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PRIME ACADEMY 31st SESSION MODEL EXAM - IPCC – ADVANCED ACCOUNTING

QUESTION PAPER

ACCG No. of Pages: 5 Total Marks: 100 No of Questions: 6 Time Allowed: 3 Hrs

All are compulsory

Working notes should form part of the answers

1.

(i) What are adjusting events as per AS-4.

(ii) List the order of payment to creditors,on dissolution of partnership.

(iii) As per AS-16, what are qualifying assets.

(iv) When is a change in accounting policy,not deemed to be a change?

(v) When should capitalization of borrowings costs cease?

(vi) What does economic life of an asset mean?

(vii) A liquidator is entitled to receive remuneration @2% of the assets realized and 3% of the amount distributed among the unsecured creditors and preferential creditors. The assets realized Rs.25,00,000 against which payment is made as follows:

Liquidation expenses:Rs.25,000 Preferential creditors: Rs.75,000 Secured creditors -Rs.10,00,000. Calculate the remuneration payable to the liquidator.

(viii) A ltd. issued 1,00,000 equity shares .The whole of the shares were underwritten by X-40% Y-30% and Z- 30%.Application for 80,000 shares were received in all, out of which application for 20,000 shares were marked X,10,000 had that of Y and 20,000 shares had that of Z .The remaining applications did not bear any stamp .Show the liability of the under writers.

(ix) What are loss assets?

(x) How would the following expenditure be allocated among the departments


a) Advertisement expenses b) Interest on borrowed capital c) Rent d) Depreciation on assets

(10x2 =20 Marks)

2. The following is the Trial Balance of the Nairobi Branch of B Ltd of Bombay as on 31st March, 2010:

Shillings Shillings Land and Buildings 1,50,000 Plant and Machinery 3,00,000 Furniture and Fittings 20,000 Stock April 1, 2009 56,000 Purchases 2,40,000 Goods from head office 80,000 Wages 30,000 Carriage inwards 5,000 Sales 6,16,000 Salaries 25,000 Rent, Rates and Taxes 5,000 Insurance 4,000 Trade expenses 3,000 Head office Account 2,40,000 Sundry creditors 18,000 Sundry debtors 30,000 Cash in hand and at Bank 10,000 Bills payable 84,000 9,58,000 9,58,000

The stock at Nairobi on 31st March, 2010 was 30,000 shillings. The following were the exchange rates:

When fixed assets were acquired Re 1=1.50 shillings On April 1, 2009 Re 1=0.90 shilling On March 31, 2010 Re 1=0.92 shilling Average Re 1=0.91 shilling

Goods from head office were invoiced in head office books at Rs 90,000. The branch account in head office books shows a debit balance of Rs 1,62,000.Convert the Nairobi Trial Balance and prepare the Nairobi trading and profit and loss account after charging 10% depreciation on Plant and Furniture. Also give the Nairobi Branch A/c in H.O. Books.

(16 Marks)


3. White Ltd. agreed to acquire the business of Green Ltd. As on March 31, 2010. The summarised balance sheet of Green Ltd. at that date was as follows.

Liabilities Rs Assets Rs Share Capital in fully paid equity shares of Rs 10 each 6,00,000 Goodwill 1,00,000 General Reserve 1,70,000 Land and Buildings 2,30,000 Profit and loss account 1,10,000 Plant and Machinery 4,10,000 12% Debentures 1,00,000 Stock in trade 1,68,000 Creditors 20,000 Debtors 36,000 Cash at Bank 56,000 10,00,000 10,00,000

The consideration payable by White Ltd was agreed as follows:

(1) A 0cash payment equivalent to Rs 2.50 for every Rs 10 share in Green Ltd. (2) The issue of 90,000 Rs. 10 equity shares, fully paid in White Ltd. having an agreed value for Rs 15

per share. White Ltd also agreed to discharge the 12% debentures of Green Ltd at a premium of 20% by allotment of its 14% debentures at 96 per cent.

When computing the agreed consideration, the directors of White Ltd valued the following assets at values noted against them:

Rs Land and Buildings 7,50,000 Plant and Machinery 4,50,000 Stock in trade 1,42,000 Debtors Subject to an allowance of 5% to cover doubtful debts The cost of liquidation of Green Ltd came to Rs 5,000 which was borne be White Ltd. Give Ledger accounts to close the books of the Green Ltd and draft journal entries required in the books of White Ltd.

(16 Marks)

4. (a) From the following figures appearing in the books of Fire Insurance division of a General Insurance Company , show the amount of claim as it would appear in the Revenue Account for the year ended 31st March , 2010:

Direct Business Re-Insurance RS RS

Claim paid during the year 46,70,000 7,00,000 Claim Payable 1stApril 2009 7,63,000 87,000 31stMarch 2010 8,12,000 53,000 Claims Received 2,30,000 Claims Receivable-1st April 2009 65,000 31st March 2010 1,13,000 Expenses of management 2,30,000

(Expenses of management includes Rs 35,000 surveyor’s fee and Rs 45,000, legal expenses for settlement of claims)


(8 Marks) (b)The Balance sheet of A, B, C and D is given below as on 31st March 2010.

Liabilities Rs Assets Rs Sundry creditors 20,000 Cash 1,000 Capital Accounts: Stock 8,000 A 60,000 Debtors 15,000 B 40,000 Plant and Equipment 80,000 C 6,000 Goodwill 20,000 Capital Account

D 2,000 1,26,000 1,26,000

The partners who have been hither to sharing the profits and losses in the ratio 4:3:2:1 decided to wind up the business as C and D become insolvent. A sum of Rs 10,000 is realised from C whereas nothing could be realised from D. Stock and debtors realised Rs 4,000 and Rs 9,000 respectively. Plant and equipment are sold for Rs 50,000 while Goodwill is valueless. The cost of realisation amount to Rs 6,000 while sundry creditors have to be paid their claims in full. One of the creditors for Rs 6,000 in the books of the firm actually claimed Rs 12,000 and the claim was settled at Rs 10,000 by arbitration .

Close the books of the firm by showing the relevant ledger accounts.Follow the rule in Garner vs. Murray Case

(8 Marks) 5. (a) D Electricity Co. earned a profit of Rs 26,98,500 after paying Rs 1,40,000 @ 14% as debenture

interest for the year ended 31st March 2010. The following further information is supplied to you:- Rs

Fixed Assets 3,60,00,000 Depreciation written off 1,00,00,000 Loan from electricity Board 80,00,000 Reserve Fund investments as par @ 10% 20,00,000 Contingencies Reserve Investments at par @ 10% 15,00,000 Tariff and dividends control reserve 2,00,000 Security deposits of customers 3,00,000 Customers contribution to assets 1,00,000 Preliminary expenses 80,000 Monthly average of current assets, including amount due from customers Rs 5,00,000

15,20,000

Development reserve 5,00,000 Show the disposal of profits mentioned above.

(8 Marks)

(b) In liquidation which commenced on 1st April,2010 certain creditors could not receive payment out of the realization of assets and out of contribution from “A” list contributories. The following are details of certain transfers which took place after 1st April, 2009:


Shareholders Number of shares transferred

Date of ceasing to be member

Creditors remaining unpaid and outstanding on the date of ceasing to be member

A 1,000 1st May,2009 6000 B 1,500 1st July,2009 7500 C 300 1st Nov,2009 8000 D 200 1st Feb 2010 9500 All the shares were of Rs.10 each,Rs.6 paid up. Ignoring expenses, remuneration to liquidator etc., Show the amount to be realized from the various parties listed above. (8 Marks)

6. (a) Rs Net profit for the current year 1,00,00,000 No. of equity shares outstanding 50,00,000 Basic earnings per share 2.00 No. of 12% convertible debentures of Rs 100 each 1,00,000 Each debenture is convertible into 10 equity shares. Interest expense for the current year 12,00,000 Tax relating to interest expense (30%) 3,60,000 Compute Diluted Earnings Per Share. (4 Marks)

b) Explain the treatment for refund of government grants as per AS-12. (4 Marks)

c) A major riot occurred in a factory on the 10th of April,2010-10 days after the year end and closure of accounts. The loss was estimated at Rs 10 crores out of which 6 crores will be recovered from the insurers .Explain briefly how this loss should be treated in the final accounts for the year ending 31-3-2010 .

(4 Marks) d) Write a short note on Intangible asset.

(4 marks)


PRIME ACADEMY 31st SESSION MODEL EXAM - IPCC – ADVANCED ACCOUNTING

SUGGESTED ANSWERS

1.

(i) Adjusting Events

An event after the balance sheet may require adjustment of reported values of assets, liability, expenses, income and equity for the accounting period, if the event is such as to provide further evidence of conditions that existed at the balance sheet date. Such events are adjusting events. For example if a fraud during the accounting period is detected after the balance sheet date but before approval of the financial statement, it is necessary to recognize the loss and change the reported values concerned elements of financial statement.

(ii) Payments are first to be made towards payment of government dues, followed by repayment

to secured creditors Unsecured creditors, partners loan and then to partners capital contribution.

(iii) A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

(iv) A change in accounting policy, not deemed to be a change,when (a) The adoption of an accounting policy for events or transactions that differ in substance

from previously occurring events or transactions, e. g introduction of a formal retirement gratuity scheme by an employer in place of ad hoc exgratia payments to employees on retirement; and

(b) The adoption of a new accounting policy for events or transactions which did not occur previously or that were immaterial.

(v) Capitalisation of borrowing costs should cease when substantially all the activities necessary to

prepare the qualifying asset for its intended use or sale are complete. When the construction of a qualifying asset is completed in parts and completed part is capable of being used while construction continues for the other parts, capitalization of borrowing cost in relation to a part should cease when substantially all the activities necessary to prepare that part for its intended use or sale are complete.

