1) (May 2019 – Case study 3 – Attached – RM May 19 SA
In the product mix, EBIT would increase by 4% for every increase of 10% of manufacturing cotton yarn and a decrease of ` 10 lakhs for every decrease of 10% in manufacturing of polyester yarn. Which of the following would be the ideal mix of cotton yarn and polyester yarn products?
Answer 70% : 30%
2) ) (May 2019 – Case study 3 – Attached)
The economic risks faced by the company would LEAST likely to include which of the following?
(A) disruptions in a production process
(B) lapsing of deadlines for construction of a new operating facility
(C) payment of contractual penalties for delayed sales
(D) hike in the price for raw materials
Answer :payment of contractual penalties for delayed sales – What to check for economic risks? How is option (A) and (B) economic risks?
3) (Nov 2019 Case study 3 Attached RM Nov 19 SA
The proposal to engage the service provider at Hyderabad is an example of:
(Answer : Risk Mitigation) – Shouldn’t it be Risk Transfer (which is also one of the options)?
4) Nov 2019 Case Study 2
If the tolerable limit for exception was 6% in the case of cement mortar sampling, the most likely conclusion would be:
(Answer : the control risk is high – Please explain how we have arrived at this option, how control risk is high?)
4) July 2021 – Case study 1 Attached RM Jul 21 SA
What is the meaning of Soft elements that influence risk appetite? I was thinking risk capacity and risk Maturity would be appropriate answer.
5) July 2021 Case study 2
During the review of receivables, the CFO found that a bill amounting to GBP 10,00,000 was overdue for payment for more than 30 days. The CFO has asked you to verify whether the overdue bill has been crystallized by the Authorised Dealer by applying correct exchange rate. Which one of the following is the correct exchange rate for crystallization of the overdue export bills ?)
Answer : TT selling rate – How selling rate please explain? Shouldn’t it be TT buying rate as we would be selling GBP and counter party would buy at TT buying rate.
6) July 2021 – Case study 4
If the working of the company is showing indicators such as (i) reliance on long term debts;(ii) offering longer credit period, (iii) higher level of inventory, (iv) rapid decreasing sales and (v) deteriorating current ratio, which of these indicators are reflections of ‘overtrading’ in the context of working capital management?
Answer : (ii), (iii) and (v) only. – Please explain what is overtrading and how it leads to higher inventory level.
7) July 2021 – Case study 4
How much increase in the cash credit is required in order to fund increased working capital requirements of OTL ? Give reply through stepwise calculation.
– ICAI has reduced Rs 8 lakhs from sales of Rs 280 lakhs to arrive at COGS. Is it assumed that EBIT (current EBIT – 4 lakhs) has also increased by 100% with increase in sales by 100% in next year. From where did they get Rs 8 lakhs?
8) Nov 2020 MTP – Case study 3 Attached RM MTP 1 Q
The standard deviation of annual return on equity stock of Facelift Ltd. during six year period (2014-2019) is
Answer : (D) 1.06%
Solution attached, is my solution approach correct? Nov 20 RM MTP Q 3.1
9) ICAI Case study digest – Case study 16 Attached Case study RM 16 ICAI
Deposits of the Bank indicates that –
(a) growth is not uniform y-o-y
(b) financial risk associated through closure of accounts is high.
(c) bank has not put in place system of retaining customers
(d) risk perception of the Bank is high.
How is the Answer (C) when the deposits have increased over the year which it indicates customers are retained. None of the answers seem correct.
10) RM Book 1 In- House Case study 27
Please explain the general approach. Why have we taken 1.5% in PVAF of periodic amout to be amortized? Also in the table how have arrived at the cash flow 10.625,10.250..? How did we decide that IRR would be between 2 – 3 %?
Doubt 1-
If product mix is 70:30 company will earn 230 lacs
if product mix is 80:20 company will earn= 230 lacs + 230lacs*0.04 – 10 lacs= 229.2 lacs
This way we have to solve for 90:10 and 100:0
You will ultimately find that highest EBIT is at 70:30 mix.
Doubt 2- You may find answer for this MCQ on Pg 1.7 of ICAI book. Clearly mentioned causes of economics risks.
Doubt 3- Answer should be risk mitigation only, as by outsourcing Ms Rita could focus on key areas of operations. That would lead to risk reduction and not complete transfer of risk as she would bear loss if the outsourced company doesn’t perform work correctly.
Doubt-4
Ideal answer of the same answer has been provided by ICAI, that what will be the soft elements, but you can also write answer with the help of ICAI handout on Pg 3.4 Determining Risk Appetite. You can pick and answer from there too. Of course you can also write about risk maturity too. Remember you can not match answer with the ICAI answer, so the answer are open for interpretations.
Doubt 5-
You are correctly stating the way answer should have been, in the answer key released by us we have taken the same view of it. But ICAI has given answer as TT selling rate, I think answer is given on illogical basis that we will receive GBP and same we will sell in open market and receive INR, so we will use TT selling rate.
Doubt-6
Overtrading of working capital means less amount of working capital is available to the company, as compared what is actually required by the business. So basically less cash available to run business.
So answer provided by ICAI is 2,3 and 5
2. Offering Longer credit period- It means we are not realizing cash, leading to increase in debtors value but not realising cash.
3. Higher inventory levels- If company is accumulating inventory then it is again its blocking too much working capital in inventory harming operations.
5. Decreasing CR- So basically CL is increasing but same time CA is reducing.
Doubt 7-
ICAI has assumed that all the figures will increase in the same proportion next year. So since EBIT of current year was 4L, next year it will get get doubled with sales, so 8L.
Doubt-8
Yes you’re approach is correct
Doubt-9
I dont know the logic behind answering C, because there is no indication regarding customer retention, but in exam fresh question would have come I would have answered a, since growth is not uniform Y-o-Y basis, because from 3rd to 4th year growth is too high in deposits.
Doubt-10
Please attach the case study, as i dont have the case study available with me right now.
Thanks a lott for answering all the questions, helped me.