V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
LETTER TO THE HONORABLE PRESIDENT OF ICAI ON THE CA FINAL NOVEMBER
2011 EXAM RESULTS
To,
CA. Jaydeep Narendra Shah
Honorable President
Institute of Chartered Accountants of India
New Delhi
Sub : “Request for publishing the rejoinder
on CA Final Exam comments in the CA Students
Journal (April, 2012)”
Respected Sir,
Please refer to the meeting we had on 14/03/2012 between 11:15
AM to 12:30 PM in the SIRC Bhawan, Chennai. I thank you very much for your
kind and patient hearing.
I really appreciate your genuine commitment, humbleness, dedication towards
the students and the profession and whole heartedly wish you all the success
for your untiring efforts.
This letter, is in continuation of my E-mail on 22/02/2012 and also another Email
along with a acknowledged hard copy on 06/03/2012. The broad issues
for your concern and doing the justice for several lakhs of the CA Students and
their families are as under.
My humble request to your good self, is for publishing the other side of the
view compared to what is presented in the student journal for the month of
March 2012 in the page number 17 to 24 under the caption Examiners’
comments on the performance of the candidates – CA Final which we all know
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
is based on the suggested answers published by the Institute which is the only
basis for students to evaluate themselves and prepare for the ensuing exams.
My request assumes more importance for the following reasons
a) In the page Number 21of the Journal Question 3 (b) – Transfer Pricing,
the Examiners’ themselves accepted that the problem asked is a mistake
which carries 8 marks
b) I have worked out solutions for the problems along with my comments
and the same were sent to you after being verified by very eminent
personalities (mistakes in questioning as well as solutions exceeding 30
marks).
c) During my discussion (several times over the telephone) with Shri Vijay
Kapoor, Director Board of Studies who after verification confirmed that
the issues raised by me are correct, and there were lot of mistakes in the
suggested answers which are the basis for the valuation of the Exam
Papers.
d) The students appearing for the CA exam, as we all know must get a
minimum of 40% in all the subjects and an aggregate of 50% in a group of
4 subjects for being declared as passed. Even if he gets 39 in a subject or
199 in group, he will have to write all the subjects again. We know
significant number of students (running into thousands in numbers do
fail every time by just getting one or two marks less mainly due to the
fault of the Examination system!!!)
e) The students who in spite of performing well, keep on failing due to the
mistakes, negligence and inefficiency of the officials\Experts in the
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Examination system which needs to be addressed as this creates mental
agony, loss of confidence, loss of earnings, loss of their precious time
and leaves them and their families in great despair.
f) When the mistakes are running into more that 30 to 40 marks the
student who does correctly fails and the rank holder is awarded for his
mistakes. This is a human right violation and totally against the basic
principles of natural justice which needs immediate attention.
g) I would therefore request you to publish the entire letter in the
forthcoming (April Issue) Chartered Accountant Student Journal along
with a detailed explanation from the Examination Committee and the
Board of Studies on the mistakes committed
h) As the exams are fast approaching in May, 2012 the publication in the
April Journal will give an opportunity to the students who are not
successful in spite of performing well to take appropriate course as
suggested by the Institute (ICAI) for being declared as successful and
without the agony of writing the exams again.
i) I had a detailed discussion with Mr. CA. Vikamsey Nilesh Shivji, FCA
Chairman Board of Studies, who is also the current editor of the Student
Journal gave a patient hearing and promised to come back on this issue. I
am still waiting for his call.
j) I would be grateful if you could reply to my/our letters on the same issue
on or before 24th of March, 2012 failing which I will be left with no choice
but to seek the help of the Judiciary. I will be moving the writ of
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Mandamus under Article 226 of the Constitution in the Honorable High
Court of Madras in case of your refusal or no reply.
With warm regards
Yours sincerely
V. Venkatasivakumar, FCA
M. No. 021853
Enclosed:
1. Rejoinder to the comments of the Examiners’ published in the
Student Journal
2. The solutions in our opinion which are correct needs to be
published
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Rejoinder for the Comments published in the Students Journal
STRATEGIC FINANCIAL MANAGEMENT CA FINAL NOVEMBER 2011 EXAM
PAPER
Question No. 3(a) 10 marks
Examiners’ Comments : (page No. 18)
(a) This question expected the candidates to compute future cash
flows and terminal cash flows and to value the business based thereon. It
was found that most candidates had not understood the problem in the
right perspective. Even the first step of projecting the annual cash flows
was not handled clearly. This sort of inability requires to be corrected
since handling cash flows, discounting them and computing values based
thereon is fundamental to financial analysis. Candidates need practice in
this area.
(b) Even though the problem is ordinary, the number of students who
attempted this question was not large.
Our comments:
Both the above questions were asked wrongly and also were solved
wrongly (Refer to the solution). Both these questions in total carried 16
marks which means the students who could not attempt or gave a partial
attempt would have not got marks.
The comments of the Examiners shows their poor understanding of the
question asked and solution given.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
The question is about a company which is planning to make investment
which is expected to increase the sales and the profit, alternatively it can
maintain the statusquo. The student must evaluate it by computing the
value of the firm with and without expansion by using constant growth
model. For this purpose he will have to compute free cash flows and
discount them at the rate given and choose the better option.