(vi) Economic life of the asset means

(1) Either the period over which an asset is expected to be economically usable by one or more users;

(2) Or, the number of production or similar units expected to be obtained from the asset by one or more users.

(vii) COMPUTATION OF LIQUIDATOR’S REMUNERATION


(1) 2% of the Asset realized: Rs. 2% of Rs 25,00,000 50,000 3% of preferential creditors of Rs 75,000 2,250 3% of amount distributed among unsecured creditors(13,47,750 * 3/103)

39,255

91,505

(viii) Statement Showing underwriters liability

Underwriters X Y Z Gross liability 40000 30000 30000 Less: marked applications 20000 10000 20000 20000 20000 10000 Less: unmarked applications 12000 9000 9000 Net liability 8000 11000 1000

(ix) A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off , wholly or partly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bank asset is not warranted although there may be some salvage or recovery value.

(x)

a) Advertisement expenses :Sales

b) Interest on borrowed capital: Loan taken

c) Rent: Floor area occupied

d) Depreciation on assets: Value of assets used

2. Nairobi Trial Balance

Dr. Sh Cr. Sh Rate Dr. Rs Cr. Rs Land and Buildings 1,50,000 1.50 1,00,000 Plant and machinery 3,00,000 1.50 2,00,000 Furniture and fittings 20,000 1.50 13,333 Stock April 1, 2009 56,000 0.90 62,222 Purchases 2,40,000 0.91 2,63,736 Goods from head office 80,000 90,000 Wages 30,000 0.91 32,967 Carriage inwards 5,000 0.91 5,494 Sales 6,16,000 0.91 6,76,923


Salaries 25,000 0.91 27,473 Rent, Rate and Taxes 5,000 0.91 5,494 Insurance 4,000 0.91 4,396 Trade expenses 3,000 0.91 3,297 Head office account 2,40,000 1,62,000 Sundry creditors 18,000 0.92 19,565 Sundry Debtors 30,000 0.92 32,608 Cash in hand and at Bank 10,000 0.92 10,869 Bills payable 84,000 0.92 91,300 Difference in exchange(balancing figure)

97,899

9,58,000 9,58,000 9,49,788 9,49,788

Value of stock, @ Re. 1= 0.92 Sh., Rs 32,608

Nairobi Trading and profit and loss account for the year ended March 31, 2010

Dr Rs Cr. Rs To opening stock 62,222 By sales 6,76,923 To purchases 2,63,736 By closing stock 32,608 To Goods from head office 90,000 To wages 32,967 To carriage inwards 5,494 To gross profit c/d 2,55,112 7,09,531 7,09,531 To Salaries 27,473 By gross profit b/d 2,55,112 To Rent, Rate and Taxes 5,494 To Insurance 4,396 To Trade expenses 3,297 To depreciation on: Plant and machinery 20,000 Furniture and fittings 1,333 To Difference in exchange 97,899 To Net profit 95,220 2,55,112 2,55,112 Nairobi Branch Account

2010 Rs 2010 Rs Mar 31 To balance b/fd 1,62,000 Mar 31 By balance c/d 2,57,220 To profit and loss

account 95,220

2,57,220 2,57,220 2010Apr 1 To balance b/d 2,57,220


3 .Calculation of consideration:

Rs Cash 60,000 * Rs 2,50 1,50,000 Shares 90,000 * Rs 15 13,50,000 15,00,000 Face value of shares allotted 90,000 * Rs 10 9,00,000 Share premium 90,000 * Rs 5 4,50,000 Agreed value of shares allotted 13,50,000

Books of Green Ltd.

Realisation Account

Dr Cr Rs Rs To Goodwill 1,00,000 By 12% Debentures 1,00,000 To land and buildings 2,30,000 By creditors 20,000 To plant and machinery 4,10,000 By white Ltd

(consideration) 15,00,000

To stock in trade 1,68,000 To debtors 36,000 To cash 56,000 To equity share holders account

(profit) 6,20,000

16,20,000 16,20,000

White Ltd

Rs Rs To realization account 15,00,000 By bank 1,50,000 By shares in white Ltd 13,50,000 15,00,000 15,00,000

Equity share holders account

Dr Rs Cr. Rs To bank 1,50,000 By equity share capital account 6,00,000 To shares in white Ltd 13,50,000 By general reserve 1,70,000 By Profit and loss account 1,10,000 By realization account (profit) 6,20,000 15,00,000 15,00,000


Cash Book (Bank Columns)

Rs Rs To balance b/d 56,000 By realization account- transfer 56,000 To white Ltd 1,50,000 By equity shareholders account 1,50,000

BOOKS OF WHITE LTD

Dr. Rs Cr. Rs Business Purchase account 15,00,000 To Liquidator of Green Ltd 15,00,000 (The consideration payable for business purchased from green Ltd) Land and buildings 7,50,000 Plant and machinery 4,50,000 Stock 1,42,000 Debtors 36,000 Cash at bank 56,000 Goodwill 2,07,800 To 12% Debentures (Green Ltd) Account 1,20,000 To creditors 20,000 To provision for bad and doubtful debts account 1,800 To business purchase account 15,00,000 Incorporation of asset and liabilities taken over from Green Ltd Goodwill is the balancing figure

Liquidator of green Ltd 15,00,000 To bank 1,50,000 To equity share capital account 9,00,000 To share premium account 4,50,000 Payment of cash and allotment of shares at a premium in a discharge of the consideration

12% Debentures (Green Ltd) Account 1,20,000 Discount on issue of debentures account 5,000 To 14% Debentures account 1,25,000 Discharge of liability of Rs 1,20,000 in respect of 12% Debentures of green Ltd. By issue of 14% debentures of the face value of Rs 1,25,000 at a discount of 4%

Share premium account 5,000 To discount on issue of debentures account 5,000 Use of share premium to write off discount of Issue of debentures

Working Note: Calculation of face value of 14% Debenture issued = Rs 1,20,000 * 100 / 96 = Rs 1,25,000.


4 (a) General Insurance company

Rs’000 Rs’000 Claims Less Re-insurance: Paid during the year 52,20 Add: Outstanding claims at the end of the year 7,52 59,72 Less: Outstanding claims at the beginning of the year 7,85 51,87

Working Notes:

Rs’000 Rs’000 Claims paid during the year Direct business 46,70 Reinsurance 7,00 53,70 Add: Surveyor’s fee 35 Legal expenses 45 80 54,50 Less: Claims received from re-insurers 2,30 52,20 2) Claims outstanding on 31st March 2008 Direct business 8,12 Reinsurance 53 8,65 Less: Claims receivable from re-insurers 1,13 7,52 3) Claims outstanding on 1st April 2007 Direct business 763 Reinsurance 87 8,50 Less: Claims receivable from re-insurers 65 7,85

(b)

Realisation A/C

Dr Rs Rs To stock 8,000 By creditors 20,000 To debtors 15,000 By cash- assets realized 63,000 To plant and equipment 80,000 (4,000 + 9,000 + 50,000) To Goodwill 20,000 By loss transferred to To cash A/C creditors 24,000 A’s capital A/C(4/10) 28,000 To cash A/C expenses 6,000 B’s capital A/C(3/10) 21,000 C’s capital A/C(2/10) 14,000


D’s capital A/C(1/10) 7,000 70,000 1,53,000 1,53,000

The cash paid to creditors in full settlement is calculated as follows:

Rs Total creditors 20,000 Less: Book value of creditors claiming 12,000 6,000 Remaining creditors 14,000 Cash paid to book value of creditors of Rs 6,000 on arbitration 10,000 Remaining creditors paid at book value 14,000 Cash paid to creditors in full settlement 24,000

Capital Accounts of partners

A Rs.

B Rs.

C Rs.

D Rs.

A Rs.

B Rs.

C Rs.

D Rs.

To balance b/d

2,000 By balance b/d

60,000 40,000 6,000

To realization A/C

28,000 21,000 14,000 7,000 By cash A/C 10,000

To D’s capital A/C (6:4)

5,400 3,600 By A’s capital A/C (6/10)

5,400

To cash A/C 54,600 36,400 2,000 By B’s capital A/C (4/10)

3,600

By cash A/C cash brought for Realisation loss

28,000 21,000

88,000 61,000 16,000 9,000 88,000 61,000 16,000 9,000 Note: The loss due to insolvency of D is borne by A and B only because C is also declared as insolvent.

Cash A/C

Dr. Rs Cr. Rs. To balance b/d 1,000 By Realisation A/C To realization A/C- Asset 63,000 ‐ Creditors 24,000


realized To C’s capital A/C 10,000 ‐ Expenses 6,000 To A’s capital A/C 28,000 To A’s capital A/C 54,600 To B’s capital A/C 21,000 To B’s capital A/C 36,400 To C’s capital A/C 2,000 1,23,000 1,23,000

5 (a) Reasonable Return:

Rs 12% on capital base Rs 1,85,00,000 22,20,000 ½% on loan from electricity board 40,000 ½% on Development reserve 2,500 ½ % on Debentures 5,000 Income from reserve fund investments 2,00,000 Reasonable return 24,67,500

Capital Base: Rs.

Fixed asset less depreciation 2,60,00,000 Preliminary expenses 80,000 Average current asset(other than customers debts) 10,20,000 Contingencies Reserve Investments 15,00,000 2,86,00,000 Less: Loan from electricity board 80,00,000 Debentures 10,00,000 Tariffs and dividends control reserve 2,00,000 Security deposits 3,00,000 Customers contribution 1,00,000 Development reserve 5,00,000

1,01,00,000 1,85,00,000

Surplus=Clear profit –reasonable return

=26,98,500-24,67,500=231000

Disposal of surplus

1/3 for the company being less than 5% of reasonable return Rs.77,000

1/3 of the balance to be credited to Tariff and Dividends Control Reserve Rs.77,000


1/3 of the balance to be credited to Customers Rs.77,000.

