CA PCC - CAFM - Solution for Paper 2
http://sites.google.com/site/gkr8164/Home/Solution2.pdf?attredirects=0
Wednesday, April 8, 2009
CA PCC - CAFM - Solution for Paper 1
CA PCC - CAFM - Solution for Paper 1
http://sites.google.com/site/gkr8164/Home/Solution1.pdf?attredirects=0
http://sites.google.com/site/gkr8164/Home/Solution1.pdf?attredirects=0
CA PCC - CAFM - Model Paper 4
CA PCC - CAFM - Model Paper 4
http://sites.google.com/site/gkr8164/Home/4.doc?attredirects=0
CA PCC - CAFM - Model Paper 1
CA PCC - CAFM - Model Paper 1 - (NOV 2008)
http://sites.google.com/site/gkr8164/Home/1.doc?attredirects=0
PPT Slides for Costing & FM
Dear CA PCC Students,
The powerpoint slides used in Bangalore branch for crash course on April 6th and 7th is available in the following link for free download.
http://sites.google.com/site/gkr8164/Home/CostingTheory.ppt?attredirects=0
http://sites.google.com/site/gkr8164/Home/FMTheory.ppt?attredirects=0
GKR
Thursday, October 9, 2008
Strategic Management - CA - PCC - May 2008 - Solutions
Question 6
State with reasons which of the following statements is correct/incorrect (Attempt any three):
(a) “Profit may not be a universal objective but business efficiency is definitely an objective common to all business”.
(b) “Industry is a grouping of dissimilar firms”.
(c) “Resistance to change is an impediment in building of strategic supportive corporate culture”.
(d) “Changes of any type are always disquieting, sometimes they may be threatening.”
(e) “Efficiency and effectiveness mean the same in strategic management”. (3 x 2 = 6 Marks)
State with reasons which of the following statements is correct/incorrect (Attempt any three):
(a) “Profit may not be a universal objective but business efficiency is definitely an objective common to all business”.
(b) “Industry is a grouping of dissimilar firms”.
(c) “Resistance to change is an impediment in building of strategic supportive corporate culture”.
(d) “Changes of any type are always disquieting, sometimes they may be threatening.”
(e) “Efficiency and effectiveness mean the same in strategic management”. (3 x 2 = 6 Marks)
Answer
(a) CORRECT: It is generally asserted that business enterprises are primarily motivated by the objective of profit. Organizations pursue multiple objectives rather than a single objective in which business efficiency is a very useful operational objective. Many organizations, particularly charitable and non-government do not aim for making profits. But in general, all organizations aim for optimum utilization of resources and economy in operational costs.
(b) INCORRECT: Industry is a consortium of firms whose products or services have homogenous attributes or are close substitutes such that they compete for the same buyer. For example, all paper manufacturers constitute the paper industry.
(c) CORRECT: Corporate culture refers to a company’s values, beliefs, business principles, traditions, ways of operating, and internal work environment. In an organizational effort to build strategic supportive corporate culture resistance can impede its successful implementation and execution.
(d) INCORRECT: Favourable changes either in the external environment or internal environment are not threatening and/or disquieting. Changes that are initiated by the management to bring improvements in its working are not always disquieting. However, sometimes changes can be threatening especially for old and weak organizations with risk averse and stodgy managers.
(e) INCORRECT: Efficiency pertains to designing and achieving suitable input output ratios of funds, resources, facilities and efforts whereas effectiveness is concerned with the organization’s attainment of goals including that of desired competitive position. While efficiency is essentially introspective, effectiveness highlights the links between the organization and its environment. In general terms, to be effective is to do the right things while to be efficient is to do things rightly.
(a) CORRECT: It is generally asserted that business enterprises are primarily motivated by the objective of profit. Organizations pursue multiple objectives rather than a single objective in which business efficiency is a very useful operational objective. Many organizations, particularly charitable and non-government do not aim for making profits. But in general, all organizations aim for optimum utilization of resources and economy in operational costs.
(b) INCORRECT: Industry is a consortium of firms whose products or services have homogenous attributes or are close substitutes such that they compete for the same buyer. For example, all paper manufacturers constitute the paper industry.