A point mentioned in problem had a mistake namely, total assets is equal
to 160 Lacs whereas equity was mentioned as 150 Lacs which in our
opinion is not a very significant one for solving this problem. The student
would have ignored it particularly in the absence of any interest element.
Even after ignoring the mistake he would have been in a position to solve
the problem. But the suggested answer, for reasons best known to them
gave two solutions (uncalled for). One assuming that there is a mistake
and the other there is no mistake when there is a mistake!!!!!).
The question however was not clear as to what they want the student to
solve?
In the case of statusquo where the student has to prepare four year’s
cash flows the inflation factor was not at all mentioned and the
depreciation which is to be calculated on WDV basis is bound to affect the
cash flows was ignored. It was also not mentioned whether the
depreciation was included in the manufacturing cost of goods sold or not
a very vital point for computation of cash flows and decision making.
With regard to the proposal of expansion following are the mistakes
a. The entire answer is wrong
b. The depreciation was shown as a separate item but the tax effect was
not considered. The correct adjustment should have been to add back the
depreciation computed to the PAT in computing the cash flows.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
c. The current assets workout to 15% of sales but it was taken as 12.5%
and the basis on which the current liability figure was arrived at was not
clear.
d. The Profits before tax is taken at 15% of the sales but the correct
figure is 20% i.e Gross Margin – Accounting, administration and
distribution expense = 35% - 15%]
e. As usual the presentation is utterly confusing even for teachers leave
alone students.
Question No. 3(b) 6 marks
This problem set
1. The face value of each debenture is equal to Rs. 5,000, they are currently
being traded in the market at Rs. 5,400. One Debenture can be converted
into 10 Equity Shares which are currently being traded in the market at Rs.
430
Solution Given
2. The premium on conversion in the solution is calculated as under
5,400 – 4,300 x 100 = 25.581
4300
Our observations and Comments:
The Problem and solutions are wrong for the following reasons:
1. Why should the investor convert a debenture worth 5,400 into Equity
Shares which are available in the market at an equivalent value of Rs. 4,300?
He can as well sell them in the open market and purchase more than 10
shares
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
5,400 = 12.558 Approximately 12
430
2. There is no premium on conversion it is only a loss. So the answer given
is wrong
3. For solving Question 3(a) with all the mistakes an expert student will take
45 minutes for just 10 marks whereas Question 3(b) which carries only 6
marks can be solved just in 2 minutes. So the issue is: The basis of setting
the paper-balancing the time as well as the marks appears to be totally
irrational.
Advanced Management Accounting
Question No. 3 (b) 8 marks
Examiners’ comments Page No. 21
This question was a test on the entire topic of transfer pricing. The
question had an error on the transferring division. But most students
took it correctly and stated the assumption. Many were able to appreciate
only the usual variable cost or market price transfers. Most were able to
do part (vi) by adding specific transfer costs to the price.Performance was
average.
Our comments:
The above comments clearly give an impression that those students who
have not understood the mistake did not get the marks. Here the issue is
when the question is wrongly asked how can one expect the student to
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
solve it correctly? So the student who had attempted this question must
be given full credit. (Refer to our solution)
Question No. 6 (a) 10 marks
All the experts in the area of operation research agree that the question
asked was wrong but the examiners’ comments were as under (page No.
21)
Many students did not even draw the network properly. There was a
mistake in the problem on the float of a particular activity. But students
did not even reach there. This was a reverse question. Given the floats
and the ESTs, they had to find the paths and their durations. Actually, the
problem could have been solved very simply by subtracting the floats of
each path from the total duration. Very few students understood this
concept and submitted a neat and effortless answer.
Our comments:
The above comments clearly shows that the students who have attempted
wrong question were not given marks. The Examiner himself does not
know this is a wrong question and the solution published is also wrong.
So the student who had attempted this question must be given full credit.
(Refer to our solution)
Question No. 3 (a) 8 marks
The comments on Activity Based Costing are as under (page No. 20)
This was an analytical question. Students applying their minds on a basic
cost- benefit analysis would have attempted reasonably. Very few got this
fully right. Normally, students perform very well on ABC system of
costing, by using their calculator and routinely distributing overheads
among products. This question sought to test their fundamentals on
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
appreciating ABC system and its suitability. They had no grasp of the
concept. But a good number did justice to the second part. Even those
who reasonably analysed were not able to report effectively. Performance
was poor.
Our comments
The real fact is that the examiners did not have the grasp of the subject.
So here again the students must have been penalized for the fault of the
Examiners’. (Refer to our solution)
Question No. 1 (b) 5 marks
The comments of the Examiners are as under (page No. 20)
A very few students used the incremental cost approach. Most tried to
work out the total costs under each option. Some concluded wrongly.