(b) All the shares were of Rs.10 each, Rs.6 paid up. Ignoring expenses, remuneration to liquidator etc., show the amount to be realized form the various persons listed above:

Creditors outstanding on Date of ceasing to be member

A 1,000 Share

B 1,500 Share

C 300 Share

D 200 Share

Amount to be paid to creditors

RS RS RS RS RS (1) 6,000 2,000 3,000 600 400 6,000 (2) 1,500 -- 1,125 225 150 1,500 (3) 500 -- -- 300 200 500

(4) 1,500 -- -- -- 1,500 50 Total (a) 2,000 4,125 1,125 2,250 (b) Maximum Liability on shares held 4,000 6,000 1,200 800

(c) Amount paid , (a) or (b) whichever is lower

2,000 4,125 1,125 800

6 (a)

Adjusted net profit for the current year (1,00,00,000 + 12,00,000 – 3,60,000) = Rs 1,08,40,000

No. of equity shares resulting from conversion of debentures: 10,00,000 shares

No. of equity shares used to complete diluted EPS: (50,00,000 + 10,00,000) = 60,00,000 shares

Diluted earnings per share: (1,08,40,000 / 60,00,000) = Rs 1.81

(b) Grants- rendered refundable:

(1) A government grant that becomes refundable is treated as an extra-ordinary item under AS 5.

(2) Amount refunded (or refundable) to the Government should be accounted for by debit first to any unamortized deferred credit remaining in respect to the grant to the extent that the amount refundable exceeds any such deferred credit, or where no deferred credit exist, the amount is charged immediately to the P&L statement.

(3) The amount refundable and relating to a specific fixed asset should be accounted for by increasing the book value of the asset or by reducing the capital reserve, or the deferred income balance as appropriate.

(4) Where the book value of the asset is increased , depreciation on the revised book value is provided PROSPECTIVELY, over the residual useful life to the asset.


(5) Where a grant which is in the nature of promoter’s contribution, becomes refundable in part or in full the relevant amount is reduced from the capital reserve.

(c) The event is prima facie a non adjusting event. The same should be disclosed in the directors report. However if it is a single factory concern , the going concern assumption may not be valid and it would become a adjusting event , whereby assets have to be stated at realizable values instead of historical cost and liabilities at settlement amount.

(d) An intangible asset is defined as an identifiable non-monetary asset without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes

Some common examples of IA include computer software, patents, copyrights, fishing licenses, franchises, market share, marketing rights and brands of these only those items that meet the definition criteria in strict sense are capable of being accounted for as IA. Some IA may be contained (held) in a physical substance (such as a compact disk). And cost of physical substance which is tangible in nature, can be insignificant in such cases , the physical substance is also treated as a part of the IA. In a few cases an asset may contain both a tangible and an intangible element, e. g. intricate software that controls operation of a robot is to be treated as a fixed asset.


PRIME ACADEMY 31st SESSION MODEL EXAM - IPCC – AUDITING AND ASSURANCE

QUESTION PAPER

AUIT No. of Pages: 2 Total Marks: 100 No of Questions: 8 Time Allowed: 3 Hrs

All are compulsory

1. State with reasons (in short) whether the following statements are True or False. (Answer any ten)

a. While auditing the accounts of a company, it is obligatory that the auditor must

adopt sampling technique b. Interim dividend is not a part of dividend. c. A casual vacancy caused by resignation of the auditor can be filled by the Board of

Directors. d. The overall objective of audit changes in Computer Information System (CIS)

environment. e. The fixed deposit held with bank by a company is to be shown under the head

investments in Balance Sheet as per the requirements of part I of schedule VI to the Companies Act, 1956

f. Disclaimer of opinion is issued when an auditor confronts a different stand by management in Respect of a material issue which auditor does not approve of.

g. The principle of confidentiality precludes auditor to disclose the information about the client to a third party at all circumstances without any exception.

h. Auditing in–depth implies that the auditor vouches almost all transactions in a manner that the chances of not checking any transaction are left at minimum.

i. An Auditor may be removed from Office before the expiry of his term, by the company in General Meeting.

j. Audit Working Papers to be kept at least for 3 (three) years. There is a direct relationship between detection risk and combined level of inherent and control risk.

k. The first auditor appointed by the board of directors can be removed by the board at its subsequent meeting.

l. Internal auditor of the company cannot also be its cost auditor. (10 x 2 = 20 Marks)

2. As an auditor how would you react to the following situations/comments?

a) No AGM is held for the year ended 31st March 2009 in RR Enterprises Limited. Mr. N

is the Auditor for the previous auditor. b) A ltd. has its registered Office at New Delhi. During the current accounting year, it has

shifted its corporate Head office to Indore though it has retained its registered office at New Delhi. The Managing Director of the Company wants to shift its books of account to Indore from New Delhi as he feels that there is no legal bar in doing so. .


c) B Ltd to whom CARO is applicable has conducted physical verification of only 50% (in value) of items of stock and the balance to be conducted next year due to lack of time and resources.

(6 + 8 +6 = 20 Marks)

3. Discuss the basic principles governing an audit. (10 Marks) 4.

a) What are the six important points that will attract your attention in the case of audit of a Hotel?

b) Cut off arrangements (10 Marks)

5.

a) What are the various assertions an auditor is concerned with while obtaining audit evidence From substantive procedure?

(6 Marks) b) What does AAS–3 say about utility, ownership, custody and retention of working

papers? (4 Marks)

6. How will you verify/vouch the following? Answer any two.

a) Sales Commission Expenditure b) Stock lying with Third Party c) Purchase of Motor car.

(5 +5 = 10 Marks )

7. a) Distinguish between Internal evidence and External evidence. b) What are the inherent limitations of internal control?

(5 +5 = 10 Marks)

8. Write short notes on the following (Answer any two): a) Permanent Audit File b) Letter of Weakness c) General Purpose of Financial Statements d) Vouching

OR Responsibilities of Joint auditors: (5 x 2=10 Marks)


PRIME ACADEMY 31st SESSION MODEL EXAM - IPCC – AUDITING AND ASSURANCE

SUGGESTED ANSWERS 1.

(a) False: It is not obligatory that the auditor must adopt sampling technique in auditing the accounts. But he should ensure that the relevant standards on auditing has been followed. It is in the interest of the auditor if he decides to form his opinion on the basis and recognised.

(b) False: The definition of dividend has been amended by the Companies (Amendment) Act, 2000 where the interim dividend has been treated as part of dividend. With an amendment in Section 205, the interim dividend has been brought at par with dividends declared in the normal course.

(c) False: Casual vacancy caused by resignation of an auditor can be filled only in the General Meeting of the company and not by the Board of Directors.

(d) False: Overall objective of audit does not change in Computer Information System (CIS) environment. But the use of computer changes the processing and storage, retrieval and communication of financial information.

(e) False: They are shown under current assets, loans and advances under sub head bank balances as per schedule VI part I requirement.

(f) False: Disclaimer of opinion is issued when the auditor is unable to frame an opinion in view of certain reasons like non-availability of information, non-performance of procedure etc. Where the auditor is positively in disagreement with management on certain issue, he would issue qualified report.

(g) False: The principle of confidentiality is one of the basic principles of auditing. Auditor is generally not expected to divulge the information of his client to others. But it is not the case always. He can disclose the information to others if (a) permitted by his client and (b) if he has to disclose it as per any statutory obligation dictated by any law.

(h) False: Auditing in depth does not mean cent percent or near cent percent vouching. It is checking selected transactions from beginning to end to understand and vet the system within which the transaction passes through.

(i) False: As per Section 224(7), the auditor may be removed from the office before the expiry of his term by the company in general meeting obtaining the prior approval of the Central Government. But such approval is not required for the removal of the first auditor appointed by the Director.

(j) False: Audit working papers are to be kept at least 10 years. There is inverse relationship between detection risk and combined level of inherent and control risk. When inherent and control risk are high, detection risk needs to be low to reduce overall audit risk.(AAS 6 “ Risk Assessments and Internal Control”)

(k) False: The first auditor appointed by the board of directors may be removed at general meeting of the shareholders and not meeting of the BOD.

(l) True: As per notification issued by the DCA, cost auditor should not be the internal auditor of a company for the period for which he is conducting the cost audit. It the cost auditor is also the internal auditor, he would not be able to discharge his duties properly.


2. (A) (a) When AGM IS NOT HELD: The Companies Act provides that the auditor shall hold

office till the conclusion of the next AGM. When AGM is not held, the auditor continues to hold office till such date the AGM is actually held.

(b) Analysis and Conclusion: the existing auditor continues to be the auditor of the Company till the factual conclusion of the next AGM, whenever it is held.

(c) Company’s Duties: The company should convene a General meeting of the members to appoint a new auditor or reappoint the retiring auditor When existing auditor is reappointed, the company shall pass a resolution for his reappointment. However where the company proposes to appoint a new auditor , the provisions relating to appointment of a person other than the retiring auditor should be complied with

(d) Conclusion: In the above case, N continues to be the auditor of the company till the auditor is appointed in a general meeting.

(B)

Sec. 209 provides as under (a) The books of account shall be kept at the registered office of the company (b) All or any of the books of account may be kept at such other place in India as the

Board of Directors may decide. The company shall within 7 days of the decision of the board file with ROC a notice in writing giving the full address of that other place. The notice to ROC shall be given in Form 23AA and shall specify the names of the books of account to be kept at other place From the above it is clear that the board of directors of the company may decide to keep the books of accounts of the company in any other place other than the registered office of the company by fulfilling the requirements specified in the above paragraph.

