIT-EPS Analysis:
Maximum
Value of firm The basic objective of financial management is to design an
appropriate capital structure which can provide the highest
earnings per share (EPS) over the company’s expected range of
earnings before interest and taxes (EBIT).
Costs of EPS measures a company’s performance for the shareholders.

finanacial The level of EBIT varies from year to year and represents the
distress success of a company’s operations.
PV of interest
tax shield However, The EPS criterion ignores the risk dimension as well
as it is more of a performance measure.
Value of (EBIT-I1) (1-t) (EBIT-I2) (1-t)

=
unlevered
E1 E2
Firm
Where,
EBIT = Indifference point

Optimal Debt E1 = Number of equity shares in Alternative 1
Level E2 = Number of equity shares in Alternative 2
I1 = Interest charges in Alternative 1
Debt 12 = Interest charges in Alternative 2
level T = Tax-rate
Alternative 1 = All equity finance
Alternative 2 = Debt-equity finance
Pecking order theory:
This theory is based on Asymmetric information, which

• It is a situation where a firm has
refers to a situation in which different parties have different
more capital than it needs or in
information.
Over- Capitalisation other words assets are worth less
than its issued share capital, and
earnings are insufficient to pay
dividend and interest.
• Debt
• Equity
• It is just reverse of over-

Trade- off capitalisation. It is a state, when
Under Capitalisation its actual capitalisation is lower
Theory
than its proper capitalisation as
warranted by its earning capacity.
Pecking Order Theory
• Internal Financing
• Debt
• Equity

FINANCING DECISIONS- LEVERAGES
Chapter Overview Chart Showing Operating Leverage,
Financial Leverage and Combined Leverage
Business and Financial
Risk
Profitability Statement
Analysis of Leverage Sales xxx
Types of Leverage Less: Variable Cost (xxx)
(i) Operating Leverage
(ii) Financial Leverages Contribution xxx Operating
(iii) Combined Leverages Leverage
Less: Fixed Cost (xxx)
Operating Profit/ EBIT xxx Combined
In financial analysis, leverage represents the influence of one Leverage
Financial
financial variable over some other related financial variable. These Less: Interest (xxx) Leverage
financial variables may be costs, output, sales revenue, Earnings
Before Interest and Tax (EBIT), Earning per share (EPS) etc. Earnings Before Tax xxx
(EBT)
Less: Tax (xxx)
Business Risk and Financial Risk:
Profit After Tax (PAT) xxx
Risk facing the common shareholders is of two types, namely Less: Pref. Dividend (if (xxx)
business risk and financial risk. Therefore, the risk faced by any)
common shareholders is a function of these two risks, i.e.
(Business Risk, Financial Risk). Net Earnings available xxx
to equity shareholders/
PAT
No. Equity shares (N)
Earnings per Share (EPS)
Business Risk Financial Risk = (PAT ÷ N)
•
It refers to the risk • It refers to the additional
associated with the firm’s risk placed on the firm’s Operating Leverage:
operations. It is the shareholders as a result of
uncertainty about the debt use i.e. the additional
future operating income risk a shareholder bears Operating leverage (OL) maybe defined as the employment of an
(EBIT), i.e. how well can when a company uses asset with a fixed cost in the hope that sufficient revenue will be
the operating incomes be debt in addition to equity generated to cover all the fixed and variable costs.
predicted? financing.
Contribution
Operating leverage =
EBIT
Types of Leverage:
% change in EBIT
There are three commonly used measures of leverage in financial Degree of Operating Leverage (DOL) =
% change in Sales
analysis. These are
Positive and Negative Operating Leverage:
Combined Operating Leverage

Leverage and EBIT
Negative Infinite/ Undefined Positive

Financial
Leverage
Operating at Operating at a
Lower than Operating at break- Higher Level than
break-even point even point break-even point
Operating
Leverage
EBIT= -Ve EBIT = 0 EBIT = +Ve

Financial Leverage: Combined Leverage:
Financial leverage (FL) maybe defined as ‘the use of funds with a • It maybe defined as the potential use of fixed
fixed cost in order to increase earnings per share.’ In other words, Combined costs, both operating and financial, which
it is the use of company funds on which it pays a limited return. leverage magnifies the effect of sales volume change
on the earning per share of the firm.
EBIT
Financial leverage = Degree of Combined Leverage = DOL X DFL
EBT
% change in EPS % change in EPS

Degree of Financial Leverage (DFL) = Degree of Combined Leverage (DCL) =
% change in EBIT % change in Sales
Positive and Negative Financial Leverage:
Financial Leverage
Financial Leverage as Financial Leverage as a

‘Trading on Equity’ ‘Double edged Sword’
Positive Infinite/ Undefined Negative • Financial leverage indicates • On one hand when cost of
the use of funds with fixed ‘fixed cost fund’ is less than
cost like long term debts the return on investment
and preference share capital financial leverage will help
EBIT level is more Operating at EBIT level is less along with equity share to increase return on equity
than Fixed Financial Financial break than Fixed capital which is known as and EPS. However, when
Charge even point Financial Charge trading on equity. When cost of debt is more than
the quantity of fixed cost the return it will affect
fund is relatively high return of equity and EPS
EPS: will change in comparison to equity unfavourably. This is why
in the same No Profit no Loss EPS : Negative capital, it is said that the financial leverage is known
direction as EBIT firm is ‘’trading on equity”. as “double edged sword”.
INVESTMENT DECISIONS
Chapter Overview:
Investment Decisions
• Identification of investment projects that are
strategic to business overall objectives;
Types of Investment Capital Budgeting Techniques: Capital • Estimating and evaluating post-tax
Decisions • Pay-back period Budgeting incremental cash flows for each of the
• Accounting Rare of Return (ARR) involves investment proposals; and
Basic Principles for • Net Present Value (NPV) • Selection of an investment proposal that
measuring Project maximizes the return to the investors
• Profitability Index (NI)
Cash Flows
• Internal Rate of Return (IRR)
Capital Budgeting in • Modified Internal Rate of Return
special cases (MIRR)
• Discounted Pay-back period
Capital Budgeting Process:
Planning Evaluation Selection Implementation Control Review

Chapter Overview 6. Less: Fixed Cost
(a) Fixed Cash Cost xxx
Generally, capital investment decisions are classified in two (b) Depreciation xxx
ways. One way is to classify them on the basis of firm’s existence.
Another way is to classify them on the basis of decision situation. 7. Earning Before Tax [6 - 7] xxx
8. Less: Tax xxx
9. Earning After Tax [7-8] xxx
Replacement and
Types of Capital Investment Decisions
Modernisation decisions 10. Add: Depreciation xxx
On the basis 11. Cash Inflow After Tax (CFAT) [9 +10] xxx
of firm’s existence Expansion decisions
Diversification decisions
Capital Budgeting Techniques:
In order to maximise the return to the shareholders of a company,

Mutualy exclusive decisions it is important that the best or most profitable investment
projects are selected as the results for making a bad long-term
investment decision can be both financially and strategically
On the basis of devastating, particular care needs to be taken with investment
decision situation Accept-Reject decisions
project selection and evaluation.
Contingent decisions
There are a number of techniques available for appraisal of
investment proposals and can be classified as presented below:
Estimation of Project Cash Flows