Our comments:
First of all this problem is concerned with opportunity cost approach so
obviously the Examiners’ themselves have not understood it and
therefore would have evaluated wrongly. (Refer to our solution)
Question No. 1 (d) 5 marks
Examiners’ Comments : (page No. 20)
This was a new type of question, which tested the application of the
concept of quality costs. Performance was moderate on the whole.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Our comments:
The examiners’ have themselves have not understood the concept but
feel that the students have not understood the concept particularly this
problem is a very simple and a basic one. The solution given had two
mistakes. (Refer to our solution)
Question No. 2 (a) 10 marks
Examiners’ comments (page No. 20)
Many students lacked understanding of the concept of eliminating cost
variances from the margin variances by taking the budgeted cost for both
actual and budgeted margins. This fundamental mistake has been
committed earlier also. Most students identified that the variances were
favourable or adverse, but a few of them interchanged the favourable and
adverse tags. Some were confused whether to take the margins and
compute or just the selling price. Many did not know the mix variance
calculation. Some had price, volume and mix variances interchanged.
Our comments: (Refer to our solution)
Question No. 4(b) 6 marks
Examiners’ Comments : (page No. 21)
Many students ignored the step fixed costs concept. They calculated
these as variable costs.
Our comments: (Refer to our solution)
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
ADVANCED MANAGEMENT ACCOUNTING CA FINAL
NOVEMBER – 2011
Suggested Answers solved with comments by Venkatasivakumar. V
Question No.1 (a)
Issue in the problem
1. The company is planning whether to go in for own manufacture or sub contract
the machining / manufacturing operations.
2. We have to decide depending on the level of demand, whether to go in for subcontract
(Less fixed cost and high unit variable cost) compared to own
manufacture (having high fixed cost and low unit variable cost).
Concept: In all such situations we have to compute the cost break even point or
indifference points
Working Note:
1. Calculation of Cost break even points or indifference point.
Let ‘x’ be the indifference point in units at which the total cost of operation
under both the methods will be the same. Only above this level we have to consider
complete manufacture of product Z.
80x + 392,000 = 90x + 150,000
80x – 90x = 150,000 – 392,000
X= -242,000/-10
X = 24,200 units
Conclusion:
a) Manufacture be recommended only if the demand exceeds 15000 units :
= Fixed cost / Contribution per unit
= 150,000 / 10
= 15000 units.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
b) If the demand is less than 24,200 units, we have to consider sub contracting.
c) If the demand exceeds 24,200 units, we have to go in for own manufacture.
Question No. 1(b)
Issue in the problem
1) Whether the facilities can be utilized to :
a) Convert entire ‘L’ into ‘M’ by incurring additional processing charges or
b) Produce 7,000 units of ‘A’ by utilizing / diverting 7000 units of ‘J’
Concept/ Notes:
a) The joint cost allocated for ‘J’, ‘K’ and ‘L’ should be treated as sunk cost
hence not relevant.
b) 40,000 units of ‘L’ can be sold at Rs.10 per unit, realizing Rs.400,000
i.e.(4,000 x 10) which will be lost / sacrificed in option I, hence it should be
considered as opportunity cost.
c) Loss of Revenue by diverting 7,000 units of ‘J’ which otherwise could have
been sold in open market at Rs.35,000 I.e.(7000 x 5) in option II, should also
be considered as opportunity cost.
d) The incremental cost is only the cost of further processing which is 180,000
for option I and 84,000 i.e. (7000 x 12) for option II.
Remarks:
The question specifies the use incremental cost, which is wrong. It should have
been based on opportunity cost approach. The decision making will depend on the
alternative which yields highest (additional) profit.
The issue is whether the presentation as per suggested answers will be
sufficient to get full marks from view point of a final student?
Question No. 1(d)
(Wrong Question Wrong Answer)
a) For this question, the solution says repairs to manufacturing equipment is
considered as internal failure, which in our opinion is wrong it can be normal
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
preventive maintenance. The question should have been break down repairs to
manufacturing Equipment.
b) Raw material inspection is classified as preventive cost whereas it should come
under appraisal costs.