(C)

Verification of inventories 4(ii) Refer to the reporting requirements under clause 4(ii) Since the physical verification has not been carried out adequately, the Auditor should (I) Point out the specific areas where he believes the procedure of inventory verification is

not reasonably adequate (II) Analyze the impact on the financial statements and report accordingly.

3. Basic Principles Governing an Audit: The Auditing and Assurance Standard 1 (SA 200) on

“Basic Principles Governing an Audit” issued by the Institute of Chartered Accountants of India describes the basic principles which govern the auditor’s professional responsibilities and which should be complied with whenever an audit of financial information of an entity is carried out. The basic principles as stated in this statement are: (I) Integrity, Objectivity and Independence: The auditor should be straightforward, honest

and sincere in his approach to his professional work. He should maintain an impartial


attitude and both be and appear to be free of any interest which might be regarded, whatever its actual effect on being incompatible with integrity and objectivity.

(II) Confidentiality: The auditor should respect the confidentiality of information acquired in the course of his work and should not disclose any such information to a third party without specific authority or unless there is a legal or professional duty to disclose.

(III) Skill and Competence: The audit should be performed and the report prepared with due professional care by persons who have adequate training, experience and competence in auditing.

(IV) Work Performed by Others: When the auditor delegates work to assistants or uses work performed by other auditors and experts, he will be entitled to rely on work performed by others provided he exercises adequate skill and care and is not aware of any reasons to believe that he should not have so relied. The auditor should carefully direct, supervise and review work delegated to assistants and obtain reasonable assurance that work performed by other auditors or experts is adequate for his purpose since he will continue to be responsible for forming and expressing his opinion on the financial information.

(V) Documentation: The auditor should document matters which are important in providing evidence that the audit was carried in accordance with the basic principles.

(VI) Planning: Planning enables the auditor to conduct and effective audit in an efficient and timely manner. Primarily, planning should be based on the knowledge of the client’s business. Plans should be further developed and revised as necessary during the course of the audit.

(VII) Audit Evidence: The auditor should obtain sufficient appropriate audit evidence through the performance of compliance and substantive procedures to enable him to draw reasonable conclusions there from on which to base his opinion on the financing information.

(VIII) Accounting System and Internal Control: The auditor should reasonably assure himself that the accounting system is adequate and that all the accounting information which should be recorded has in fact been recorded. Internal controls normally contribute to such assurance. The auditor should gain an understanding of the accounting system and related internal controls and evaluate the same to determine the nature, timing and extent of other audit procedures.

(IX) Audit Conclusions and Reporting: The auditor should review and assess the conclusions drawn from the audit evidence obtained and from his knowledge of business of the entity as the basis for the expression of his opinion on the financial information. This review and assessment involves forming an overall conclusion as to whether:

a) The financial information has been prepared using acceptable accounting policies which have been consistently applied;

b) The financial information complies with relevant regulations and statutory requirements;

c) There is adequate disclosure of all material matters relevant to the proper presentation of the financial information, subject to statutory requirements, where applicable.


The auditor should contain a clear written expression of opinion on the financial information and if the form or content of the report is laid down in or prescribed under any agreement or statute or regulation, the audit report should comply with such requirements. When a qualified opinion, adverse opinion or a disclaimer of opinion is to be given or reservation of opinion on any matters is to be made, the audit report should state the reasons therefore.

4. (A)

The business of running a hotel is very much dissimilar to running an industrial unit for manufacturing of products. It is a service-oriented industry. The business is characterized by handling of large amounts of liquid cash, stock of foods providing a variety of services, and keeping watch on customers to ensure that they do not leave hotel without settling the dues. In view of these, the following matters require special attention by the auditor.

(I) Internal Control: Pilferage is one of the greatest problems in any hotel and it is extremely important to have a proper internal control to minimize the leakage. The following points should be checked:

a) Effectiveness of arrangement regarding receipts and disbursements of cash. b) Procedure for purchase and stocking of various commodities and provisions. c) Procedure regarding billing of the customers in respect of room service, telephone,

laundry, etc. d) System regarding recording and physical custody of edibles, wines, cigarettes,

crockery and cutlery, linen, furniture, carpets, etc. e) Ensure that are trading accounts are prepared preferably weekly, for each sales

point. A scrutiny of the percentage of profit should be made, and any deviation from the norms is to be investigated.

(II) Room Sales and Cash Collections a) There are various sales points scattered in a hotel and sales are both for cash and

credit. The control over cash is very important. The charge for room sales is made from the guest register, and tests are to be carried out to ensure that the correct number of guests are charged for the exact period of stay. Any difference between the rate charged to the guests and standard room rent is to be investigated to see that it is properly authorized.

b) The total sales reported with the total bills issued at each sales point have to be reconciled.

c) Special care must be taken in respect of bills issued to customers who are staying in the hotel, because they may not be required to pay the bills immediately in cash but at a future date or by credit cards. Billing is to be done room-wise. It must be ensured that all customers pay their bills on leaving the hotel or within specified dates.


(III) Stock: The stock in a hotel are all saleable item like food and beverages. Therefore,

following may be noted in this regard: a) All movement and transfer of stocks must be properly documented. b) Areas where stocks are kept must be kept locked and the key retained by the

departmental manager. c) The key should be released only to trusted personnel and unauthorized persons

should not be permitted in the stores area. d) Many hotels use specialized professional valuers to count and value the stocks on a

continuous basis throughout the year. e) The auditor should ensure that all stocks are valued at the year end and that he

should himself be present at the year end physical verification, to the extent practicable, having regard to materiality consideration and nature and location of inventories

(IV) Fixed Assets: The fixed assets should be properly depreciated, and the Fixed Assets Register should be updated.

(V) Casual Labour: In case the hotel employs a casual labour, the auditor should consider, whether adequate records have been maintained in this respect and there is no manipulation taking place. The wages payment of the casual labour must also be checked thoroughly.

(VI) The compliance with all statutory provisions, and compliance with the Foreign Exchange Regulations must also be verified by the auditor, especially because hotels offer facility of conversion of foreign exchange to rupees.

(VII) Other special aspects are to be verified as under a) Consumption shown in various physical stock accounts must be traced to the

customers’ bills to ensure that all issues to the customers have been billed. b) All payments to the foreign collaborator, it any, are to be checked. c) Expenses and receipts are to be compared with figures of the previous year,

having regard to the average occupancy of visitors and changes in rates. d) Special receipts on account of letting out of auditorium, banquet hall, spaces for

shops, boutiques, and special shows should be verified with the arrangements made.

e) In depth check should be carried out on the customers' ledgers to verify that all charges have been properly made and recovered.

f) The occupancy rate should be worked out, and compared with other similar hotels, and with previous year. Material deviations should be investigated.

g) Expenses for painting, decoration, renovation of building, etc. are to be properly checked.


h) It is common that hotels get their bookings done through travel agents. The auditor should ensure that the money is recovered from the travel agents as per credit terms allowed. Commission paid to travel agents should be checked by reference to the agreement on that behalf.

i) Apart from control over stock of edibles, control over issue and physical stock of linen crockery, cutlery, glassware, silver, toilet items, etc. should be verified.

j) The auditor should verify the restaurant bills with reference to KOT (Kitchen order Ticket).

k) The auditor should ensure that all taxes have been included in the client's bills. l) Computation and payment of salaries and wages vis-a-vis number of employees

must be checked.

(B) Cut-off Arrangement: Accounting is a continuous process because the business never comes to halt. It is, therefore, necessary that transactions of one period would be separate from those in the ensuing period so that the results of the working of each period can be correctly ascertained. The arrangement that is made for the purpose is technically known as “Cut-off arrangement”. It essentially forms part of the internal check of the organization. Accounts, other than sales, purchases and stock are not usually affected by the continuity of the business and, therefore, this arrangement is generally applied only to the aforesaid accounts. For this purpose, the auditor satisfies by examination and test checks that the cut-off procedures adequately ensure that :

(I) goods purchased, property in which has passed to the client, have in fact been included in the inventories and that the liability has been provided for in case of credit purchase; and

(II) goods sold have been excluded from the inventories and credit has been taken for such sales. If the value of sales is to be received, the concerned party has been debited.

The auditor may examine a sample of documents evidencing the movement of stocks into and out of stores, including documents pertaining to period shortly before and after the cutoff date and check whether stocks represented by those documents were included or excluded, as appropriate, during stock taking because this directly affects the profitability of the business.

5. (A)

As per AAS 5 (SA 500), “Audit Evidence”, substantive procedures are designed to obtain evidence as to the completeness, accuracy and validity of the data produced by the accounting system. They are two types:

a. test of details of transactions and balances, and b. analysis of significant ratios and trends including the resulting enquiry of unusual

fluctuations and items. Obtaining audit evidence from substantive procedures is intended to reasonably assure the auditor in respect of the following assertions:


Existence: that an asset or a liability exists at a given date. Right & Obligations: that an asset is a right of the entity and a liability is an obligation of the entity at a given date. Occurrence: that transaction or event took place which pertains to the entity during the relevant period. Completeness: that there are no unrecorded assets, liabilities or transactions. Valuation: that an asset or liability is recorded at an appropriate carrying value. Measurement: that a transaction is recorded in the proper amount and revenue or expenses is allocated to the proper period. Presentation and Disclosure: an item is disclosed, classified and described in accordance with recognized accounting policies and practices and relevant statutory requirements, if any. The extent and nature of substantive procedures to be performed will vary with respect to each of the above assertions. (B)

Utility of working papers: According to AAS-3 on ‘Documentation’ working papers helps in planning and performance of the audit, supervision and review of the audit work and provide evidence of the audit work performed to support the auditor’s opinion. Ownership of working papers: Working papers are the property of the auditor and he may, at his discretion, make portions of or extracts from his working papers to his client. Custody of working papers: The auditor should adopt reasonable procedures for safe custody and confidentiality of his working papers. Retention of working papers: Working papers should be retained, long enough, for a period of time sufficient to meet the needs of his practice and satisfy any legal or professional requirement of record retention.