(c) CORRECT: Corporate culture refers to a company’s values, beliefs, business principles, traditions, ways of operating, and internal work environment. In an organizational effort to build strategic supportive corporate culture resistance can impede its successful implementation and execution.
(d) INCORRECT: Favourable changes either in the external environment or internal environment are not threatening and/or disquieting. Changes that are initiated by the management to bring improvements in its working are not always disquieting. However, sometimes changes can be threatening especially for old and weak organizations with risk averse and stodgy managers.
(e) INCORRECT: Efficiency pertains to designing and achieving suitable input output ratios of funds, resources, facilities and efforts whereas effectiveness is concerned with the organization’s attainment of goals including that of desired competitive position. While efficiency is essentially introspective, effectiveness highlights the links between the organization and its environment. In general terms, to be effective is to do the right things while to be efficient is to do things rightly.
Question 7
Briefly answer any two of the following:
(a) What is meant by retrenchment strategy?
(b) Growth phase of product life cycle.
(c) Strategic groups. (2 x 2 = 4 Marks)
Answer
(a) Retrenchment strategy implies substantial reduction in the scope of organization’s activity. A business organization can redefine its business by divesting a major product line or market. While retrenching organizations might set objectives below the past level of objectives. It is essentially a defensive strategy adopted as a reaction to operating problems stemming from either internal mismanagement, unanticipated actions by competitors or hostile and unfavourable changes in the business environmental conditions. With a retrenchment strategy the endeavour of management is to raise the level of enterprise achievements focusing on improvements in the functional performance and cutting down operations with negative cash flows.
(b) Product life cycle (PLC) is a concept that describes a product’s four major life stages, i.e., introduction, growth, maturity and decline in terms of sales, profits, customers, competitors and marketing emphasis. As the product finds market acceptance in introduction stage, it gradually enters the ‘Growth’ stage. During growth stage there is an exponential rise of the volumes accepted by the market. Many new entrants join the industry and then fight for market share. In this stage consolidation and concentration begins. Profits increase and mass marketing is done with product differentiation.
(c) Strategic groups are conceptually defined clusters of competitors that share similar strategies and therefore compete more directly with one another than with other firms in the same industry. Strong economic compulsions often constrain these firms from switching one competitive posture to another. Any industry contains only one strategic group when all firms essentially have identical strategies and have comparable market positions. At the other extreme, there are as many strategic groups as there are competitors when each rival pursues a distinctively different competitive approach and occupies a substantially different competitive position in the market place.
Question 8
What do you mean by strategic leadership? What are two approaches to leadership style? To bring in strategic change which three steps may be initiated? (3+3+4 = 10 Marks)
Answer
Strategic leadership is the ability of influencing others to voluntarily make decisions that enhance prospects for the organisation’s long-term success while maintaining short-term financial stability. It includes determining the firm’s strategic direction, aligning the firm’s strategy with its culture, modelling and communicating high ethical standards, and initiating changes in the firm’s strategy, when necessary. Strategic leadership sets the firm’s direction by developing and communicating a vision of future and inspire organization members to move in that direction. Unlike strategic leadership, managerial leadership is generally concerned with the short-term, day-to-day activities.
Two basic approaches to leadership can be transformational leadership style and transactional leadership style.
Transformational leadership style use charisma and enthusiasm to inspire people to exert them for the good of the organization. Transformational leadership style may be appropriate in turbulent environments, in industries at the very start or end of their life-cycles, in poorly performing organizations when there is a need to inspire a company to embrace major changes. Transformational leaders offer excitement, vision, intellectual stimulation and personal satisfaction. They inspire involvement in a mission, giving followers a ‘dream’ or ‘vision’ of a higher calling so as to elicit more dramatic changes in organizational performance.
Such a leadership motivates followers to do more than originally affected to do by stretching their abilities and increasing their self-confidence, and also promote innovation throughout the organization.