Question No.2A
This question has been solved in the most confusing and difficult manner in the
suggested answer. The simple answer will be as under:
1 2 3 4
BQ RBQ AQ AQ
X Bm X Bm X BM X AM
V 25,000 x 0.70 =
175,000
300,000 x 0.70 =
210,000
180,000 x 0.70 =
126,000
180,000 x 0.50.=
90,000
C 300,000 x 0.90 =
270,000
360,000 x 0.90 =
324,000
270,000 x 0.90 =
243,000
270,000 x 0.75
=202,500
S 200,000 x 1.10 =
220,000
240,000 x 1.10 =
264,000
330,000 x 1.10 =
363,000
330,000 x 1.30
=429,000
A 50,000 x 1.50 =
75,000
60,000 x 1.50 =
90,000
180,000 x 1.50 =
270,000
180,000 x 2.00 =
360,000
740,000
8,88,000
10,.02,000
10,81,500
i) Sales margin price variance
4 – 3 = AQ (AM –BM)
= 10,81,500 - 10,02,000 = 79,500 F
ii) Sales margin Mix variance
3 – 2 = BM (AQ - RBQ)
= 10,02,000 -- 8,88,000 = 1,14,000 F
iii) Sales margin volume variance
3 – 1 = BM (AQ - BQ)
= 10,02,000 - 7,40,000 = 2,62,000 F
Individual product wise
Product Sales Margin Price
Variance 4-3
Sales Margin Mix
Variance 3-2
Sales Margin Volume
Variance 3-1
V 36,000 (A) 84,000 (A) 49,000 (A)
C 40,500 (A) 81,000 (A) 27,000 (A)
S 66,000 (F) 99,000 (F) 1,43,000 (F)
A 90,000 (F) 1,80,000 (F) 1,95,000 (F)
79,500(F) 1,14,000 (F) 2,62,000 (F)
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Working Notes
1. Calculation of Budgeted Margin
Budgeted margin= Budgeted selling price – variable cost
Product
V 1.20 - 0.50 = 0.70
C 1.50 - 0.60 = 0.90
S 1.80 - 0.70 = 1.10
A 2.50 - 0.01 = 1.50
2. Calculation of actual margin
Actual selling - Variable cost = Actual margin price
Products
V 1.00 - 0.50 = 0.50
L 1.35 - 0.6 = 0.75
S 2.00 - 0.70 = 1.30
A 3.00 - 1.00 = 2.00
3. Calculation of Revised Budgeted quantity.
Products Total Budgeted Gallons Revised Budget Total actual gallons
V 250.000 300,000 180,000
L 300.000 360,000 270,000
S 200,000 240,000 330,000
A 50,000 60,000 180,000
800,000 960,000 960,000
Actual quantity is 20% higher than the budgeted quantity i.e.
960,000 x 100 = 120%
800,000
Question No. 3 (a)
It is a very simple problem based on Activity Based Costing solved in a very confusing
manner. There are 5 issues answered in the suggested answers (8marks) which means
a student will get 1.60 marks for every point but in the question is only about whether
to introduce ABC system or not? In our opinion the answer should have been as under:
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
1) The Selling Price and variable costs are not for discussion. We have to consider
only the fixed manufacturing costs. The total fixed manufacturing cost will be
Rs.20,000 x 10 =200,000 and since both the products P and Q are similar in
nature, activity based costing approach will be of no use. The fixed
manufacturing cost can be absorbed on a pre determined basis.
2) Cost benefit analysis Rs.200,000 of fixed overheads includes 90,000 of
depreciation. So the cash component is only 110,000 whereas the cost of
installing ABC system is 120,000 p.a . So ABC should not be considered.
3) This question is poorly asked for final level because even assuming the entire
Rs. 200,000 is only cash expenditure still ABC should not be installed, as the
products are similar in nature
Therefore the answer given in suggested answer is confusing, irrelevant and
uncalled for.
Question No. 3(b) (Wrong questioning and also accepted in the Suggested answer but
what about the student who wrote the exam based on the above)
According to the problem division A is the transferor division whereas Division B is
transferee division but the questions were asked assuming Division A as a transferee
division and Division B as transferor Division. How can a student answer such
questions?
The suggested answers also accepts that there is an error and tries to give some
irrelevant answer. When the mistake is so serious what would be the basis of
evaluation?
(i)Let us presume that for a moment the student is able to identify the mistake and
goes about answering the question correctly. Very few students can do this impossible
task. Will he be awarded full marks? A well prepared student in spite of knowing will
not take the risk and will end up getting low marks for no fault of his.
Comments on the answers given:
Question No. 3 b (ii) The answer given is not clear because when there is no market
for the product and the product cannot be stored, whatever price that can be fetched
or paid by B will be acceptable.(perishable commodities)
Question No. 3 b (iii) Again the explanation is unclear. When the product transferred
by A is highly specialized and in case where B is forced to buy from outside, then
naturally the market price will be the best market price.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Question No. 3 b (iv) when there is a surplus quantity for product A, the transfer price
will be the variable cost (particularly when there is no open market).
Question No. 4 (b)
This problem is very similar to many problems asked earlier (Kalyan University in
1980s for intermediate students). The question should have been calculation of break
even students instead of (a) is asked
It was not asked in the problem about the profitability at 514 to 516 students but
however the same has been solved in the suggested answer. How can a student solve
the questions which were not asked? How will he be evaluated?
Not asked but solved.
Question No. 5 (a)
Issue and concept in the problem.
The company has a stock of 5000 units of Quick Comp software package which should
be discarded if the new version faster comp has to be introduced. This problem is
concerned with segregating the costs into avoidable or relevant cost unavoidable/sunk
cost.
Working notes:
1. The variable cost of Rs.1000 already incurred for quickcomp should be treated
as sunk cost whereas the Rs.4000 representing fastercomp is yet to be incurred
hence it should be considered as relevant cost.
2.
3. The total development cost which has already been incurred and is only being
amortized over the period so it should be treated as a sunk cost
4. The marketing and administration costs are allocated fixed costs hence not
relevant for decision making.
Conclusion: It is advisable to introduce the faster comp as the profit is higher.