6. (A)

Sales Commission Expenditure (I) Ascertain agreement, if any, in respect of sales transaction actually occurred during

the year carried out by authorized parties on its behalf. If yes the commission should be in accordance with the terms and conditions as specified.

(II) Check evidence of services rendered by the party to whom commission is paid with reference to correspondence etc.

(III) Ensure that the sales in fact have taken place and the same has been charged to profit and loss account.

(IV) Compare the amount incurred in previous years with reference to total turnover.


(B) Stock lying with third party (I) Obtain confirmations from the third party including the time period and reasons

thereof. (II) Evaluate condition of goods and see whether adequate provision has been made. (III) Check whether subsequently the goods lying with third party were sold or received

back after the expiry of stipulated time period. (IV) Ensure that the goods have been included in the closing stock though lying with third

party. (C)

Purchase of Motor Car (I) Ascertain whether the purchase of car has been properly authenticated. (II) Check invoice of the car dealer to confirm purchase price. (III) Examine registration with Transport Authorities to verify the ownership. (IV) Ensure that all expenses relating to purchase of car have been properly capitalized

and the same have been disclosed properly in the balance sheet. 7. (A)

Internal evidence and external evidence: Evidence which originates within the organization being audited is internal evidence. Example – sales invoice, copies of sales challan and forwarding note, goods received notes, inspection report, copies of cash memo, debit and credit notes, etc. External evidence on the other hand is the evidence that originates outside the client’s organization; for example, purchase invoice, supplier’s challan and forward note, debit notes and credit notes coming from parties, quotations, confirmations, etc. In an audit situation, the bulk of evidence that an auditor gets is internal in nature. However, substantial external evidence is also available to the auditor. Since in the origination of internal evidence, the client and his staff have the control, the auditor should be careful in putting reliance on such evidence. It is not suggested that they areto be suspected; but an auditor has to be alive to the possibilities of manipulation and creation of false and misleading evidence to suit the client or his staff. The external evidence is generally considered to be more reliable as they come from third parties who are not normally interested in manipulation of the accounting information of others. However, if the auditor has any reason to doubt the independence of any third party who has provided any material evidence e.g., an invoice of an associated concern, he should exercise greater vigilance in that matter. As an ordinary rule the auditor should try to match internal and external evidence as far as practicable. Where external evidence is not readily available to match, the auditor should see to what extent the various internalevidence corroborate each other.


(B) Internal control can provide only reasonable but not absolute assurance that its objective relating to prevention and detection of errors/frauds, safeguarding of assets etc., are achieved. This is because it suffers from some inherent limitations, such as:-

(I) Management’s consideration that cost of an internal control does not exceeds the expected benefits.

(II) Most controls do not tend to be directed at unusual transactions. (III) The potential of human error due to carelessness, misjudgment and

misunderstanding of instructions. (IV) The possibility that control may be circumvented through collusion with employees

or outsiders. (V) The possibility that a person responsible for exercising control may abuse that

authority. (VI) Compliance with procedures may deteriorate because the procedures becoming

inadequate due to change in condition. (VII) Manipulation by management with respect to transactions or estimates and

judgments required in the preparation of financial statements. (VIII) Inherent limitations of Audit.

As per AAS 2 (SA 200A), opinion expressed by the auditor is neither an assurance as to the future viability of the enterprise nor the efficiency or effectiveness with which the management has conducted affairs of the enterprise. This is because of certain inherent limitations of audit which cannot be overcome irrespective of nature and extent of audit procedures. Auditor’s work involves exercise of judgment in deciding the extent of audit procedures and deciding the reasonableness of the judgment and estimate made by the management in preparing the financial statements. The audit evidence obtained by the auditor is generally persuasive in nature rather than conclusive. Because of these factors the auditor can only express an opinion and cannot vouch with absolute certainty of financial information and results. Failure of internal control system or its non-effectiveness also contributes to the inherent limitations of audit.

8. (A)

Permanent Audit File: In the case of recurring audits, some working paper files may be classified as permanent audit files. Normally, auditor may consider classifying such papers as permanent which are required in case of recurring audit assignments this file contains paper of continuing importance to succeeding audits. A permanent audit file normally includes: (I) Information concerning the legal and organizational structure of the entity. In the case

of a company, this includes the Memorandum and Articles of Association. In the case of a statutory corporation, this includes the Act and Regulations under which the corporation functions.


(II) Extracts or copies of important legal documents, agreements and minutes relevant to the audit.

(III) A record of the study and the evaluation of the internal controls related to the accounting system. This might be in the form of narrative descriptions, questionnaires or flow charts, or some combination thereof.

(IV) Copies of audited financial statements for previous years. (V) Analysis of significant ratios and trends. (VI) Copies of management letters issued by the auditor, if any.

(VII) Record of communication with the retiring auditor, if any, before acceptance of the appointment as auditor.

(VIII) Notes regarding significant accounting policies. (IX) Significant audit observations of earlier years.

(B)

Letter of weakness (I) The auditor does compliance procedure to ascertain that the internal control system

exist n the entity; it works effectively; it work continuously in the entity during review period.

(II) When he comes across any weakness in the control points, he issues letter of weakness.

(III) Letter of weakness is a report issued by auditor stating the weakness in internal control mechanism. It also suggests measures by which the weakness in the system be corrected and the control system be made better protected.

(IV) Lapses in operation of internal control too are reported in the communication of weakness.

(V) The communication of weakness is reporting to management of such weakness in design and operation of internal control as have come to notice of auditor during his auditing and it should not be taken to be a review and comment on adequacy of the control mechanism for management purpose.

(C)

General Purpose Financial Statements: The term “General Purpose Financial Statements” normally includes a balance sheet, a statement of profit and loss (also known as ‘income statement’), a cash flow statement and those notes and other statements and explanatory material that are an integral part of the financial statements. They may also include supplementary schedules and information based on or derived from, and expected to be read with, such statements. Such schedules and supplementary information may deal, for example, with financial information about business and geographical segments, and disclosures about the effects of changing prices. Financial statements do not, however, include such items as reports by directors, statements by the chairman, discussion and analysis by management and similar items that may be included in a financial or annual report. Such financial statements are prepared and presented at least annually and are directed toward the common information needs of a wide range of users.


Some of these users may require, and have the power to obtain, information in addition to that contained in the financial statements. Many users, however, have to rely on the financial statements as their major source of financial information and such financial statements should, therefore, be prepared and presented with their needs in view. Accounting Standards are applicable to all General Purpose Financial Statements.

(D)

Vouching: The act of examining vouchers is referred to as vouching. It is the practice followed in an audit, with the objective of establishing the authenticity of the transaction recorded in the primary books of account. It essentially consists of verifying a transaction recorded in the books of account with the relevant documentary evidence and the authority on the basis of which the entry has been made; also confirming that the amount mentioned in the voucher has been posted to an appropriate account which would disclose the nature of transaction on its inclusion in the final statements of account. After examination, each voucher is marked in a manner to ensure that it may not be presented again in support of another entry. The following points need careful consideration while examining a voucher: (I) that the date of the voucher falls within the accounting period; (II) that the voucher is made out in the client’s name; (III) that the voucher is duly authorized; (IV) that the voucher comprised all the relevant documents which could be expected to

have been received or brought into existence on the transactions having been entered into, i.e., the voucher is complete in all respects; and

(V) that the account in which the amount of the voucher is adjusted is the one that would clearly disclose the character of the receipts or payments posted thereto on its inclusion in the final accounts.

OR

Responsibilities of joint Auditors AAS 12 (SA 299) on Responsibilities of Joint Auditors requires that joint auditors should by mutual discussion divide the audit work among themselves. It further states that each joint auditor is responsible only for the work allocated to him, whether or not he has prepared separate report on the work performed by him. On the other hand, all joint auditors are jointly and severally responsible: (I) in respect of the work which is not divided among joint auditors and is carried out by all

of them; (II) in respect of decision taken by all joint auditors concerning the nature, timing or extent

of the audit procedures to be performed by any of the joint auditors. (III) in respect of matters which are brought to the notice of the joint auditors by any one of

them and on which there is an agreement among the joint auditors; (IV) for examining that the financial statements of the entity comply with the disclosure

requirements of the relevant statute; and (V) For ensuring that the audit report complies with requirements of the statute.

PRIME ACADEMY 31st SESSION MODEL EXAM – IPCC

INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT QUESTION PAPER

ITSM

No. of Pages: 4 Total Marks: 100 No of Questions: 10 Time Allowed: 3 Hrs

All are compulsory

Section – A

1.

a) Describe the following terms: i. Candidate Key ii. WiFi iii. Protocol Converters iv. Mail server v. Meta data

(5x1 =5 Marks)

b) Explain each of the following: i. MMX ii. SCSI iii. Bubble Memory iv. Virtual Private Network v. Smart Card system

(5x1 =5 Marks)

2. (a) What do you understand by Application Software? Discuss some of the examples of Application Software? (10 Marks) OR (b) Discuss some of the different types of storage used in computer (5 Marks) (c) Explain the value added services that a data centre provides. (5 Marks)

3. (a) What is a Data Centre? Mention about its categories also.

(4 Marks) (b) Define Data warehouse and its components in brief.