Whereas, transactional leadership style focus more on designing systems and controlling the organization’s activities and are more likely to be associated with improving the current situation. Transactional leaders try to build on the existing culture and enhance current practices. Transactional leadership style uses the authority of its office to exchange rewards, such as pay and status. They prefer a more formalized approach to motivation, setting clear goals with explicit rewards or penalties for achievement or non-achievement.
Transactional leadership style may be appropriate in settled environment, in growing or mature industries, and in organizations that are performing well. The style is better suited in persuading people to work efficiently and run operations smoothly.
For initiating strategic change, three steps can be identified as under:
(i) Recognise the need for change: The first step is to diagnose which facets of the present corporate culture are strategy supportive and which are not. This basically means going for environmental scanning involving appraisal of both internal and external capabilities may it be through SWOT analysis and then determine where the lacuna lies and scope for change exists.
(ii) Create a shared vision to manage change: Objectives and vision of both individuals and organization should coincide. There should be no conflict between them. Senior managers need to constantly and consistently communicate the vision not only to inform but also to overcome resistance through proper communication. Strategy implementers have to convince all those concerned that the change in business culture is not superficial or cosmetic. The actions taken have to be credible, highly visible and unmistakably indicative of management’s seriousness to new strategic initiatives and associated changes.
(iii) Institutionalise the change: This is basically an action stage which requires implementation of changed strategy. Creating and sustaining a different attitude towards change is essential to ensure that the firm does not slip back into old ways of thinking or doing things. Capacity for self-renewal should be a fundamental anchor of the new culture of the firm. Besides, change process must be regularly monitored and reviewed to analyse the after-effects of change. Any discrepancy or deviation should be brought to the notice of persons concerned so that the necessary corrective actions are taken. It takes time for the changed culture to prevail.
What do you mean by strategic leadership? What are two approaches to leadership style? To bring in strategic change which three steps may be initiated? (3+3+4 = 10 Marks)
Answer
Strategic leadership is the ability of influencing others to voluntarily make decisions that enhance prospects for the organisation’s long-term success while maintaining short-term financial stability. It includes determining the firm’s strategic direction, aligning the firm’s strategy with its culture, modelling and communicating high ethical standards, and initiating changes in the firm’s strategy, when necessary. Strategic leadership sets the firm’s direction by developing and communicating a vision of future and inspire organization members to move in that direction. Unlike strategic leadership, managerial leadership is generally concerned with the short-term, day-to-day activities.
Two basic approaches to leadership can be transformational leadership style and transactional leadership style.
Transformational leadership style use charisma and enthusiasm to inspire people to exert them for the good of the organization. Transformational leadership style may be appropriate in turbulent environments, in industries at the very start or end of their life-cycles, in poorly performing organizations when there is a need to inspire a company to embrace major changes. Transformational leaders offer excitement, vision, intellectual stimulation and personal satisfaction. They inspire involvement in a mission, giving followers a ‘dream’ or ‘vision’ of a higher calling so as to elicit more dramatic changes in organizational performance.
Such a leadership motivates followers to do more than originally affected to do by stretching their abilities and increasing their self-confidence, and also promote innovation throughout the organization.
Whereas, transactional leadership style focus more on designing systems and controlling the organization’s activities and are more likely to be associated with improving the current situation. Transactional leaders try to build on the existing culture and enhance current practices. Transactional leadership style uses the authority of its office to exchange rewards, such as pay and status. They prefer a more formalized approach to motivation, setting clear goals with explicit rewards or penalties for achievement or non-achievement.
Transactional leadership style may be appropriate in settled environment, in growing or mature industries, and in organizations that are performing well. The style is better suited in persuading people to work efficiently and run operations smoothly.
For initiating strategic change, three steps can be identified as under:
(i) Recognise the need for change: The first step is to diagnose which facets of the present corporate culture are strategy supportive and which are not. This basically means going for environmental scanning involving appraisal of both internal and external capabilities may it be through SWOT analysis and then determine where the lacuna lies and scope for change exists.
(ii) Create a shared vision to manage change: Objectives and vision of both individuals and organization should coincide. There should be no conflict between them. Senior managers need to constantly and consistently communicate the vision not only to inform but also to overcome resistance through proper communication. Strategy implementers have to convince all those concerned that the change in business culture is not superficial or cosmetic. The actions taken have to be credible, highly visible and unmistakably indicative of management’s seriousness to new strategic initiatives and associated changes.