Download PDF file here File(s)
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
LETTER TO THE HONORABLE PRESIDENT OF ICAI ON THE CA FINAL NOVEMBER
2011 EXAM RESULTS
To,
CA. Jaydeep Narendra Shah
Honorable President
Institute of Chartered Accountants of India
New Delhi
Sub : “Request for publishing the rejoinder
on CA Final Exam comments in the CA Students
Journal (April, 2012)”
Respected Sir,
Please refer to the meeting we had on 14/03/2012 between 11:15
AM to 12:30 PM in the SIRC Bhawan, Chennai. I thank you very much for your
kind and patient hearing.
I really appreciate your genuine commitment, humbleness, dedication towards
the students and the profession and whole heartedly wish you all the success
for your untiring efforts.
This letter, is in continuation of my E-mail on 22/02/2012 and also another Email
along with a acknowledged hard copy on 06/03/2012. The broad issues
for your concern and doing the justice for several lakhs of the CA Students and
their families are as under.
My humble request to your good self, is for publishing the other side of the
view compared to what is presented in the student journal for the month of
March 2012 in the page number 17 to 24 under the caption Examiners’
comments on the performance of the candidates – CA Final which we all know
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
is based on the suggested answers published by the Institute which is the only
basis for students to evaluate themselves and prepare for the ensuing exams.
My request assumes more importance for the following reasons
a) In the page Number 21of the Journal Question 3 (b) – Transfer Pricing,
the Examiners’ themselves accepted that the problem asked is a mistake
which carries 8 marks
b) I have worked out solutions for the problems along with my comments
and the same were sent to you after being verified by very eminent
personalities (mistakes in questioning as well as solutions exceeding 30
marks).
c) During my discussion (several times over the telephone) with Shri Vijay
Kapoor, Director Board of Studies who after verification confirmed that
the issues raised by me are correct, and there were lot of mistakes in the
suggested answers which are the basis for the valuation of the Exam
Papers.
d) The students appearing for the CA exam, as we all know must get a
minimum of 40% in all the subjects and an aggregate of 50% in a group of
4 subjects for being declared as passed. Even if he gets 39 in a subject or
199 in group, he will have to write all the subjects again. We know
significant number of students (running into thousands in numbers do
fail every time by just getting one or two marks less mainly due to the
fault of the Examination system!!!)
e) The students who in spite of performing well, keep on failing due to the
mistakes, negligence and inefficiency of the officials\Experts in the
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Examination system which needs to be addressed as this creates mental
agony, loss of confidence, loss of earnings, loss of their precious time
and leaves them and their families in great despair.
f) When the mistakes are running into more that 30 to 40 marks the
student who does correctly fails and the rank holder is awarded for his
mistakes. This is a human right violation and totally against the basic
principles of natural justice which needs immediate attention.
g) I would therefore request you to publish the entire letter in the
forthcoming (April Issue) Chartered Accountant Student Journal along
with a detailed explanation from the Examination Committee and the
Board of Studies on the mistakes committed
h) As the exams are fast approaching in May, 2012 the publication in the
April Journal will give an opportunity to the students who are not
successful in spite of performing well to take appropriate course as
suggested by the Institute (ICAI) for being declared as successful and
without the agony of writing the exams again.
i) I had a detailed discussion with Mr. CA. Vikamsey Nilesh Shivji, FCA
Chairman Board of Studies, who is also the current editor of the Student
Journal gave a patient hearing and promised to come back on this issue. I
am still waiting for his call.
j) I would be grateful if you could reply to my/our letters on the same issue
on or before 24th of March, 2012 failing which I will be left with no choice
but to seek the help of the Judiciary. I will be moving the writ of
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Mandamus under Article 226 of the Constitution in the Honorable High
Court of Madras in case of your refusal or no reply.
With warm regards
Yours sincerely
V. Venkatasivakumar, FCA
M. No. 021853
Enclosed:
1. Rejoinder to the comments of the Examiners’ published in the
Student Journal
2. The solutions in our opinion which are correct needs to be
published
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Rejoinder for the Comments published in the Students Journal
STRATEGIC FINANCIAL MANAGEMENT CA FINAL NOVEMBER 2011 EXAM
PAPER
Question No. 3(a) 10 marks
Examiners’ Comments : (page No. 18)
(a) This question expected the candidates to compute future cash
flows and terminal cash flows and to value the business based thereon. It
was found that most candidates had not understood the problem in the
right perspective. Even the first step of projecting the annual cash flows
was not handled clearly. This sort of inability requires to be corrected
since handling cash flows, discounting them and computing values based
thereon is fundamental to financial analysis. Candidates need practice in
this area.
(b) Even though the problem is ordinary, the number of students who
attempted this question was not large.
Our comments:
Both the above questions were asked wrongly and also were solved
wrongly (Refer to the solution). Both these questions in total carried 16
marks which means the students who could not attempt or gave a partial
attempt would have not got marks.
The comments of the Examiners shows their poor understanding of the
question asked and solution given.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
The question is about a company which is planning to make investment
which is expected to increase the sales and the profit, alternatively it can
maintain the statusquo. The student must evaluate it by computing the
value of the firm with and without expansion by using constant growth
model. For this purpose he will have to compute free cash flows and
discount them at the rate given and choose the better option.