(6 Marks) OR


(c) Discuss various Database Structures (10 Marks)

4. (a) Mention the Benefits of Flowcharts.

(4 x 1 = 4 marks) (b) Draw a flow chart to compute the interest for the below given information: A Nationalized Bank has the following policy to its depositors.

On Deposits of Rs.5,000 or above and for three years or above, the interest payable is 10%, on deposits for the same amount and for less than three years, the interest is 8% and on deposits below Rs.5,000, the interest rate is 7% irrespective of the period.

(6 Marks) 5.

a) Explain in brief the term Intranet – (Business & Technical Perspective ) (5 Marks)

b) What do you mean by the term CRM – Discuss (5 Marks)

6.

a) Vision and mission are translated into objectives b) “C” in BCG Matrix stands for commitment. c) Objectives should be quantitative, challenging and associated with time line.

(3 x 2 = 6 Marks) 7.

Briefly answer the following: a) Explain ;conglomerate diversification b) What is corporate culture? c) Definition of BPR?

(3x 2 = 6 Marks) 8.

a) Explain the concept of value chain analysis? b) Growth Enterprises, a business owned by Raghav pandey and his brothers

posted a twofold rise in net profit at Rs.50 crore in the third quarter of the current financial year as against Rs.20 crore during the corresponding period last ;year. Sales during the period climbed 90 percent at Rs.653 crore. The company in the first nine months of the current year posted anet profit of Rs.135.7 crore. Raghav pandey attributed the good performance and ongoing improvement in quality in manufacturing processes. His younger brother Vijay pandey displayed his happiness on the performance and said that we can further improve the performance by using six sigma methodology. Raghav pandey felt that the existing focus on quality is good enough as it was giving good results. a) Do you agree with Raghav pandey to keep focus on quality? Why b) What is six sigma? How can it be useful to the company? (2 x4 = 8 Marks)


9. Micheal Porter’s has suggested 3 generic strategies. Briefly explain them. In what situation generic strategy can be used?

i) Apple computer has decided to rely exclusively on marketing and it has a sustained capital investment and access to capital.

ii) Our business strategy is to design a product with unique features and

combinations of skills

iii) Concentrating on particular group of customers, geographic markets are our motto says Big TV.

(4+2+2+2 = 10 Marks) 10. Read the following case and answer the questions given at the end.

DD is the India’s premier public service broadcaster with more than 1000 transmitters covering 90% of the country’s population across an estimated 70 million homes. It has more than 20,000 employees managing its metro and regional channels. Recent years have seen growing competition from many private channels numbering more than 75, and the cable and satellite operators,. The cable and satellite network reaches 25 million homes and is growing at a very fast rate.

DD’s business model is based on selling half-hour slots of commercial time to the programme producers and charging them a minimum guarantee. For instance the present tariff for the first 20 episodes of a programme is Rs.28 lakhs plus the cost of production of the programme. In exchange the producers get 780 seconds of commercial time that he can sell to advertisers and can generate revenue. Break-even point for producers, at present rate, is thus is Rs.76000 for a 10 second advertising spot. Beyond 20 episodes, the minimum guarantee is Rs.65 lakhs for which the producer has to charge Rs.115000 for a 10 second spot in order to break-even. It is at this point the advertisers face a problem – the competitive rates for a 10 second spot is Rs.50000. producers are possessive about buying commercial time on DD. As a result the DD’s projected growth of revenue is 6-10% as against 50-60% for the private sector channels. Software suppliers, advertisers and audiences are deserting DD owing to its unrealistic pricing policy.

DD’s has three options before it. First it should purely remain as a public service borad caster, second it should go for privatization, and third it should do a middle path.

The challenge seems to exploit DDs immense potential. What is the best option in your view for DD? And why do you think the proposed alternative is the best? Give reasons

Analyse the SWOT factors the DD has.

(20 Marks)


PRIME ACADEMY 31st SESSION MODEL EXAM – IPCC

INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT SUGGESTED ANSWERS

1.

a) (I) Candidate Key: A Candidate key is any set of one or more columns whose combined

values are unique among all occurrences (i.e. tuples or rows) since a null value is not guaranteed to be unique, no component of a candidate key is allowed to be null. There can be any number of candidate keys in a table. Relational pundits are not in agreement whether zero candidate keys are acceptable,. Since that would contradict the (database) requirement that there must be a primary key.

(II) WiFi: It stands for Wireless Fidelity that describes that underlying technology of wireless local area network based on IEEE 802.11 specifications. It is used for mobile computing devices, internet and VOIP phone access, gaming applications, consumer electronics, public transports and mobile commerce etc.

(III) Protocol Converters: Dissimilar devices cannot communicate with each other unless

a strict set of communication standards is followed. Such Standards are commonly referred to as protocols. A Protocol is set of rules required to initiate and maintain communication between a sender and receiver device.

(IV) Mail Server: A mail server is the most efficient way to receive and store electronic

mail messages for a community of users. A central mail server runs 24 hours a day. The mail server can also provide a global email directory for all community and school users, as well as email gateway and relay services for all other mail servers in the district. In such a scenario, user email boxes would be maintained on a separate email server located at each school. Eg: Eudora is a powerful cross-platform email client that receives incoming mail messages from and sends outgoing mail messages to a mail server.

(V) Meta data: Metadata, or data about data, is used to inform operators and users of the

data warehouse about its status and the information held within the data warehouse. Examples of data warehouse metadata include the most recent data load date, the business meaning of a data item and the number of users that are logged in currently.

b)

(I) MMX: MMX stands for Multimedia Extensions – a set of instructions built in to the CPU, specifically intended for improving the performance of multimedia or graphic applications- mainly games. However, one needs to have applications specifically designed to take advantage of MMX.


(II) SCSI: It is a device interface that is used to solve the problem of a finite and possibly insufficient number of expansion slots. It is called small computer system interface pronounced “sczuzzy”) Instead of plugging interface cards into the computer’s bus via the expansion slots, SCSI extends the bus outside the computer by way of a cable. In other words, SCSI is like an extension cord for computer bus. IBM developed SCSI in 1970s.The current standard is SCSI -3, which allows up to seven devices to be chained on a single SCSI port. Now a day’s many devices support the SCSI interface. Fast, High-speed hard disk drives often have SCSI interfaces, so do scanners, tape drives and optical storage devices.

(III) Bubble Memory: Bubble memory is composed of small magnetic domains (bubbles)

formed on a thin single crystal film of synthetic garnet. These magnetic bubbles, which are actually magnetically, charged cylinders, only a few thousandths of a centimeter in size, can be moved across the garnet film by electric charges. The presence or absence of a bubble can be used to indicate whether a bit is on or off. It can also be used as a auxiliary storage.

(IV) Virtual Private Network: A VPN is a private network that uses a public network

(usually the internet) to connect remote sites or users together. Instead of using a dedicated, real-world connection such as leased line, a VPN uses “virtual “ connections routed through the internet from the company’s private network to the remote site or employee. There are two common types of VPN. a) Remote access b) site to site VPN

(V) Smart Card System: Smart cards resemble credit cards in size and shape and contain

a microprocessor chip and memory, where as some include a keypad as well. These cards are used most frequently to make electronic purchases and to electronically transfer funds between accounts. These cards could contain digitized fingerprints of the cardholder, which could be compared at a security checkpoint to fingerprints of people who are authorized to enter a secure area.

2. a) Application Software is a loosely defined subclass of computer software that employs

that capabilities of a computer directly to a task that the user wishes to perform. This should be contrasted with system software which is involved in integrating the computers various capabilities, but typically does not directly apply them in the performance of tasks that benefit the user. The term application refers to both the application software and its implementation. A simple, if imperfect, analogy in the world of hardware would be the relationship of an electric light – an application – to an electric power generation plant – the system. The power plant merely generates electricity, itself not really of any use until harnessed to an application like the electric light which performs a service that the user desires. Multiple applications bundled together as a package are sometimes referred to


as an application suite. The separate applications in a suite usually have a user interface that has some commonality making it easier for the user to learn and use each application. And often they may have some capability to interact with each other in ways beneficial to the user. User-written software tailors systems to meet the user’s specific needs. User-written software include spreadsheet templates, word processor macros, scientific simulations, graphics and animation scripts. Even email filters are a kind of user software. Users create this software themselves and often overlook how important it is. The program usually solves a particular application or problem. Examples of such programs are payroll, General accounting, sales statistics and inventory control etc. Usually different organizations require different programs for similar application and hence it is difficult to write standardized programs. However, tailor made application software can be written by software houses on modular design to cater to the needs of different users. OR

b) Types of Storage: Various forms of storage, based on various natural phenomenons, have been invented; therefore a computer system usually contains several kinds of storage each with an individual purpose. Primary storage: Primary storage is directly connected to the central processing unit of the computer. It must be present for the CPU to function correctly. Primary storage consists of three kinds of storage: Processor registers are internal to the central processing unit. Registers contains information that the arithmetic and logic unit needs to carry out the current instruction. They are t technically the fastest of all forms of computer storage, being switch transistors integrated on the CPU’s silicon chip, and functioning as electronic “flip-flops”. Main memory contains the programs that are currently being run and the data on which the programs are operating. The arithmetic and logic unit can very quickly transfer information between a processor register and locations in main storage, also known as a “memory addresses”. In modern computers, electronic solid-state random access memory is used for main storage, and is directly connected to the CPU via a “memory bus” and a data bus. The memory bus is also called an address bus or front side bus and both buses are high-speed digital “superhighways”. Access methods and speed are two of the fundamental technical differences between memory and mass storage devices. Cache memory is a special type of internal memory used by many central processing units to increase their performance or “throughput” . Some of the information in the main memory is duplicated in the cache memory. , which is slightly slower but of much greater capacity than the processor registers, and faster but much smaller than main memory. Multilevel cache memory is also commonly used “primary cache” being smallest, fastest and closest to the processing device’ “secondary cache” being larger and slower, but still faster and much smaller than main memory. Secondary storage requires the computer to use its input/output channels to access the information, and is used for long term storage of persistent information. Nowadays most computer operating systems also use secondary storage devices as virtual memory to artificially increase the apparent amount of main memory in the computer.