Capital Budgeting analysis considers only incremental cash flows Payback Period
from an investment likely to result due to acceptance of any
project. Therefore, one of the most important tasks in capital
budgeting is estimating future cash flows for a project. Traditional or
Non Discounting Accounting Rate of
Return (ARR)
Calculating Cash Flows
Net Present Value
Particulars No Depreciation is Depreciation is (NPV)
Charged Charged Capital
Budgeting
(RCrore) (RCrore) Techniques Profitability
Total Sales *** *** Index (PI)
Less: Cost of Goods *** *** Time adjusted or

Sold Discounted Cash Internal Rate of
Flows Return (IRR)
*** ***
Less: Depreciation - *** Modified Internal
Rate of Return
Profit before tax *** *** (MIRR)
Tax @ 30% *** *** Discounted
Profit after Tax *** *** Payback Period
Add: Depreciation* - ***

Cash Flow *** ***
Payback Period:
* Being non-cash expenditure, depreciation has been added back
while calculating the cash flow. The payback period of an investment is the length of time required
for the cumulative total net cash flows from the investment to
Statement showing the calculation of Cash equal the total initial cash outlay.
Inflow after Tax (CFAT):
Total initial capital investment
Sl. no. (R) Payback period =
Annual expected after-tax net cash flow
1 Total Sales Units xxx
2 Selling Price per unit xxx Accounting (Book) Rate of Return (ARR):
3. Total Sales [1 × 2] xxx
4. Less: Variable Cost xxx The accounting rate of return of an investment measures the
average annual net income of the project (incremental income) as
5. Contribution [3 - 4] xxx a percentage of the investment.

Average annual net income Sum of discounted cash in flows

Accounting rate of return = x 100 Profitability Index (PI) =
Investment Initial cash outlay or Total discounted
cash outflow (as the case maybe)
Net Present Value Technique (NPV):
The net present value technique is a discounted cash flow method Decision Rule:
that considers the time value of money in evaluating capital
investments.
If PI ≥ 1 Accept the Proposal
If PI ≤ 1 Reject the Proposal
NPV = ∑ -I In case of mutually exclusive projects; project with higher PI should

(1+ k)
t =1
be selected.
Where,
C = Cash flow of various years

K = discount rate
N = Life of the project
Internal Rate of Return Method (IRR):
I = Investment
Internal rate of return for an investment proposal is the discount
rate that equates the present value of the expected net cash flows
with the initial cash outflow.
Profitability Index /Desirability Factor/
Present Value Index Method (PI): NPV at LR
LR + x (HR-LR)
NPV at LR- NPV at HR
In comparing alternative proposal of comparing, we have to
compare a number of proposals each involving different amounts Where,
of cash inflows. One of the methods of comparing such proposals LR = Lower Rate
is to work out what is known as the ‘Desirability factor’, or
‘Profitability index’ or ‘Present Value Index Method’. HR = Higher Rate
Summary of Decision criteria of Capital

Budgeting techniques:
Techniques For Independent Project For Mutually Exclusive Projects
Non- Pay Back (i) When Payback period ≤ Maximum Project with least Payback period should be
Discounted Acceptable Payback period: Accepted selected
(ii) When Payback period ≥ Maximum

Acceptable Payback period: Rejected
Accounting (i) When ARR ≥ Minimum Acceptable Rate Project with the maximum ARR should be
Rate of of Return: Accepted selected.
Return (ARR) (ii) When ARR ≤ Minimum Acceptable Rate
of Return: Rejected
Discounted Net Present (i) When NPV > 0: Accepted Project with the highest positive NPV should
Value (NPV) (ii) When NPV < 0: Rejected be selected
Profitability (i) When PI > 1: Accepted When Net Present Value is same, project with
Index(PI) (ii) When PI < 1: Rejected Highest PI should be selected
Internal Rate (i) When IRR > K: Accepted Project with the maximum IRR should be
of Return (ii) When IRR < K: Rejected selected
(IRR)

MANAGEMENT OF WORKING CAPITAL
Chapter Overview Receivables Higher Credit Evaluate Cash sales
period attract the credit provide
customers policy; use liquidity but
and increase the services fails to boost
Management of revenue of debt sales and
Working Capital management revenue
(factoring)
agencies.
Cash (Treasury) Pre- Reduces Cost-benefit Improves or
Determinants of Management: payment of uncertainty analysis maintains
Working Capital expenses and profitable required liquidity.
• Functions of Treasury
Department in inflationary
environment.
• Treasury Management
Estimation of Working • Cash Management Cash and Payables are Cash budgets Cash can be
Capital Models Cash honoured and other cash invested in
equivalents in time, management some other
improves the techniques can investment
goodwill and be used avenues
Working Capital helpful in
Cycles getting future
discounts.
Payables Capital can Evaluate the Payables are
Inventory and be used in credit policy honoured in
Management Expenses some other and related time, improves
investment cost. the goodwill
Receivable Management: avenues and helpful in
Payables Management • Factors determining getting future
Credit Policy discounts.
• Financing of Receivables
• Monitoring of Rece
Investment and Financing
Financing of Working
Capital
Working Capital: In accounting term working capital is the Investment in working

difference between the current assets and current liabilities. capital is concerned with
the level of investment in Financing decision
the current assets. concerned with the
Working Capital = Current Assets – Current Liabilities arrangement of funds to
finance the working capital.
Scope of Working Capital Management

Approaches of Working Capital investment
Scope of Working Capital Management
Aggressive Moderate Conservative

Liquidity and Investment and
Profitability Financing
•Here investment in working capital is kept at

Aggressive minimal investment in current assets which means
Liquidity vs Profitability: The trade-off between the the entity does hold lower level of inventory, follow
components of working capital can be summarised as follows: strict credit policy, keeps less cash balance etc.
Component Advantages Trade-off Advantages •In this approach of organisation use to invest
of Working of higher side (between of lower side high capital in current assets. Organisations use to
Conservative keep inventory level higher, follows liberal credit
Capital (Profitability) Profitability (Liquidity)
and Liquidity) policies, and cash balance as high as to meet any
current liabilities immediately.
Inventory Fewer Use Lower
stock- outs techniques inventory
increase the like EOQ, JIT requires less •This approach is in between the above two
profitability. etc. to carry capital but approaches. Under this approach a balance
optimum level endangered Moderate
between the risk and return is maintained to gain
of inventory. stock-out and more by using the funds in very efficient manner.
loss of goodwill.