A point mentioned in problem had a mistake namely, total assets is equal
to 160 Lacs whereas equity was mentioned as 150 Lacs which in our
opinion is not a very significant one for solving this problem. The student
would have ignored it particularly in the absence of any interest element.
Even after ignoring the mistake he would have been in a position to solve
the problem. But the suggested answer, for reasons best known to them
gave two solutions (uncalled for). One assuming that there is a mistake
and the other there is no mistake when there is a mistake!!!!!).
The question however was not clear as to what they want the student to
solve?
In the case of statusquo where the student has to prepare four year’s
cash flows the inflation factor was not at all mentioned and the
depreciation which is to be calculated on WDV basis is bound to affect the
cash flows was ignored. It was also not mentioned whether the
depreciation was included in the manufacturing cost of goods sold or not
a very vital point for computation of cash flows and decision making.
With regard to the proposal of expansion following are the mistakes
a. The entire answer is wrong
b. The depreciation was shown as a separate item but the tax effect was
not considered. The correct adjustment should have been to add back the
depreciation computed to the PAT in computing the cash flows.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
c. The current assets workout to 15% of sales but it was taken as 12.5%
and the basis on which the current liability figure was arrived at was not
clear.
d. The Profits before tax is taken at 15% of the sales but the correct
figure is 20% i.e Gross Margin – Accounting, administration and
distribution expense = 35% - 15%]
e. As usual the presentation is utterly confusing even for teachers leave
alone students.
Question No. 3(b) 6 marks
This problem set
1. The face value of each debenture is equal to Rs. 5,000, they are currently
being traded in the market at Rs. 5,400. One Debenture can be converted
into 10 Equity Shares which are currently being traded in the market at Rs.
430
Solution Given
2. The premium on conversion in the solution is calculated as under
5,400 – 4,300 x 100 = 25.581
4300
Our observations and Comments:
The Problem and solutions are wrong for the following reasons:
1. Why should the investor convert a debenture worth 5,400 into Equity
Shares which are available in the market at an equivalent value of Rs. 4,300?
He can as well sell them in the open market and purchase more than 10
shares
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
5,400 = 12.558 Approximately 12
430
2. There is no premium on conversion it is only a loss. So the answer given
is wrong
3. For solving Question 3(a) with all the mistakes an expert student will take
45 minutes for just 10 marks whereas Question 3(b) which carries only 6
marks can be solved just in 2 minutes. So the issue is: The basis of setting
the paper-balancing the time as well as the marks appears to be totally
irrational.
Advanced Management Accounting
Question No. 3 (b) 8 marks
Examiners’ comments Page No. 21
This question was a test on the entire topic of transfer pricing. The
question had an error on the transferring division. But most students
took it correctly and stated the assumption. Many were able to appreciate
only the usual variable cost or market price transfers. Most were able to
do part (vi) by adding specific transfer costs to the price.Performance was
average.
Our comments:
The above comments clearly give an impression that those students who
have not understood the mistake did not get the marks. Here the issue is
when the question is wrongly asked how can one expect the student to
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
solve it correctly? So the student who had attempted this question must
be given full credit. (Refer to our solution)
Question No. 6 (a) 10 marks
All the experts in the area of operation research agree that the question
asked was wrong but the examiners’ comments were as under (page No.
21)
Many students did not even draw the network properly. There was a
mistake in the problem on the float of a particular activity. But students
did not even reach there. This was a reverse question. Given the floats
and the ESTs, they had to find the paths and their durations. Actually, the
problem could have been solved very simply by subtracting the floats of
each path from the total duration. Very few students understood this
concept and submitted a neat and effortless answer.
Our comments:
The above comments clearly shows that the students who have attempted
wrong question were not given marks. The Examiner himself does not
know this is a wrong question and the solution published is also wrong.
So the student who had attempted this question must be given full credit.
(Refer to our solution)
Question No. 3 (a) 8 marks
The comments on Activity Based Costing are as under (page No. 20)
This was an analytical question. Students applying their minds on a basic
cost- benefit analysis would have attempted reasonably. Very few got this
fully right. Normally, students perform very well on ABC system of
costing, by using their calculator and routinely distributing overheads
among products. This question sought to test their fundamentals on
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
appreciating ABC system and its suitability. They had no grasp of the
concept. But a good number did justice to the second part. Even those
who reasonably analysed were not able to report effectively. Performance
was poor.
Our comments
The real fact is that the examiners did not have the grasp of the subject.
So here again the students must have been penalized for the fault of the
Examiners’. (Refer to our solution)
Question No. 1 (b) 5 marks
The comments of the Examiners are as under (page No. 20)
A very few students used the incremental cost approach. Most tried to
work out the total costs under each option. Some concluded wrongly.