Network storage is any type of computer storage that involves accessing information over a computer network. Network storage arguably allows to centralize the information management in an organization and to reduce the duplication of information. It includes Network attached storage and network computers.

c) Value added services that a data center provides are

Database monitoring: This is done via a database agent, which enables the high availability of the database through comprehensive automated management. Web monitoring: This is to assess and monitor website performances, availability, integrity and the responsiveness from a site visitor’s perspective.

It also reports on HTTP, FTP service status, monitors URL availability and round-trip response times, and verifies web content accuracy and changes. Backup and restore: It provides centralized multi-system management capabilities. It also a comprehensive integrated management solution for enterprise data storage using specialized back up agents for the operating system, database, open files and application. Intrusion detection system: ID stands for intrusion detection, which is the art of detecting inappropriate, incorrect, or anomalous activity. ID systems that operate on a host to detect malicious activity on that host are called host-based ID systems, and ID systems that operate on network data flows are called network based ID systems. Sometimes, a distinction is made between misuse and intrusion detection. The term intrusion is used to describe attacks from the outside; whereas misuse is used to describe an attack that originates from the internal network. Storage on demand: It provides the back-end infrastructure as well as the expertise, best practices and proven processes so as to give a robust, easily management and cost-effective storage strategy. It provides data storage infrastructure that supports your ability to access information at any given moments – one that gives the security, reliability and availability needed to meet company demands.

3. a) Data Centre: A data centre is a centralized repository for the storage, management and

dissemination of data and information. Data centers can be defined as highly secure, fault-resistant facilities, hosting customer equipment that connects to telecommunications networks. Often referred to as an internet hotel/ server farm, data warehouse, corporate data center, internet service provider (ISP) or wireless application service provider, the purpose of a data centre is to provide space and bandwidth connectivity for servers in a reliable, secure and scalable environment’s These data centres are also referred to as public data centres because they are open to customers. Captive, or enterprise data centres, are usually reserved for the sole and exclusive use of the parent company, but essentially serve the same purpose. These facilities can accommodate thousands of servers, switches, router and racks, storage arrays and other associated telecom equipment.


A data centre also provides certain facilities, like housing websites, providing data serving and other services for companies. This kind of data center may obtain a network operations center, which is a restricted access area containing automated systems that constantly monitor server activity, web traffic, network performance and report even slight irregularities to engineers, so that they can spot potential problems before they happen. The primary goal of a data centre is to deploy the requisite state of the art redundant infrastructure and systems so as to maximize availability and prevent or mitigate any potential downtime for customers. Two categories: private data centre, public data centre.

b) A Data warehouse is a repository of an organization’s electronically stored data. Data warehouse are designed to facilitate reporting and supporting data analysis. The concept of data warehouse was introduced during the late 1980’s. The concept was introduced to meet the demands for management information and analysis that could not be met by operational systems. Operational systems were unable to meet this need for a range of reasons: The processing load of reporting reduce the response time of the operational systems, The database designs of operational systems were not optimized for information analysis and reporting, Most organizations had more than one operational system, so company-wide reporting could not be supported from a single system, and Development of reports in operational systems often required writing specific computer programs which was slow and expensive. As a result, separate computer database began to be built that were specifically designed to support information and analysis purposes. These data warehouses were able to bring in data from a range of different data sources, such as mainframe computers, minicomputers, as well as personal computers and office automation software such as spreadsheets and integrate this information in a single place. This capability, coupled with user-friendly reporting tools, and freedom from operational impacts had led to a growth of this type of computer systems. As a technology improved and user requirements increased data warehouses have evolved through several fundamental stages.

The Data warehouse is primarily composed of Data sources made up of existing databases, files and external information Data extraction and transformation involving data cleansing and data reconstruction. Data Mart, which is a data intended for a single function or a department on selected subjects like marketing, product etc, is created by various user departments through the process of aggregation and summarization.

OR


c) Three traditional approaches have been implemented commercially to organize records and their relationships logically. These logical organizational approaches are known as database structures. The three traditional database structures are the

Hierarchical database structure Network database structure Relational database structure. These models differ in the manner in which data elements can be logically related and accessed. Hierarchical models are often considered to be the most restrictive and relational models are flexible. In a Hierarchical database structure, records are logically organized into a hierarchy of relationships. A hierarchical structured database is arranged logically in a inverted tree pattern.. Network database structure: A Network database structure views all records in sets. Each set is composed of an owner record and one or more member records. This is analogous to the hierarchy’s parent-children relationship. Thus, the network model implements the one to one and one to many record structures. However, unlike the hierarchical mode, the network model also permits a record to be a member of more than one set at a time. Relational database model: A third database structure is the relational database mode. Both the hierarchical and network data structure require explicit relationships, or links, between records in the database. Both structures also require that data to be processed one record at a time. The relational database structure departs from both these requirements. A relational database is structured into a series of two-dimensional tables. Because many managers often work with tabular financial data, it is easy for most of them to understand the structure used in relational database.

4. a) The Benefits of Flow chart are

Quicker grasp of relationships:- Before any application can be solved, it must be understood , the relationship between various elements of the application must be identified. The programmer can chart a lengthy procedure more easily with the help of a flowchart than by describing it by means of written notes. Effective analysis:- The Flowchart becomes a blue print of a system that can be broken down into detailed parts for study. Problems may be identified and new approaches may be suggested by flowcharts. Communication:- flowcharts aid in communicating the facts of a business problem to those whose skills are needed for arriving at the solution. Documentation:- Flowcharts serve as a good documentation which aid greatly in future program conversions. Efficient coding: Flowcharts act as a guide during the system analysis and program preparation phase. Instructions coded in a programming language may be checked against the flowchart to ensure that no steps are omitted. Orderly check out of problem:- Flowcharts serve as an important tool during program debugging. They help in detecting, locating and removing mistakes.


Efficient program maintenance:- The maintenance of operating programs is facilitated by flowcharts.


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5. a) The term Intranet is a type of information system that facilitates communication within the

organization, among widely dispersed departments, divisions, and regional locations. Intranet connect people together with Internet technology, using web browsers, web servers and data warehouse in a single view. With an intranet, access to all information, applications and data can be made available through the same browser. The objective is to organize each individual desktop with minimal cost, time and effort to be more productive, cost-efficient and timely competitive. According to James Cimino, the challenge is to realize the following from focused intranet work: Easy accessible information Reduced information searching time Sharing and reuse of tools and information Reduced set-up and update time Simplified reduced corporate licensing Reduced documentation costs Reduced support costs Reduced redundant page creation and maintenance Faster & Cheaper creation One-time archive development costs Sharing of scare resource of skills Some of the key benefits of using Intranet are Work force productivity Time Communication Web publishing Business operation and Management Cost-effective Promote common corporate culture Enhance collaboration Cross-platform capability Planning and creating an intranet.

b) CRM – Customer relationship management includes the methodologies, technology and capabilities that help an enterprise manage customer relationships. The general purpose of CRM is to enable organizations to manage its customers in a better way through the introduction of reliable systems, processes and procedures. Implementing CRM:- Customer Relationship management is a corporate level strategy which focuses on creating and maintaining lasting relationships with it s customers. Although there are several commercial CRM Software packages on the market which support CRM strategy it is not a technology itself. Rather, a holistic change in an organization’s philosophy which emphasis on the customer.


A Successful CRM strategy cannot be implemented by simply installing and integrating a software package and will not happen overnight. Changes must occur at all levels including policies and processes, front of house customer service, employee training, marketing systems and information management; all aspects of the business must be reshaped to be customer driven. To be effective the CRM Process needs to be integrated end-to-end across marketing, sales and customer service. A good CRM program needs to Identify customer success factors Create a customer based culture Adopt customer based measures Develop end to end process to serve customers Recommend what question to ask and help a customer to solve a problem Recommend what to tell a customer with complaint about a purchase Track all aspects of selling to customers and prospects as well as customer support.

STRATEGIC MANAGEMENT 6.

a) Correct: A strategic vision thus points an organization in a particular direction charts a strategic path for it to follow in preparing for the future, and molds organizational identity. A clearly articulated strategic vision communicates management’s aspirations to stakeholder s and helps steer the energies of company personnel in a common direction. A vision is a road map of a company’s future. A mission statement is typically focused on its present business scope who we are and what we do. Mission statement s broadly describes an organization present capabilities, customer focus, activities and business makeup. Through vision and mission Mission of our Institute is the accountancy profession will be the valued trustees of world class financial competencies, good governance and competitiveness. Vision is to recognize the changes in Economy/Business environment such as focus on value, dynamic business and organization structures, developments in information technology and telecommunication, new government policies, globalization of business and competitive pressures. Recognize the need to be known as world class advisor.

b) Incorrect: C in BCG matrix stands for consulting and not for commitment. The BCG growth- share matrix is the simplest way to portray a corporation portfolio of investments. Usually a company classifies its different businesses on a two – dimensional growth share matrix.

c) Correct: Objectives are organizations performance targets the result and outcomes it wants to achieve. They function as; yardstick for tracking an organizations performance and progress. Organizational structure and activities are designed and resources are allocated around the objectives to facilitate their achievement. They also act as benchmarks for guiding organizational activity and for evaluating how the organization is performing. Objectives with strategic focus relate to outcomes that strengthen an


organizations overall business position and competitive vitality. Objective to be meaningful to serve the intended role must possess following characteristics.