(iii) Institutionalise the change: This is basically an action stage which requires implementation of changed strategy. Creating and sustaining a different attitude towards change is essential to ensure that the firm does not slip back into old ways of thinking or doing things. Capacity for self-renewal should be a fundamental anchor of the new culture of the firm. Besides, change process must be regularly monitored and reviewed to analyse the after-effects of change. Any discrepancy or deviation should be brought to the notice of persons concerned so that the necessary corrective actions are taken. It takes time for the changed culture to prevail.
Question 9
Under what conditions would you recommend the use of Turnaround strategy in an organization? What could be a suitable work plan for this? (5+5 = 10 Marks)
Answer
Rising competition, business cycles and economic volatility have created a climate where no business can take viability for granted. Turnaround strategy is a highly targeted effort to return an organization to profitability and increase positive cash flows to a sufficient level.
Organizations those have faced a significant crisis that has negatively affected operations requires turnaround strategy. Turnaround strategy is used when both threats and weaknesses adversely affect the health of an organization so much that its basic survival is a question.
When organization is facing both internal and external pressures making things difficult then it has to find something which is entirely new, innovative and different. Being organization’s first objective is to survive and then grow in the market; turnaround strategy is used when organization’s survival is under threat. Once turnaround is successful the organization may turn to focus on growth.
Conditions for turnaround strategies
When firms are losing their grips over market, profits due to several internal and external factors, and if they have to survive under the competitive environment they have to identify danger signals as early as possible and undertake rectification steps immediately. These conditions may be, inter alia cash flow problems, lower profit margins, high employee turnover and decline in market share, capacity underutilization, low morale of employees, recessionary conditions, mismanagement, raw material supply problems and so on.
Action plan for turnaround strategy
Stage One – Assessment of current problems: The first step is to assess the current problems and get to the root causes and the extent of damage the problem has caused. Once the problems are identified, the resources should be focused toward those areas essential to efficiently work on correcting and repairing any immediate issues.
Stage Two – Analyze the situation and develop a strategic plan: Before you make any major changes; determine the chances of the business’s survival. Identify appropriate strategies and develop a preliminary action plan. For this one should look for the viable core businesses, adequate bridge financing and available organizational resources. Analyze the strengths and weaknesses in the areas of competitive position. Once major problems and opportunities are identified, develop a strategic plan with specific goals and detailed functional actions.
Stage Three – Implementing an emergency action plan: If the organization is in a critical stage, an appropriate action plan must be developed to stop the bleeding and enable the organization to survive. The plan typically includes human resource, financial, marketing and operations actions to restructure debts, improve working capital, reduce costs, improve budgeting practices, prune product lines and accelerate high potential products. A positive operating cash flow must be established as quickly as possible and enough funds to implement the turnaround strategies must be raised.
Stage Four – Restructuring the business: The financial state of the organization’s core business is particularly important. If the core business is irreparably damaged, then the outlook for the entire organization may be bleak. Prepare cash forecasts, analyze assets and debts, review profits and analyze other key financial functions to position the organization for rapid improvement.
During the turnaround, the “product mix” may be changed, requiring the organization to do some repositioning. Core products neglected over time may require immediate attention to remain competitive. Some facilities might be closed; the organization may even withdraw from certain markets to make organization leaner or target its products toward a different niche.
The ‘people mix” is another important ingredient in the organization’s competitive effectiveness. Reward and compensation systems that encourage dedication and creativity encourage employees to think profits and return on investments.
Stage Five – Returning to normal: In the final stage of turnaround strategy process, the organization should begin to show signs of profitability, return on investments and enhancing economic value-added. Emphasis is placed on a number of strategic efforts such as carefully adding new products and improving customer service, creating alliances with other organizations, increasing the market share, etc.
When organization is facing both internal and external pressures making things difficult then it has to find something which is entirely new, innovative and different. Being organization’s first objective is to survive and then grow in the market; turnaround strategy is used when organization’s survival is under threat. Once turnaround is successful the organization may turn to focus on growth.