Our comments:
First of all this problem is concerned with opportunity cost approach so
obviously the Examiners’ themselves have not understood it and
therefore would have evaluated wrongly. (Refer to our solution)
Question No. 1 (d) 5 marks
Examiners’ Comments : (page No. 20)
This was a new type of question, which tested the application of the
concept of quality costs. Performance was moderate on the whole.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Our comments:
The examiners’ have themselves have not understood the concept but
feel that the students have not understood the concept particularly this
problem is a very simple and a basic one. The solution given had two
mistakes. (Refer to our solution)
Question No. 2 (a) 10 marks
Examiners’ comments (page No. 20)
Many students lacked understanding of the concept of eliminating cost
variances from the margin variances by taking the budgeted cost for both
actual and budgeted margins. This fundamental mistake has been
committed earlier also. Most students identified that the variances were
favourable or adverse, but a few of them interchanged the favourable and
adverse tags. Some were confused whether to take the margins and
compute or just the selling price. Many did not know the mix variance
calculation. Some had price, volume and mix variances interchanged.
Our comments: (Refer to our solution)
Question No. 4(b) 6 marks
Examiners’ Comments : (page No. 21)
Many students ignored the step fixed costs concept. They calculated
these as variable costs.
Our comments: (Refer to our solution)
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
ADVANCED MANAGEMENT ACCOUNTING CA FINAL
NOVEMBER – 2011
Suggested Answers solved with comments by Venkatasivakumar. V
Question No.1 (a)
Issue in the problem
1. The company is planning whether to go in for own manufacture or sub contract
the machining / manufacturing operations.
2. We have to decide depending on the level of demand, whether to go in for subcontract
(Less fixed cost and high unit variable cost) compared to own
manufacture (having high fixed cost and low unit variable cost).
Concept: In all such situations we have to compute the cost break even point or
indifference points
Working Note:
1. Calculation of Cost break even points or indifference point.
Let ‘x’ be the indifference point in units at which the total cost of operation
under both the methods will be the same. Only above this level we have to consider
complete manufacture of product Z.
80x + 392,000 = 90x + 150,000
80x – 90x = 150,000 – 392,000
X= -242,000/-10
X = 24,200 units
Conclusion:
a) Manufacture be recommended only if the demand exceeds 15000 units :
= Fixed cost / Contribution per unit
= 150,000 / 10
= 15000 units.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
b) If the demand is less than 24,200 units, we have to consider sub contracting.
c) If the demand exceeds 24,200 units, we have to go in for own manufacture.
Question No. 1(b)
Issue in the problem
1) Whether the facilities can be utilized to :
a) Convert entire ‘L’ into ‘M’ by incurring additional processing charges or
b) Produce 7,000 units of ‘A’ by utilizing / diverting 7000 units of ‘J’
Concept/ Notes:
a) The joint cost allocated for ‘J’, ‘K’ and ‘L’ should be treated as sunk cost
hence not relevant.
b) 40,000 units of ‘L’ can be sold at Rs.10 per unit, realizing Rs.400,000
i.e.(4,000 x 10) which will be lost / sacrificed in option I, hence it should be
considered as opportunity cost.
c) Loss of Revenue by diverting 7,000 units of ‘J’ which otherwise could have
been sold in open market at Rs.35,000 I.e.(7000 x 5) in option II, should also
be considered as opportunity cost.
d) The incremental cost is only the cost of further processing which is 180,000
for option I and 84,000 i.e. (7000 x 12) for option II.
Remarks:
The question specifies the use incremental cost, which is wrong. It should have
been based on opportunity cost approach. The decision making will depend on the
alternative which yields highest (additional) profit.
The issue is whether the presentation as per suggested answers will be
sufficient to get full marks from view point of a final student?
Question No. 1(d)
(Wrong Question Wrong Answer)
a) For this question, the solution says repairs to manufacturing equipment is
considered as internal failure, which in our opinion is wrong it can be normal
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
preventive maintenance. The question should have been break down repairs to
manufacturing Equipment.
b) Raw material inspection is classified as preventive cost whereas it should come
under appraisal costs.
Question No.2A
This question has been solved in the most confusing and difficult manner in the
suggested answer. The simple answer will be as under:
1 2 3 4
BQ RBQ AQ AQ
X Bm X Bm X BM X AM
V 25,000 x 0.70 =
175,000
300,000 x 0.70 =
210,000
180,000 x 0.70 =
126,000
180,000 x 0.50.=
90,000
C 300,000 x 0.90 =
270,000
360,000 x 0.90 =
324,000
270,000 x 0.90 =
243,000
270,000 x 0.75
=202,500
S 200,000 x 1.10 =
220,000
240,000 x 1.10 =
264,000
330,000 x 1.10 =
363,000
330,000 x 1.30
=429,000
A 50,000 x 1.50 =
75,000
60,000 x 1.50 =
90,000
180,000 x 1.50 =
270,000
180,000 x 2.00 =
360,000
740,000
8,88,000
10,.02,000
10,81,500
i) Sales margin price variance
4 – 3 = AQ (AM –BM)
= 10,81,500 - 10,02,000 = 79,500 F
ii) Sales margin Mix variance
3 – 2 = BM (AQ - RBQ)
= 10,02,000 -- 8,88,000 = 1,14,000 F
iii) Sales margin volume variance
3 – 1 = BM (AQ - BQ)
= 10,02,000 - 7,40,000 = 2,62,000 F
Individual product wise
Product Sales Margin Price
Variance 4-3
Sales Margin Mix
Variance 3-2
Sales Margin Volume
Variance 3-1
V 36,000 (A) 84,000 (A) 49,000 (A)
C 40,500 (A) 81,000 (A) 27,000 (A)
S 66,000 (F) 99,000 (F) 1,43,000 (F)
A 90,000 (F) 1,80,000 (F) 1,95,000 (F)
79,500(F) 1,14,000 (F) 2,62,000 (F)