The various components of Operating Cycle
may be calculated as shown below:
(1) Raw Material Avereage stock of Raw material

=
A Storage Period Average Cost of Raw material
Level of current assets
Consumption per day

Conservative policy
(2) Work-in-Progress Avg Work-in-progress inventory
B holding period =
Average Cost of Production per day
Average policy
(3) Finished Average stock of finished goods
=
c Goods storage Average Cost of Goods Sold per
period day
Aggressive policy
(4) Receivables Average Receivables
(Debtors) =
collection period Average Credit Sales per day
Fixed asset level
Output (5) Credit period Average Payables
allowed by suppliers =
(Creditors) Average Credit Purchases
per day
Operating/ Working Capital Cycle: Working Capital cycle
indicates the length of time between a company’s paying for
materials, entering into stock and receiving the cash from sales
of finished goods. Estimation of Amount of Different Components
of Current Assets and Current Liabilities
Working Capital Cycle (i) Raw Materials Inventory:
Estimated Production (units)

× Estimated Cost per unit × Average
12 months / 365 days * raw material storage period
Cash
(ii) Work-in-Progress Inventory:

× Estimated WIP cost per unit ×
12 months / 365 days * Average W-I-P holding period
Receivables Raw Material Labour
Overhead (iii) Finished Goods:
× Estimated Cost of production per
12 months / 365 days * unit × Average storage period
(iv) Receivables (Debtors):
Estimated Credit Sales unit

×Cost of sales (excluding depreciation)
12 months / 365 days * per unit × Average collection period
Stock WIP
(v) Cash and Cash equivalents: Minimum desired Cash and Bank
balance to be maintained
(vi) Trade Payables (Creditors):

In the form of an equation, the operating cycle process can be
expressed as follows:
Estimated credit purchase × Credit period allowed by suppliers
12 months / 365 days *
Operating Cycle = R + W + F + D – C (vii) Direct Wages:

Estimated labour hours x wages
Where, rate per hour
×Average time lag in
12 months / 365 days * payment of wages
R = Raw material storage period
(viii) Overheads (other than depreciation and amortization):
W = Work-in-progress holding period
F = Finished goods storage period Estimated Overheads ×Average time lag in payment of
D = Receivables (Debtors) collection period. 12 months / 360 days * overheads
C = Credit period allowed by suppliers (Creditors).
*Number of days in a year may be taken as 365 or 360 days.

Estimation of Working Capital Requirements (e) Expected Net .…….. ……….. ……… ……….
Profit before Tax
(a-b-c-d)
Amount Amount Amount
(f ) Less: Tax ……... ……….. ………. ………
I. Current Assets:
(g) Expected ..……. ……… ……… ………
Inventories: Profit after Tax
- Raw Materials --- B. Opportunity ..…… ……… ………. ………
Cost of
- Work-in-process --- Investments
- Finished goods --- --- in Receivables
locked up in
Receivables: Collection
Period
- Trade debtors ---
Net Benefits ……… ……… ……… ……….
- Bills --- --- (A – B)
Minimum Cash Balance ---
Gross Working Capital --- --- Statement showing the Evaluation of Credit Policies (based on
Incremental Approach)
II. Current Liabilities:
Trade Payables ---
Particulars Present Proposed Proposed Proposed
Bills Payables --- Policy Policy I Policy II Policy III
days days days days
Wages Payables ---
Payables for overheads --- --- RS RS RS RS
III. Excess of Current Assets --- A. Incremental
over Current Liabilities Expected Profit:
[I – II]
IV. Add: Safety Margin --- Credit Sales ………. …………. ……….. ……….
V. Net Working Capital [III --- (a) Incremental ………. …………. ……….. ……….
+ IV] Credit Sales
(b) Less:
MANAGEMENT OF RECEIVABLES Incremental
Costs of Credit
Sales
Approaches of Evaluation of Credit Policies
(i) Variable Costs ………. …………. ……….. ……….
There are basically two methods of evaluating the credit policies to be (ii) Fixed Costs ………. …………. ……….. ……….
adopted by a Company – Total Approach and Incremental Approach.
The formats for the two approaches are given as under: (c) Incremental ………. …………. ……….. ……….
Statement showing the Evaluation of Credit Policies (based on Bad Debt Losses
Total Approach)
(d) Incremental ………. …………. ……….. ……….
Cash Discount
Particulars Present Proposed Proposed Proposed
Policy Policy I Policy II Policy III (e) Incremental ………. …………. ……….. ……….
Expected Profit
RS RS RS RS (a-b-c-d)
(f) Less: Tax ………. …………. ……….. ……….

A. Expected
Profit:
(g) Incremental ………. …………. ……….. ……….
(a) Credit Sales ………. …………. ……….. ………. Expected Profit
after Tax
(b) Total Cost
other than Bad ………. …………. ……….. ……….
Debts and Cash
Discount B. Required
Return on
(i) Variable Costs ………. …………. ……….. ………. Incremental
Investments:
(ii) Fixed Costs ………. …………. ……….. ……….
(a) Cost of ………. …………. ……….. ……….
……… ………. ………. ……..
Credit Sales
(c) Bad Debts ………. …………. ……….. ……….
(b) Collection ………. …………. ……….. ……….
(d) Cash discount Period (in days)

Financing of Receivables
(c) Investment in ………. …………. ……….. ……….
Receivable (a x
b/365 or 360) (i) Pledging: This refers to the use of a firm’s receivable to secure a
short term loan.
(d) Incremental ………. …………. ……….. ……….
Investment in (ii) Factoring: This refers to outright sale of accounts receivables to a
Receivables factor or a financial agency.
(e) Required Rate of ………. …………. ……….. ………. Factor

Return (in %) Customers send The factor pays
payment to the an agreed-upon
(f) Required Return ………. …………. ……….. ……….
factor percentage of the
on Incremental
Investments accounts receivable
(d x e) to the firm.
Incremental Net ………. …………. ……….. ………. Customer Firm

Benefits (A – B)
Goods
The basic format of evaluating factoring proposal is given as under:

Statement showing the Evaluation of Factoring Proposal
Particulars rs
A. Annual Savings (Benefit) on taking Factoring Service
Cost of Credit Administration saved ………...
Bad Debts avoided …………
Interest saved due to reduction in Average collection period (Wherever applicable) …………
[Cost of Annual Credit Sales × Rate of Interest × (Present Collection Period – New Collection Period)/360* days]
Total ………..
B. Annual Cost of Factoring to the Firm:
Factoring Commission [Annual credit Sales × % of Commission (or calculated annually)] ………..
Interest Charged by Factor on advance (or calculated annually ) ………...
[Amount available for advance or (Annual Credit Sales – Factoring Commission – Factoring Reserve)] ×
[ Collection Period (days)

x Rate of Interest]
360 *
Total ………..
C. Net Annual Benefits/Cost of Factoring to the Firm: ………..
Rate of Effective Cost of Factoring to the Firm
Net Annual cost of Factoring
= x 100 or
Amount available for advance
Net annual Cost of Factoring

x 100
Advances to be paid
Advances to be paid = (Amount available for advance – Interest deducted by factor)
Opportunity to Present Papers

International Conference for CA Students, Pune – January 13 & 14, 2018
“Nurturing Values & Integrity - Attaining Excellence in Professional Pursuits”
The Board of Studies of ICAI is providing excellent opportunity to the students to write and present
papers at the International Conference being organized in Pune. The students will have a chance to
showcase their talents in front of delegates from all over India and abroad. The detailed programme
structure will be available at ICAI website shortly.