Conditions for turnaround strategies
When firms are losing their grips over market, profits due to several internal and external factors, and if they have to survive under the competitive environment they have to identify danger signals as early as possible and undertake rectification steps immediately. These conditions may be, inter alia cash flow problems, lower profit margins, high employee turnover and decline in market share, capacity underutilization, low morale of employees, recessionary conditions, mismanagement, raw material supply problems and so on.
Action plan for turnaround strategy
Stage One – Assessment of current problems: The first step is to assess the current problems and get to the root causes and the extent of damage the problem has caused. Once the problems are identified, the resources should be focused toward those areas essential to efficiently work on correcting and repairing any immediate issues.
Stage Two – Analyze the situation and develop a strategic plan: Before you make any major changes; determine the chances of the business’s survival. Identify appropriate strategies and develop a preliminary action plan. For this one should look for the viable core businesses, adequate bridge financing and available organizational resources. Analyze the strengths and weaknesses in the areas of competitive position. Once major problems and opportunities are identified, develop a strategic plan with specific goals and detailed functional actions.
Stage Three – Implementing an emergency action plan: If the organization is in a critical stage, an appropriate action plan must be developed to stop the bleeding and enable the organization to survive. The plan typically includes human resource, financial, marketing and operations actions to restructure debts, improve working capital, reduce costs, improve budgeting practices, prune product lines and accelerate high potential products. A positive operating cash flow must be established as quickly as possible and enough funds to implement the turnaround strategies must be raised.
Stage Four – Restructuring the business: The financial state of the organization’s core business is particularly important. If the core business is irreparably damaged, then the outlook for the entire organization may be bleak. Prepare cash forecasts, analyze assets and debts, review profits and analyze other key financial functions to position the organization for rapid improvement.
During the turnaround, the “product mix” may be changed, requiring the organization to do some repositioning. Core products neglected over time may require immediate attention to remain competitive. Some facilities might be closed; the organization may even withdraw from certain markets to make organization leaner or target its products toward a different niche.
The ‘people mix” is another important ingredient in the organization’s competitive effectiveness. Reward and compensation systems that encourage dedication and creativity encourage employees to think profits and return on investments.
Stage Five – Returning to normal: In the final stage of turnaround strategy process, the organization should begin to show signs of profitability, return on investments and enhancing economic value-added. Emphasis is placed on a number of strategic efforts such as carefully adding new products and improving customer service, creating alliances with other organizations, increasing the market share, etc.
Question 10
Read the following case and answer the question given at the end:
In 2006-07 PTC Food division decided to enter the fast growing (20-30% annually) snacks segment, an altogether new to it. It had only one national competitor- Trepsico’s Trito. After a year its wafer snack brand – Ringo, fetched 20% market share across the country. Ringo’s introduction was coincided with the cricket world Cup. The wafer snacks market is estimated to be around Rs. 250 crores.
The company could take the advantage of its existing distributing network and also source potatoes from farmers easily. Before the PTC could enter the market a cross- functional team made a customer survey through a marketing research group in 14 cities of the country to know about the snacks of eating habits of people. The result showed that the customers within
the age-group 15-24 years were the most promising for the product as they were quite enthusiastic about experimenting new snack taste. The company reported to its chefs and the chefs came out with 16 flavours with varying tastes suiting to the targeted age-group. The company decided to target the youngsters as primary target on the assumption that once they are lured in, it was easier to reach the whole family.
Advertising in this category was extremely crowded. Every week two-three local products in new names were launched, sometimes with similar names. To break through this clutter the company decided to bank upon humour appeal.
The Industry sources reveal that PTC spent about Rs. 50 crores on advertisement and used all possible media – print and electronic, both including the creation of its own website, Ringoringoyoungo.com with offers of online games, contest etc. Mobile phone tone downloading was also planned which proved very effective among teenagers. The site was advertised on all dotcom networks. Em TV, Shine TV, Bee TV and other important channels were also used for its advertisement alongwith FM radio channels in about 60 cities with large hoardings at strategic places.