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Working Notes
1. Calculation of Budgeted Margin
Budgeted margin= Budgeted selling price – variable cost
Product
V 1.20 - 0.50 = 0.70
C 1.50 - 0.60 = 0.90
S 1.80 - 0.70 = 1.10
A 2.50 - 0.01 = 1.50
2. Calculation of actual margin
Actual selling - Variable cost = Actual margin price
Products
V 1.00 - 0.50 = 0.50
L 1.35 - 0.6 = 0.75
S 2.00 - 0.70 = 1.30
A 3.00 - 1.00 = 2.00
3. Calculation of Revised Budgeted quantity.
Products Total Budgeted Gallons Revised Budget Total actual gallons
V 250.000 300,000 180,000
L 300.000 360,000 270,000
S 200,000 240,000 330,000
A 50,000 60,000 180,000
800,000 960,000 960,000
Actual quantity is 20% higher than the budgeted quantity i.e.
960,000 x 100 = 120%
800,000
Question No. 3 (a)
It is a very simple problem based on Activity Based Costing solved in a very confusing
manner. There are 5 issues answered in the suggested answers (8marks) which means
a student will get 1.60 marks for every point but in the question is only about whether
to introduce ABC system or not? In our opinion the answer should have been as under:
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
1) The Selling Price and variable costs are not for discussion. We have to consider
only the fixed manufacturing costs. The total fixed manufacturing cost will be
Rs.20,000 x 10 =200,000 and since both the products P and Q are similar in
nature, activity based costing approach will be of no use. The fixed
manufacturing cost can be absorbed on a pre determined basis.
2) Cost benefit analysis Rs.200,000 of fixed overheads includes 90,000 of
depreciation. So the cash component is only 110,000 whereas the cost of
installing ABC system is 120,000 p.a . So ABC should not be considered.
3) This question is poorly asked for final level because even assuming the entire
Rs. 200,000 is only cash expenditure still ABC should not be installed, as the
products are similar in nature
Therefore the answer given in suggested answer is confusing, irrelevant and
uncalled for.
Question No. 3(b) (Wrong questioning and also accepted in the Suggested answer but
what about the student who wrote the exam based on the above)
According to the problem division A is the transferor division whereas Division B is
transferee division but the questions were asked assuming Division A as a transferee
division and Division B as transferor Division. How can a student answer such
questions?
The suggested answers also accepts that there is an error and tries to give some
irrelevant answer. When the mistake is so serious what would be the basis of
evaluation?
(i)Let us presume that for a moment the student is able to identify the mistake and
goes about answering the question correctly. Very few students can do this impossible
task. Will he be awarded full marks? A well prepared student in spite of knowing will
not take the risk and will end up getting low marks for no fault of his.
Comments on the answers given:
Question No. 3 b (ii) The answer given is not clear because when there is no market
for the product and the product cannot be stored, whatever price that can be fetched
or paid by B will be acceptable.(perishable commodities)
Question No. 3 b (iii) Again the explanation is unclear. When the product transferred
by A is highly specialized and in case where B is forced to buy from outside, then
naturally the market price will be the best market price.
V. Venkatasivakumar, FCA
10/11 Dr. Subbaraya Nagar, Main Rd, Opp. Samiyar Madam, Kodambakkam, Chennai -600 024
Question No. 3 b (iv) when there is a surplus quantity for product A, the transfer price
will be the variable cost (particularly when there is no open market).
Question No. 4 (b)
This problem is very similar to many problems asked earlier (Kalyan University in
1980s for intermediate students). The question should have been calculation of break
even students instead of (a) is asked
It was not asked in the problem about the profitability at 514 to 516 students but
however the same has been solved in the suggested answer. How can a student solve
the questions which were not asked? How will he be evaluated?
Not asked but solved.
Question No. 5 (a)
Issue and concept in the problem.
The company has a stock of 5000 units of Quick Comp software package which should
be discarded if the new version faster comp has to be introduced. This problem is
concerned with segregating the costs into avoidable or relevant cost unavoidable/sunk
cost.
Working notes:
1. The variable cost of Rs.1000 already incurred for quickcomp should be treated
as sunk cost whereas the Rs.4000 representing fastercomp is yet to be incurred
hence it should be considered as relevant cost.
2.
3. The total development cost which has already been incurred and is only being
amortized over the period so it should be treated as a sunk cost
4. The marketing and administration costs are allocated fixed costs hence not
relevant for decision making.
Conclusion: It is advisable to introduce the faster comp as the profit is higher.
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