CA Students Conference- KANPUR 2nd & 3rd DECEMBER, 2017
ICAI BHAWAN, LAKHANPUR,
Organized by: Board of Studies, ICAI
Hosted by: Central India Regional Council of ICAI KANPUR
THEME: NURTURING VALUES & INTEGRITY- ATTAINING EXCELLENCE IN
PROFESSIONAL PURSUITS
DAY-1
9.00 am to 12.00 pm Inaugural Session
Special Session: I : Topic: Motivational Session
Special Session: II: Interaction and Open House with Board of Studies
12.00 pm to 1.30 pm Technical Session : I: Topic: Goods and Services Tax- Conceptual framework of CGST, SGST,
IGST and UTGST; Exemptions under GST; Returns under GST; Input tax credit and composition
levy; Records to be maintained under GST
2.30 pm to 4.00 pm Technical Session: II : Topic: Direct Tax - Restrictions on cash transactions under Income Tax
Act, 1961; Disclosure requirement under ICDS - A Practical Approach; International taxation and
specified domestic transactions; TDS Compliances
DAY-2
9.00 am to 11.00 am Technical Session : III: Topic : Accounting and Auditing- AS-10- Property, Plant and
Equipment; Related party disclosure- AS 18 vs Ind AS 24; Audit programme and documentation
in the context of quality assurance/peer review; Concurrent Bank Audits; Audit of CSR activities;
Audit Evidence in IT Environment
Special Session III: Topic : Meet with the achievers
11.00 am to 01.00 pm Technical Session : IV : Topic: Information Technology- Cryptography; Robotics and Data
Analysis; Forensic Audit
2.00 pm to 4.00 pm Special Session : IV : Topic : How to Crack CA Exams
Technical Session : V : Topic : Corporate and Other Laws- Incorporation of Companies; Acceptance
of Deposits and Loan to Directors; Annual Compliance under Co. Law; Negotiable Instruments Act
Students Eligible to attend the Students Conference: Students who have registered as IPCC/Intermediate Students/ Students
who are pursuing their Articleship Training/ Students who have completed their Practical Training but could not qualify their final
examinations may attend the conference till next one year from the date of completion of Practical Training.(CPT Students and
Students who have completed one year beyond their Articleship training will not be eligible to register for these Conferences)
Registration fees ` 300/- Per Student till 30.11.2017 (5.30 pm); On the Spot Registration: ` 500/- from 01.12.2017
Payment Mode Cash/DD in Favour of “CIRC of ICAI” payable at Kanpur; Phone: 0512 3011156/ 3011181/ 3011182;
For Details Visit: www.circ-icai.org;email:circ@icai.in
CA. Atul Kumar Gupta, Chairman, BoS; CA. Mangesh Pandurang Kinare, Vice-Chairman, BoS; CA. Manu Agrawal, Central
Council Member, Conference Director; CA. Deep Kumar Misra, Chairman, CIRC of ICAI & CA. Nitesh Gupta, Chairman,
CICASA of CIRC, Conference Coordinators.
CROSSWORD SOLUTION - NOVEMBER 2017

1
C A 2
P 3
I 4
T A L 5
I 6
A N
O 7
A L P S 8
S A 9
I D
10
S 11
E L L S A 12
N O 13
R
14
T O M 15
I 16
I M 17
D R I
N 18
P 19
E E R 20
F E E S
21
N 22
E E L 23
D 24I 25
P S K
26
C 27
O M P L 28
I A N C E S
29
L E A P N K N 30
M
31
T R I E D 32
S 33
I D O L
L R 34
S H 35
A R E D
36
E 37
D A
38
T O N E S
39
G O V E R N M E N T
CA Students Conference - AHMEDABAD 8TH & 9TH DECEMBER 2017
PANDIT DINDAYAL UPADHYAY
Organized by: Board of Studies, ICAI AUDITORIUM, BODAKDEV,
Hosted by: Ahmedabad Branch of Wirc and Wicasa of ICAI AHMEDABAD
THEME: “NURTURING VALUES & INTEGRITY- ATTAINING EXCELLENCE IN
PROFESSIONAL PURSUITS”
DAY-1
08.00 am to 09.00 am Registration
09.00 am to 10.30 am Inaugural Session
10.30 am to 12.15 pm Technical Session : I : Topic: Corporate and Economic Laws - Business Re-Structuring and
Mergers and Acquisitions and Compliance issues faced; Insolvency and Bankruptcy Code,
2016: Requirements & Practical Case Studies; Impact of RERA on Promoters, Allottees and Real
Estate Agents
12.15 pm to 01.15 pm Special Session : I : Interaction and Open House with Board of Studies
02.15 pm to 03.15 pm Special Session : II : Motivational Session
03.15 pm to 04.45 pm Technical session : II : Topic: Direct Taxation- Black Money Controlling Mechanism Initiatives
Taken by Government; ICDS: Is It Required?; Arm’s length pricing under Income Tax Act and
Transfer Pricing Strategies adopted by MNCs
04.45 pm to 05.30 pm Special Session : III : “How CA Profession helped him to reach on Self-Actualization stage” by
Maslow Need Hierarchy Theory
DAY-2
08.00 am to 09.00 am Registration
09.00 am to 10.30 am Technical Session : III : Topic: Goods and Service Tax: The new Tax Era- GST and Foreign
Trade: Impact of GST on Import and Export of Goods and Services; Sector wise Analysis of GST
Implementation; Composition Schemes under GST and its Merits-Demerits.
10.30 am to 11.45 am Special Session : IV : Special Address by HR Executives/CFOs/Faculties of IIMs and IITs/IRS/IAS
11.45 am to 01.15 pm Technical Session : IV : Topic: Indian Economy and Current Affairs- Cyber Frauds and Crimes
- Role of Auditor in regards to Forensic Audit; Start-up India’s role in Mobilizing Venture Capital
Fund from abroad and other perks of Start-ups to Indian Economy; Energy and Environmental
Audit: Business tie ups by CA Fraternity with other Professions
02.45 pm to 04.15 pm Special Session : V : Special Address by Guests
04.15pm to 04.45 pm Valedictory Session
Students Eligible to attend the Students Conference: Students who have registered as IPCC/Intermediate Students/
Students who are pursuing their Articleship Training/ Students who have completed their Practical Training but could not
qualify their final examinations may attend the conference till next one year from the date of completion of Practical Training.
(CPT Students and Students who have completed one year beyond their Articleship training will not be eligible to register for
these Conferences)
Registration fees ` 600/-per student Accommodation (if required) @ ` 1,000/- per student per day
Payment Mode Cash/DD/Cheque to be drawn in favor of Ahmedabad Branch of WIRC of ICAI, payable at Ahmedabad
Or Details for Online Registration: www.icaiahmedabad.com; Ph: 079-39893989, 9409381718,
7405913858, 9033262869, 8401547956, 8460664292, 8401886383; Email wicasaahmedabad@icai.org ;
Website www.icaiahmedabad.com
CA. Atul Kumar Gupta, Chairman, BoS; CA. Mangesh Pandurang Kinare, Vice-Chairman, BoS; CA. Dhinal Ashvinbhai
Shah, Central Council Member, Conference Director; CA. Chintan N. Patel, Chairman, Ahmedabad Branch &
CA. Purushottamlal Khandelwal, Chairman, WICASA Ahmedabad Branch, Conference Coordinators.