Analysts believe that Ringo’s success story owes a lot to PTC’s widespread distribution channels and aggressive advertisements. Humour appeal was a big success. The ‘Ringo’ was made visible by painting the Railways bogies passing across the States. It has also been successful to induce Lovely Brothers’ Future Group to replace Trito in their Big- Bazaar and chain of food Bazaars.PTC is paying 4% higher margin than Trepsico to Future group and other retailers.
Ringo to giving Trepsico a run for its money. Trito’s share has already been reduced considerably. Retail tie-ups, regional flavours, regional humour appeals have helped PTC. But PTC still wants a bigger share in the market and in foreign markets also, if possible.
Questions 10
(a) What is SWOT Analysis? (4 Marks)
(b) What are the strength of PTC ? (4 Marks)
(c) What are the weaknesses of PTC for entering into the branded snacks market? (4 Marks)
(d) What kind of marketing strategy was formulated and implemented for Ringo? (8 Marks)
What else need to be done by Ringo so as to enlarge its market?
Answer
(a) SWOT analysis is a tool used by organizations for evolving strategic options for the future. The term SWOT refers to the analysis of strength, weaknesses, opportunities and threats facing a company. Strengths and weaknesses are identified in the internal environment, whereas opportunities and threats are located in the external environment.
Strength: Strength is an inherent capability of the organization which it can use to gain strategic advantage over its competitor.
Weakness: A weakness is an inherent limitation or constraint of the organisation which creates strategic disadvantage to it.
Opportunity: An opportunity is a favourable condition in the external environment which enables it to strengthen its position.
Threat: An unfavourable condition in the external environment which causes a risk for, or damage to the organisation’s position.
Read the following case and answer the question given at the end:
In 2006-07 PTC Food division decided to enter the fast growing (20-30% annually) snacks segment, an altogether new to it. It had only one national competitor- Trepsico’s Trito. After a year its wafer snack brand – Ringo, fetched 20% market share across the country. Ringo’s introduction was coincided with the cricket world Cup. The wafer snacks market is estimated to be around Rs. 250 crores.
The company could take the advantage of its existing distributing network and also source potatoes from farmers easily. Before the PTC could enter the market a cross- functional team made a customer survey through a marketing research group in 14 cities of the country to know about the snacks of eating habits of people. The result showed that the customers within
the age-group 15-24 years were the most promising for the product as they were quite enthusiastic about experimenting new snack taste. The company reported to its chefs and the chefs came out with 16 flavours with varying tastes suiting to the targeted age-group. The company decided to target the youngsters as primary target on the assumption that once they are lured in, it was easier to reach the whole family.
Advertising in this category was extremely crowded. Every week two-three local products in new names were launched, sometimes with similar names. To break through this clutter the company decided to bank upon humour appeal.
The Industry sources reveal that PTC spent about Rs. 50 crores on advertisement and used all possible media – print and electronic, both including the creation of its own website, Ringoringoyoungo.com with offers of online games, contest etc. Mobile phone tone downloading was also planned which proved very effective among teenagers. The site was advertised on all dotcom networks. Em TV, Shine TV, Bee TV and other important channels were also used for its advertisement alongwith FM radio channels in about 60 cities with large hoardings at strategic places.
Analysts believe that Ringo’s success story owes a lot to PTC’s widespread distribution channels and aggressive advertisements. Humour appeal was a big success. The ‘Ringo’ was made visible by painting the Railways bogies passing across the States. It has also been successful to induce Lovely Brothers’ Future Group to replace Trito in their Big- Bazaar and chain of food Bazaars.PTC is paying 4% higher margin than Trepsico to Future group and other retailers.
Ringo to giving Trepsico a run for its money. Trito’s share has already been reduced considerably. Retail tie-ups, regional flavours, regional humour appeals have helped PTC. But PTC still wants a bigger share in the market and in foreign markets also, if possible.
Questions 10
(a) What is SWOT Analysis? (4 Marks)
(b) What are the strength of PTC ? (4 Marks)
(c) What are the weaknesses of PTC for entering into the branded snacks market? (4 Marks)
(d) What kind of marketing strategy was formulated and implemented for Ringo? (8 Marks)
What else need to be done by Ringo so as to enlarge its market?