7. a) Diversification is defined as entry into new products or product line, new services or new

markets, involving substantially different skills, technology and knowledge. When an established firm introduces a new product which has little or no affinity with its present product line and which is meant for a new class of customers different from the firm’s existing customer groups, the process is known as conglomerate diversification. Both the technology of the product and of the market is different from the firm’s present experience. Innovative and creative firms always look for opportunities and challenges to grow, to venture into new areas of activity and to break new frontiers with the zeal of entrepreneurship. They feel that diversification offer greater prospects of growth and profitability than expansion.

b) An organization has it own embedded patterns of how to do things, its own ingrained

beliefs, behavior and thought patterns, and practices that defines its corporate culture. Corporate culture refers to a company’s values, beliefs, business principles, traditions, and way of operating and internal work environment. An organization’s culture is bred from a complex combination of socio-logical forces operating within its boundaries. A company’s culture is manifested in the values and business principles that management preaches and practices, in its ethical standard and official policies, in its stakeholder relationships (especially its dealings with employees, unions, stockholders, vendors, and the communities in which it operates), in the traditions the organization maintains, in its supervisory practices, in employees’ attitudes and behavior, in the legends people repeat about happenings in the organization, in the peer pressures that exist, in the organization’s politics and in the “chemistry” and the “vibrations” that permute the work environment. All these sociological forces, some of which operate quite subtly, combine to define an organization’s culture, beliefs and practices that become embedded in a company’s culture can originate anywhere; from one influential individual. Work group, department, or division, from the bottom of the organizational hierarchy or the top.

c) Business Process Reengineering (BPR) refers to the analysis and redesign of workflows

and processes both within and between the organizations. The orientation of the redesign effort is radical. i.e., it is a total deconstruction and rethinking of a business process in its entirety, unconstrained by its existing structure and pattern. Its objective is to obtain quantum gains in the performance of the process in terms of time, cost, output, quality, and responsiveness to customers. The design effort aims at simplifying and streamlining a process by elimination all redundant and non-value adding steps, activities and transactions, reducing drastically the number of stages or transfer points of work, and speeding up the work-flow through the use of IT systems. BPR is an approach to unusual improvement in operating effectiveness through the redesigning of critical business processes and supporting business systems. It is revolutionary redesign of key business processes that involves examination of the basic process itself. It looks at the minute details of the process, such as why the work is done, who does it, where is it done and when it is done. BPR focuses on the process of producing the output and output of an organization is the result of its process. “Business process reengineering means starting all over, starting from scratch”.


8. a) Value chain analysis has been widely used as a means of describing the activities within

and around an organization, and relating them to an assessment of the competitive strength of an organization (or its ability to provide value-for-money products or services). Value analysis was originally introduced as an accounting analysis to shed light on the ‘value added’ of separate steps in complex manufacturing processes, in order to determine where cost improvements could be made and/or value creation improved. These two basis steps of identifying separate activities and assessing the value added from each were linked to an analysis of an organization’s competitive advantage by Michael Porter. One of the key aspects of value chain analysis is the recognition that organizations are much more than a random collection of machines, money and people. These resources are of no value unless deployed into activities and organized into routines and systems which ensure that products or services are produced which are valued by the final consumer/user. In other words, it is these competences to perform particular activities and the ability to manage linkages between activities which are the source of competitive advantage for organizations. Porter argued that an understanding of strategic capability must start with an identification of these separate value activities.

b) (a) No, Raghav pandey idea is to focus on quality, but that is not only important for an organization which is growing in multi level. As per the younger brother Vijay pandey who wants to use the six sigma methodology.

b) Six sigma is often related to Motorola, the Company that has invented it. Human

quest for better quality is unending. With the help of technology and newer tools organization enhance quality of their products that are seemingly of very good quality. Quality refers to the degree of excellence and standard. Better quality is often correlated with superior processes and products.

Strategically, a product of good quality should be able to meet the specifications of customer and should be able to satisfy him. If batter of wristwatch lasts for eight months, but is expected to last for a year by the customer, then the product battery is not of desired quality. Good quality should not always be associated with good products. Primarily Six Sigma means maintenance of the desired quality in processes and end products. It means taking systematic and integrated efforts toward improving quality and reducing cost. It is a highly disciplined process that helps in developing and delivering near- perfect products and services. It strives to meet and improve organizational goals on quality, cost, scheduling, manpower, new products and so on. It works continuously towards revising the current standards and establishing higher ones. Six sigma has its base in the concept of probability and normal distribution in statistics. Six Sigma strives that 99.99966% of products manufactured are defect free. Six Sigma is smarter way to manage a business or a department. Six sigma puts the customer first and uses facts and data to drive better solutions. Six sigma efforts target three main areas


• Improving customer satisfaction • Reducing cycle time • Reducing defects

Improvement s in these areas usually represents dramatic cost savings to businesses, as well as opportunities to retain customers, capture new markets, and build a reputation for top performing products and services. Six Sigma is not merely a quality initiative; it is a business initiative. Achieving the goal of six sigma requires more than small, incremental improvements; It requires breakthroughs in every area of an operation. In statistical terms, reaching six sigma means that your process or product will perform with almost no defects. But the real message of six sigma goes beyond statistics. Six sigma is a total management commitment and philosophy of excellence, customer focus, process improvement, and the rule of measurement rather than gut feel. Six sigma is about making every area of the organization better able to meet the changing needs of customers, markets and technologies- with benefits for employees, customers and shareholders.

9. According to Porter, Strategies allow organizations to gain competitive advantage from three different bases, cost leadership, differentiation and focus. Porter calls these base generic strategies. Cost leadership emphasizes producing standardized products at a very low per –unit cost for customers who are price-sensitive. Differentiation is a strategy aimed at producing products and services considered unique industry wide and directed at consumers who are relatively price-insensitive. Focus means producing products and services that fulfill the needs of small groups of consumers. Porter’s strategies imply different organizational arrangements, control procedures, and incentive systems. Larger firms with greater access to resources typically compete on a cost leadership and/or differentiation basis, whereas smaller firms often compete on a focus basis. Porter stresses the need for strategists to perform cost-benefit analyses to evaluate sharing opportunities among a firm’s existing and potential business units. Sharing activities and resources enhances competitive advantage by lowering costs or raising differentiation. In addition to prompting sharing, porter stresses the need for firms to transfer skills and expertise among autonomous business units effectively in order to gain competitive advantage. Depending upon factors such as type of industry, size of firm and nature of competition, various strategies could yield advantage in cost leadership differentiation and focus. 1. Apple Computer has decided to follow Michael porter Generic strategy on Cost

leadership strategy. They want to concentrate exclusively on marketing and also it has normal capital investment and also access to capital. Consumers who are price sensitive accept this strategy. (Low Cost position.)


2. Our business strategy is Differentiation, it is a strategy aimed at producing products and services considered unique industry wide and directed at consumer who are relatively price –insensitive.( Uniqueness perceived by the customer.)

3. Big TV is concentrating on small group of consumers, by which they are following focus strategy. (Concentrating on particular segment only)

10. For several years Doordarshan was the only broadcaster of television programmes in India. After the opening of the sector to the private entrepreneur (cable and satellite channels), the market has witnessed major changes. The number of channels has increased and also the quality of programmes, backed by technology, has improved. In terms of quality o f programmers, opportunity to advertise, outreach activities, the broadcasting has become a popular b business. Broadcasters too have realized the great business potential in the market. But for this, policies need to be rationalized and be opened to the scope of innovativeness not only in term or quality of programmes. This would not come by simply going to more areas or by allowing bureaucratic set up to continue in the organization. Strategically the DD needs to undergo a policy overhaul. DD, out of three options, namely privatization, public service broadcaster or a middle path, can choose the third one, i.e combination of both. The whole privatization is not possible under the diversified political scenario. Nor it would be desirable to hand over the broadcasting emotively in the private hand as it proves to be a great means of communication of many socially oriented public programmers. The government could also think in term of creating a corporation (as it did by creating prasar bharati) and provide reasonable autonomy to DD. So far as it s advertisement tariff is concerned that can be made fairly competitive,. However, at the same time cost of advertising is to be compared with the reach enjoyed by the doordarshan. The number of viewers may be far more to justify higher tariffs.

The SWOT analysis involves study of strengths, weaknesses, opportunities and threats of an organization. SWOT factors that are evidently available to the Doordarshan are as follows.

S- Strength

More than 1000 transmitters Covering 90% of population across 70 million homes against only 30 million homes by C & S. More than 20,000 employees.

W- Weakness Rigid pricing strategy Low credibility with certain sections of society Quality of program’s is not as good as compared to C&S network

O – Opportunities Infrastructure can be leased out to cable and satellite, channel Digital terrestrial transmission Regional focused channels. Allotment of time, slots to other broadcasters.


T- Threats Desertion of advertisers and producers may result in loss of revenues. Due to quality of program the reach of c& S network is continuously expanding. As the C& S network need the trained staff, some employees of DD may switchover and take new jobs. Best of the market –technology is being used by the private channels. It is suggested that the DD should adopt a middle path. It should have a mix a both the options. It should economize on its operational aspects and ensure more productivity in term of revenue generation and optimization of use of its infrastructure. Wherever, the capacities are underutilized, these may be leased out to the private operations. At the same time quality and viewership of programmes should be improved. Bureaucracy may reduce; new strategic initiatives or make the organization less transparent. Complete privatization can fetch a good sum and may solve many of the managerial and operational problems. However, complete public monopoly is not advisable because that denies the government to fully exploit the avenue for social and public use. The government will also lose out as it will not be able to take advantage of rising potential of the market.


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