CA Students Conference - ROURKELA 9TH & 10TH DECEMBER 2017
BHANJA BHAWAN,
ROURKELA
Hosted by: Rourkela Branch of EIRC & EICASA of ICAI
DAY-1
10:30 am to 11:15 am Special Session : I : Interaction and Open House with Board of Studies
11.15 am to 1.00 pm Technical Session : I : Topic: Accountancy & Audit- Roadmap to IND AS; Changes in Accounting
Standards; Forensic Audit
1.00 pm to 1.45 pm Special Session: II: Topic : Success Stories
2.30 pm to 4.00 pm Technical session : II : Topic: Indirect Taxes- GST: Time & Place of Supply; GST Returns & Forms;
GST: Boon or Bane to a Common Man
4.00 pm to 5.00 pm Special Session : III: Topic : Motivational Session
Day 2
10.00 am to 11.30 pm Technical Session : III : Topic: Direct Tax- Income Computation & Disclosure Standards; Income
Declaration Scheme: Success & Failure; Provisions in relation to Limitations of Cash Transactions
11.30 am to 12.30 pm Special Session : IV: Special Address by HR Executives/CFOs/Faculties of IIMs and IITs/IRS/IAS
12.30 pm to 1.30 pm Special Session : V: Interactive Session: Open Quiz to All
2.30 pm to 4.00 pm Technical Session : IV: Topic : Corporate Law& Economic Environment- Overview of
Insolvency & Bankruptcy Code, 2016; Start Up’s-Future of India; Benami Transaction Prohibition
Law; Indian Government Approach towards Black Money.
these Conferences)
Registration fees ` 500/-per student Accommodation (if required) @ ` 500/- per student per day
Payment Mode 1.Cash; 2.Pay order/DD/Cheque to be drawn in favour of ROURKELA BRANCH OF ICAI, payable at
Rourkela;3.Paytm;4.Online Registration : www.rourkela-icai.org
5.Bank Transfer - A/c NAME - ROURKELA BRANCH OF EIRC EICASA; A/C NO - 134910100047831, IFSC
CODE-ANDB00001349; Ph- 0661-2664901, 9078679012, 7205131859; Email: icai.rourkela@gmail.com
Website: www.rourkela-icai.org
CA. Atul Kumar Gupta, Chairman, BoS; CA. Mangesh Pandurang Kinare, Vice-Chairman, BoS; CA. Sushil Kumar Goyal,
Central Council Member, Conference Director; CA. Yogesh Banka, Chairman, Rourkela Branch & CA. Rajesh Kumar Agarwal,
Chairman, EICASA Rourkela Branch, Conference Coordinators.

CA Students Conference - LUDHIANA 17TH & 18TH DECEMBER 2017
ICAI BHAWAN, PAKHOWAL ROAD,
Organized by: Board of Studies, ICAI LUDHIANA
Hosted by: Ludhiana Branch of NIRC & NICASA of ICAI
DAY-1
10.30 am to 12.15 pm Technical Session : I : Topic: Capital Gains under Income Tax Act -Transfer of Asset under
Capital Gains; Exemption under the Chapter Capital Gains; Taxability of Capital Gain in case of
Non-Resident.
12.15 pm to 1.00 pm Special Session : I : Interaction and Open House with Board of Studies
1.00 pm to 01.45 pm Special Session: II : Motivational Session on “How CA Profession helped him reach a Self-
Actualization stage” by Maslow Need Hierarchy Theory.
02.30 pm to 04.00 pm Technical session: II: Topic: Company Law- Management Consultancy Services u/s 144;
Corporate social responsibility: Myth or reality?; Is Audit Rotation enough for Independence of
Auditors?
04.00 pm to 05.00 pm Special Session : III
DAY 2
10.00 am to 11.30 am Technical Session : III : Topic: Goods and Service Tax- Concept of Supply; Reverse Charge
Mechanism under GST; GST Chargeability in New Scenario.
11.30 am to 12.30 pm Special Session : IV : Special Address and Additional Short Sessions by CAs in Industry.
12.30 pm to 01.45 pm Technical Session: IV: Topic: Accounting Standards- Component Accounting (AS10) –
Implementation Issues; Concept of Fair Value in Ind As Regime; Ind AS 37- Provisions, Contingent
Liabilities and Contingent Assets
02.30 pm to 04.00 pm Technical Session : V: Topic: Audit in the Digital Age(TBC)- Use of Data Analytics & Artificial
Intelligence in Audit; Mitigating risks rising out of Cyber Crimes and Cyber Attacks; Increased
Importance of Forensic Audit
these Conferences)
Registration fees ` 500/-per student Accommodation (if required) @ ` 1000 per student
Payment Mode Cash/DD/Cheque to be drawn in favour of Ludhiana Branch of NIRC of ICAI, payable at Ludhiana;
Phone- 0161-2970563, 7011456082; Email – Icailudhiana@gmail.com;Website Ludhiana-icai.org
CA. Atul Kumar Gupta, Chairman, BoS; CA. Mangesh Pandurang Kinare, Vice-Chairman, BoS; CA. Sanjay Vasudeva,Central
Council Member, Conference Director; CA. Dinesh Sharma, Chairman, Ludhiana Branch & CA. Sandeep Gupta, Secretary,
Ludhiana Branch of NIRC of ICAI, Conference Coordinators.

CA Students Conference - ALLAHABAD 22ND & 23RD DECEMBER 2017
PRAYAG SANGEET SAMITI, 12 C,
Organized by: Board of Studies, ICAI KAMLA NEHRU ROAD, ALLAHABAD,
Hosted by: Allahabad Branch of CIRC & CICASA of ICAI UTTAR PRADESH 211002
DAY-1
10.00 am to 12.00 noon Technical Session : I : Topic: Income Tax- Relaxation for Start Up; Black Money Controlling
Mechanism Initiatives taken by Government including Measure to discourage Cash Transactions;
Provisions and Penalties related to TDS
12.00 noon to 1.00pm Special Session : I : Interaction and Open House with Board of Studies
1.00 pm to 2.00 pm Special Session: II : Motivational Session on topic “How CA Profession helps him to reach
on Self-Actualisation stage” by Maslow Need Hierarchy Theory
2.30 pm to 4.30 pm Technical session : II : Topic : GST- GST and its Impact on Indian Economy; Input Tax Credit
under GST; Composition Scheme under GST
4.30 pm to 5.30 pm Special Session : III
DAY 2
09.30 am to 11.30 am Technical Session : III : Topic: Corporate Laws & Allied Law -Auditors’ Roles and Responsibilities
under the Companies Act 2013; Audit Report Under CARO under the Companies Act 2013;
Benami Transaction (Prohibition) Amendment Act 2016
11.30 am to 12.30 pm Special Session : IV : Special Address by HR Executives/CFOs/Faculties of IIMs and IITs/IRS/IAS
12.30 pm to 2.30 pm Technical Session : IV : Topic :Accounting Standards - Overview of Ind AS; Ind AS 16- Property
Plant and Equipment; Ind AS 12- Income Taxes
3.00 pm to 5.00 pm Technical Session : V : Topic: Information Technology- Cyber Fraud; Role of Forensic Auditor;
Cyber Security
these Conferences)
Fees (without accommodation) * ` 500/- per student Up to 11th Dec 17 ` 700/- per student After 11th Dec 17
Payment Option: Cash/Cheque/ DD in Favour of “Allahabad Branch of CIRC of ICAI”; Bank Transfer: Account Holder Name:-
Allahabad Branch of CIRC of ICAI; Account No.:-0627201000478; Account Type:- Current Account; Bank & Branch Name:-
Canara Bank, Civil Lines, Allahabad; Bank Address:-Canara Bank, Civil Lines, Allahabad-211001; IFSC Code:- CNRB0000627;
Phone: +91 - 532 – 2427614, 7080813989;
E-Mail Id: canatcon.ald@gmail.com, allahabad@icai.org; For Registration, please fill the Google online Registration at below
mentioned link and Registration form attached in the schedule.
https://docs.google.com/forms/d/e/1FAIpQLSe8PfNPsZOGbAwzzP-PW5_5cDmDncKMtjUl48_8gFBsXyTe6Q/viewform
CA. Atul Kumar Gupta, Chairman, BoS; CA. Mangesh Pandurang Kinare, Vice-Chairman, BoS; CA. Manu Agrawal,
Central Council Member, Conference Director; CA. Kanchan Lal Gupta, Chairman, Allahabad Branch & CA. Nitin Mehrotra,
Chairman, CICASA Allahabad Branch, Conference Coordinators.

National Conference - MUMBAI 22ND & 23RD DECEMBER 2017
BIRLA MATOSHRI SABHAGRUHA,
Organized by: Board of Studies, ICAI CHURCHGATE, MUMBAI
Hosted by: WIRC of ICAI
DAY-1
8.30 am. to 9.30 am Registration
9.30 am to 10.30 am Inaugural Session by Eminent Minister
10.30 am to 11.30 am Technical Session: I: Topic -GST-Time & Place of Supply of Goods & Services
11.30 am to 12.30 pm. Special Session : I: Interaction and Open House with Board of Studies
12.30 pm. to 1.30 pm Special Session : II: Topic: GST-Input Tax Credit & Refund
2.30 pm. to 3.30 pm Technical session : II: Topic: Indian Accounting Standards ( IND AS -12, 16,18,101)
3.30 pm. to 4.30 pm Special Session :III: How to do paper presentation
4.30 pm. to 6.30 pm Motivational Seminar by a Prominent speaker
DAY 2
10.00 am.to11.30 am Technical Session : III: Session on Opportunities for CAs
11.30 am to 1.00 pm Special Session : IV: Ethical Value in the Profession
2.00 pm. to 3.00 pm Technical Session : IV: Topics: Income Tax-Income Computation and Disclosure Scheme (ICDS)
3.00 pm to 4.30 pm Technical Session: V: Topic: GST – Reverse Charge Mechanism (RCM) & Returns.
Students Eligible to attend the Students Conference: Students who have registered as IPCC/Intermediate Students/ Students
who are pursuing their Articleship Training/ Students who have completed their Practical Training but could not qualify their final
examinations may attend the conference till next one year from the date of completion of Practical Training.(CPT Students and
Students who have completed one year beyond their Articleship training will not be eligible to register for these Conferences)
Registration fees ` 600/- per student Outstation Students, accommodation is available on extra payments, students
are requested to inform by sending email to wicasa@icai.in& register in advance
Payment Mode DD/Cheque to be drawn in favour of WIRC of ICAI, payable at Mumbai Or For online Registration Visit
Website www.wirc-icai.org; Phone 022-33671424/17 & Email wircevents@icai.in
CA. Atul Kumar Gupta, Chairman, BoS; CA. Mangesh Pandurang Kinare, Vice-Chairman, BoS & Conference Director; CA. Vishnu
Kumar Agarwal, Chairman, WIRC of ICAI & CA. Balkishan Agarwal, Chairman, WICASA of ICAI, Conference Coordinators.
Virtual Coaching Class for the students of Intermediate (IPC)

for May’18 Examination
Board of Studies is organizing Virtual Classes for the students of Intermediate (IPC) for May’18
Examination on the following subject as per schedule as under:
Sr. No. Subjects Hours to be taught (6 hours X 5 days) Date of Webcast
1 Accounting 30 5.2.2018 – 9.2.2018
2 Company Laws and Other Laws 30 12.2.2018 – 16.2.2018
3 Indirect Tax 30 19.2.2018 – 23.2.2018
4 Taxation 30 25.2.2018 – 2.3.2018
The Webcast will be of 6 hours per day for 5 days on the dates mentioned in the schedule.
The fee for attending the Webcast at Regional Office and Branch is `1000/- per subject. The students
will be required to register online and pay the fee online at link to be uploaded on the Institute website.
The students registered for the above classes will be able to communicate online with the faculty during
the Webcast session and can resolve their queries pertaining to the subjects.
Director, Board of Studies
CA Students Conference - AURANGABAD 30TH & 31ST DECEMBER, 2017
TAPADIYA NATYA
MANDIR
Hosted by: Aurangabad Branch of WIRC & WICASA of ICAI
THEME: NURTURING VALUES & INTEGRITY -ATTAINING EXCELLENCE IN
DAY-1
10.30 am to 12.15 pm Special Session - Presentation by Collector from Pune
12.15 pm to 01.45 pm Technical Session : I
Topic: Wealth creation through Capital markets & India’s upgrading by International
agency vs. Ground reality
02.30 pm to 04.30 pm Technical session : II
Topics: RERA - a game changer & Bankruptcy Law
DAY 2
10.00 am to 11.30 am Special Session : I
Interaction and Open House with Board of Studies
11.30 am to 12.30 pm Technical Session : III
Topic: Cashless economy - Reality or Dream? & Demonetization - Has it unearthed
black money?
12.30 pm to 01.45 pm Special Session: IV
Topic: Motivational Session
02.30 pm to 04.00 pm Technical Session : IV
Topic: GST Road Ahead
these Conferences)
Registration fees ` 800/- per student Accommodation (if required) @ ` NA per student
Payment Mode Cash/DD/Cheque to be drawn in favor of CA Student Conference for CA Students (WIRC), payable
at Aurangabad; Ph: 9960588885/9970588885; Email: aurangabad@icai.org Website www.icai.org
CA. Atul Kumar Gupta, Chairman, BoS; CA. Mangesh Pandurang Kinare, Vice-Chairman, BoS; CA. Anil Satyanarayan
Bhandari, Central Council Member, Conference Director; CA. Alkesh Rawka, Chairman, Aurangabad Branch & CA. Rohan
Achalia, Chairman, WICASA Aurangabad Branch, Conference Coordinators

National Talent Hunt and 17th All India Quiz
Contest 2017-18
A KNOWLEDGE
ENRICHING EVENT
Date: 16th December, 2017 (Saturday)
Time:
Quiz Contest : 9.00 a.m. to 1.00 p.m.
National Talent Hunt : 2.00 p.m. to 8.00 p.m.
Events will be followed by Lunch and Dinner
Venue
NDMC Convention Centre, New Delhi
Municipal Council, Palika Kendra, Sansad
Marg, New Delhi-110 001
(Opp. Jantar Mantar, Near Park Hotel,
Connaught Place, New Delhi).
The Winners of the Regional level contests are eligible to participate in the National Talent Hunt and
17th All India Quiz Contest.
20 participants will contest at National Talent Hunt representing 5 Regions.
Special grooming sessions for contestants from 13th to 15th December, 2017.
• Awards and Certificates for all winners.

Prizes
• Cash prizes for National Talent Hunt
First Prize Second Prize Third Prize

` 31,000/- ` 21,000/- ` 11,000/-
Students are requested to join the programme in large numbers.
The winners of National Talent Hunt and All India Quiz Contest, 2017-18 will have opportunity to showcase
their talents at SAFA Elocution and Quiz Contests to be held in Kathmandu, Nepal in January 2018.

Residential Programme on Professional Skills Development at
Centre of Excellence, Hyderabad
The Board of Studies is pleased to announce the next batch of ICAI Four Weeks Residential
Programme on Professional Skills Development as below:
Venue Participant Fees Date Online Registration

Centre of Excellence Men ` 60,000/- 27th December, 2017 to https://resource.cdn.icai.org/
(CoE), Hyderabad 23rd January, 2018 47026bos36814.pdf
This programme aims to help the Chartered Accountancy students and newly qualified Chartered
Accountants in imbibing the professional skills required for effective functioning in business organisations
and the profession. The Programme environment focuses on development of communication skills, personal
qualities, interpersonal and teamwork skills, problem solving skills, leadership skills etc,.
Salient Features of the Programme:
● Emphasis on Soft Skills, Communication Skills and Personality Development.

● Exemption from payment of Fees to Top 10 Rank holders.
● Part of Practical Training.
● No need for Separate Management and Communication Skills(MCS) forming part of
Advanced Integrated Course on Information Technology and Soft Skills (AICITSS).
● Special Session on Group Discussion & Interview.
● Preparation of Project and Presentation Skills.
● Building Team Spirit.
Students who have passed Chartered Accountancy IPCC/ PCC/ PE- II examination and pursuing last
year of Practical training or completed Practical training are invited to join the course for this batch.
Recently qualified Chartered Accountants are also welcome to join the course.
Student’s opinion
CoE is a place to learn from best of It was an amazing experience and the
speakers who fill the session with loads faculties were exceptionally good. It
of learning and bundle of creativity. It is bridges the gap between a CA student
a great place to learn from students and and a professional. It influences us to
professional with diverse backgrounds. be creative and think out of box.
A must-do course for all CA Students.
CA. Kevin Dharmesh Gandhi Ms. Parnika Poddar

from Western Region from Eastern Region
(Participant of 37th batch) (Participant of 40th batch)
For online registration, you can proceed with ‘Board of Studies Announcements’ https://www.icai.org/new_
category.html?c_id=345 under the ‘Students’ tab on the Home Page of the ICAI’s website www.icai.org.
For any query, you can write us at ashokdua@icai.in or may also contact us on 0120-3045935
and Mobile No.9868879548.

The Institute of Chartered Accountants of India (ICAI)
ICAI Commerce Wizard-2017:
A Talent Search Test in Commerce
Organised By: Career Counseling sub-group under BoS, ICAI
For Details and Registration please visit the Exclusive Website for ICAI Commerce Wizard, 2017: icw.icai.org
The Commerce Talent Search Test called as Commerce Wizard -2017 is a diagnostic test that measures the concept understanding ability of a student.
Unlike regular tests which try only to find out how much a child knows, this test measures how well a student has understood the concepts.
Online Registration
Eligibility: Students appearing in Registration Fees : `100/- upto 31st Dec. 2017
class X/XI/XII examination Late Registration Fees : `150/- 01st Jan. to 05th Jan. 2018
The Commerce Wizard will be conducted by means of in two levels i.e. LevelI (Online) & Level II (Online/Pen & Pencil test) in English language for
Students studying in class X/XI/XII & B.Com/BBA /BMS/Aliied Subjects Part I, Part II & Part III:
No. of Negative Max.
Class Duration Subjects Mode Pattern
Questions Marking Marks
(I) Social Studies (Economics) (II)
Online/Pen
X 100 1 Hr 15 Min Mathematics (III) Business Awareness 0.25 100
& Pencil
(IV) Aptitude
(I) Business Studies (II) Accountancy Online/Pen
XI 100 1 Hr 15 Min 0.25 100 0bjective -
(III) Economics (IV) Aptitude & Pencil
type (Multiple
(I) Business Studies (II) Accountancy Online/Pen Choice)
XII 100 1 Hr 15 Min 0.25 100
(III) Economics (IV) Aptitude & Pencil questions
B.Com/BBA /BMS/ (I) Business Studies
Allied Subjects (II) Accountancy Online/Pen
100 1 Hr 15 Min 0.25 100
Part I, Part II & (III) Economics/ Financial Studies & Pencil
Part III Examination (IV) Aptitude
Date Timings for the aforesaid test :

Class X/XI/XII & B.Com./BBA /BMS/Allied Level-I (Online test) 7th January, Level-II Test : Online or Pen Pencil Mode in the designated test
Subjects Part I, Part II & Part III 2018 (Sunday) centre
11.45 AM to 1.00 PM
Part I For Class X/XI/XII
Class XI /B.Com/BBA/BMS/Allied Subjects 2.00 PM to 3.15 PM 10:30 am. To 11.45 a.m.
Part II For B.Com/BBA/BMS/Allied Subjects Part I/Part II/Part III
Class XII/B.Com/BBA/BMS/Allied Subjects 4.15 PM to 5.30 PM 3.00 p.m. to 4.15 p.m.
Part II
Prizes for Participants

Level-I Test
• All participants In Level-1 test will receive a Participation Certificate.
Level-I Test
• 1st Rank holder will be awarded with Rs 75,000/- for Class X, Class XI& Class XII, B.Com/BBA/BMS/Allied Subjects Part I, Part II & Part III
separately, if multiple winners are there, the prize amount will be shared by them. If more than 50 joint rank holders for the same, the awardee will
at least awarded with the cash prize of Rs 2,000/-.
• 2nd Rank will be awarded with Rs 50,000/-for Class X, Class XI & Class XII, B.Com/BBA/BMS/Allied Subjects Part I, Part II & Part III separately,
if multiple winners are there, the prize amount will be shared by them. If several joint rank holders for the same are there, the awardee will at least
awarded with the cash prize of Rs 1,500/-
• 3rd Rank will be awarded with Rs 25,000/-for Class X, Class XI& Class XII, B.Com/BBA/BMS/Allied Subjects Part I, Part II & Part III separately, if
multiple winners are there, the prize amount will be shared by them. If several joint rank holders for the same are there, the awardee will at least
awarded with the cash prize of Rs 1,000/-.
• Top 250 consolation prizes will be awarded worth Rs 500/- for Class X, Class XI & Class XII B.Com/BBA/BMS/Allied Subjects Part I, Part II & Part
III separately.
• Appreciation certificate to the candidates who have secured 50% marks in the aforesaid online test.
• Participation Certificate will be given to each participant appeared for the Level-II Test.
Other Important Dates:
Award Ceremony: Award Ceremony will be held at Delhi NCR/Mumbai tentatively in the month of February, 2018
ICAI/Test Management Committee reserves the right to change in any of the modalities cited above.
Deputy Convener Convener

Career Counseling sub-group under BoS, ICAI Career Counseling sub-group under BoS, ICAI
For any Query please contact :

Secretary
Career Counselling sub-group under BoS, The Institute of Chartered Accountants of India
ICAI Bhawan, A-29, Sector 62, Noida (U.P.) - 201309
Telephone (O): 0120-3876871, 886 Email: ccc.events@icai.in, ccc.secretary@icai.in
RNI NO. 66180/1997 Registered: DL/(C)-01/1280/2015-2017, D. NO. MH/MR/TECH-47/3/2017 License To Post Without Prepayment,
WPP Licence No.: MR/TECH/WPP-247/DL(C)/2017 Posted at Mumbai Patrika Channel Sorting Office, Mumbai
Posting Date: Last three days of advance month & first 04 days of current month, Date of publication: 26th of previous month
CROSSWORD - DECEMBER 2017

34. An --- mind is devil’s workshop.
1 2 3 4 5 6 7 Land mobile radio system (LMRS),
8 9 10 also called public land mobile radio or
private land mobile radio, is a wireless
11 12 13 14 15 16 17 communications system intended for use by
terrestrial users in vehicles (mobiles) or on
18 19 20 21
foot (portables).
22 23 24 38. __: A bus-based transit system services at
metro-level capacities.
25 26 27 28 39. an enemy
29 30 31 40. Targets
41. Be
32 33 34 35 42. Vague, dull
43. Window ____(ing): Actions taken to improve
36 37 38 the appearance of a company’s financial
39 40 41 42 statements.
45. Ability, power
43 44 45 46 47. A decision support tool : Decision ___.
47 48 49 48. Noticed
49. Roman numeral for 502.
50 51 52 53 54 50. Aged
52. A unit of weight
55 56 53. A corporate organization that owns or
57 58 controls production of goods or services in
two or more countries other than their home
country.
ACROSS 47. Hair 54. Self pride
1. Which kind of mathematics does the 50. Unrefined rock 56. Opposite of come.
computer use in operations? 51. Nags, goads
7. ------ can become subscriber for 52. A ---- and motion study : a business
incorporating a company through its Karta. efficiency technique.
8. A cumulative frequency graph. 55. In financial lease, the ……... has to bear
9. VAT credit can be taken in GST regime as insurance, maintenance and other related
………..credit. costs.
11. Leading Stock Exchange in India. 56. When the ___ gets tough, the tough get
12. ___is used worldwide to compare the ___. (same word)
income levels in different countries. 57. GST is a --------------based consumption
15. Sabeer Bhatia is the co-founder of ______ tax.
(1996). 58. Trick, dupe
18. A modern continuation of Greenwich Mean
Time based on Earth’s rotation. DOWN
19. One of India’s major import items. 1. Stock dividend is also called ………
20. A form of communication. shares.
21. Opposite of Yes. 2. Tax payable on inter-State supply of
22. For example, in Latin. goods and services.
23. A ___ race is an endless, self-defeating, or 3. Sibling’s daughter.
pointless pursuit. 4. __ rate: the rate at which the
24. A revenue officer dealing with direct taxes. Reserve Bank of India lends money
26. In technical analysis, a ……….. is formed to commercial banks in the event of
when the tops (resistance level) and bottoms shortfalls of funds.
(support levels) change in opposite direction. 5. On land
27. Vigilant 6. Arcade
29. A public sector bank in India. 7. Which of the primary language for static
31. A governmental agency in India responsible web site design?
for co-ordination of statistical activities in 10. A branch of mathematics dealing with
India, and evolving and maintaining statistical the collection, analysis, interpretation,
standards. presentation, and organization of data.
32. Under integrated system of accounting, cost 13. Long for
and_________accounts are kept in the 14. Walk heavily
same set of books. 16. A fundamental analyst compares the
35. A ____line is a line drawn over pivot highs ………. value with the current market
or under pivot lows to show the prevailing price.
direction of price. 17. Robbed
36. ___ Act, 2005 mandates timely response to 24. Latin clarifier
citizen requests for government information. 25. The term allocation refers to
37. Extinct flightless bird. assignment or allotment of an entire
38. Tender, proffer item of cost to a particular cost ----.
39. __’s paradise: State of delusive contentment 26. The ___ Key will launch the start
or false hope. button.
40. One of the ways in which elasticity can be 28. Title of respect
measured. 29. Pension schemes are regulated by
41. Help ……… If undelivered, please return to: The
43. _ Jones : a stock market index in USA. 30. An American franchised networking Institute of Chartered Accountants of
44. Discharges, diffuses organization.
46. A statutory body for establishing uniform and 33. One of the highest-ranking executive India, ICAI Bhawan, Indraprastha Marg,
high standards of medical education in India. positions in an organization. New Delhi-110104
36

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VOL 21 NO.

7 PAGES 36 DECEMBER 2017 50

02 December 2017 The Chartered Accountant Student

try to keep yourself abreast with the current developments

The Chartered Accountant Student December 2017 03

advise you to take a pro-active part in this knowledge

04 December 2017 The Chartered Accountant Student

Programme to help the students to progress and specialise

Network of more than 150 Reading Room for Students

Mentorship Program for CA Students

The Chartered Accountant Student December 2017 05

EDITORIAL BOARD INSIDE

06 December 2017 The Chartered Accountant Student

SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

Scope of Financial Management:

Two Basic Aspects of Financial Management

Owner’s Funds Hire Purchases & Leasing

The Chartered Accountant Student December 2017 07

Evolution of Financial Management Conflict between Profit versus Value maxi-

Societal wealth is maximised... Role of Finance executive in today’s World

08 December 2017 The Chartered Accountant Student

Equity Preference Loans 1. Share capital or Equity shares

Sources of Finance based on Basic Sources Medium-term

Based on basic sources of finance, types of financing 1. Preference shares

Owner’s Capital or Equity Capital:

Preference Share Capital:

The Chartered Accountant Student December 2017 09

Securitization is a process in which illiquid assets are pooled into

Lease Financing: Accrued

FINANCIAL ANALYSIS AND PLANNING - RATIO ANALYSIS

* Liquidity Ratio/Short term Activity Ratios/

Required for analysis

Ratio Formulae Comments

10 December 2017 The Chartered Accountant Student

Operating Expenses – No. of days

Total Debt + Net Worth

( Equity Share Capital +

The Chartered Accountant Student December 2017 11

Operating Profit Ratio Operating Profit It measures operating performance of business.

Operating Expenses Ratio Administrative exp. +

Financial Expenses Ratio Financial Expenses x 100

Users and Objective of Financial Analysis : A Bird’s Eye view

S.No. Users Objectives Ratios used in general

12 December 2017 The Chartered Accountant Student

Cost of Capital Equity shares

Cost of Cost of Combination Sources of Capital may

The Chartered Accountant Student December 2017 13

Cost of Retained Weighted Average Cost of Cost of Redeemable

Cost of Irredeemable Preference Shares:

Cost of Long term Debt:

14 December 2017 The Chartered Accountant Student

Earnings/ Price Approach with Growth in Cost of Retained Earnings

Invest Alternative pay Shareholders

Weighted Average Cost Of Capital (WACC): Marginal Cost of Capital:

To calculate the marginal cost of capital, the intended financing

The Chartered Accountant Student December 2017 15

Capital Structure Theories:

Net Income (NI)

Less: Cost of Goods * * Time adjusted or