Answer
(a) SWOT analysis is a tool used by organizations for evolving strategic options for the future. The term SWOT refers to the analysis of strength, weaknesses, opportunities and threats facing a company. Strengths and weaknesses are identified in the internal environment, whereas opportunities and threats are located in the external environment.
Strength: Strength is an inherent capability of the organization which it can use to gain strategic advantage over its competitor.
Weakness: A weakness is an inherent limitation or constraint of the organisation which creates strategic disadvantage to it.
Opportunity: An opportunity is a favourable condition in the external environment which enables it to strengthen its position.
Threat: An unfavourable condition in the external environment which causes a risk for, or damage to the organisation’s position.
(b) The strengths of PTC are:
(a) PTC has an existing distribution network that is used to its advantage.
(b) The company has strengths in the area of procurement of potato, raw material to make the wafers.
(c) Financially the company is very strong as they are spending 50 crores on advertising in a market worth 250 crores.
(d) The company has diverse flavours of wafers in its portfolio that are according to the different tastes of the target group.
(e) PTC has done good bargaining deals with food bazaars and food chains.
(f) The cross-functional team of PTC made a virtuous marketing research.
(a) PTC has an existing distribution network that is used to its advantage.
(b) The company has strengths in the area of procurement of potato, raw material to make the wafers.
(c) Financially the company is very strong as they are spending 50 crores on advertising in a market worth 250 crores.
(d) The company has diverse flavours of wafers in its portfolio that are according to the different tastes of the target group.
(e) PTC has done good bargaining deals with food bazaars and food chains.
(f) The cross-functional team of PTC made a virtuous marketing research.
(c) Weaknesses are inherent limiting factors of an organization. They are internal by nature to the working of the organization. The case study does not clearly mention the points that can conclusively be weaknesses of the company. However, a deeper analysis will bring out that the company is totally new to the snacks business and is highly aggressive in its approach.
The experience in the food business may not result in the required competencies in the business of chips. Seemingly, the company has also gone overboard in its advertisement expenditure. It may be that the margins justify expenditure of 20% in value of the total market size of Rs. 250 Crores. Otherwise, the company may come into financial difficulties. Creating market may also be difficult as already there are many players who are trying to get attention of existing and new customers.
The business is already cluttered with regional and national players and is highly competitive. Further, the company is overly relying on young segment of the population.
This segment can be highly receptive to the new products and the company may lose them easily to the competitors.
(d) Formulation and Implementation of marketing strategy was as under:
The Product: To launch its snack product, an easy to remember brand name RINGO was decided upon. To understand the snacking habits of Indian customer a large survey was undertaken. Chefs on the basis of the market survey came out with sixteen flavours. The target group was identified as youngsters of 15 – 24 years.
The Promotion: The company spent about Rs.50 crore on marketing communication. Different Media including print, electronic and outdoor advertising were put to use. Appeal used was that of humour. A huge visibility through point-of-sale was also arranged. Promotion policy was very aggressive considering that 50 crores were spent in a market of 250 crores.
The Place: Getting Trito replaced by Ringo in Big-Bazaar and food Bazaar chain of stores was a great success for PTC. To motivate a higher margin than the Trepsico was provided for. PTC even otherwise has extensive distribution network.
A perfect blend of marketing mix has made it possible to go so far and so early. Since the marketing strategy has remained successful, they need to carry it forward. However, they also need to keep a restrain on promotion as spending huge amount of money on marketing for a share in the market of 250 crores seems to be too high. Such an expensive campaign is only suitable if the company is able to increase the market size itself and not merely its own in the existing market share. To achieve this it requires competencies. Otherwise, it might be difficult to sustain high expenditure over a very long period of time.
The Product: To launch its snack product, an easy to remember brand name RINGO was decided upon. To understand the snacking habits of Indian customer a large survey was undertaken. Chefs on the basis of the market survey came out with sixteen flavours. The target group was identified as youngsters of 15 – 24 years.
The Promotion: The company spent about Rs.50 crore on marketing communication. Different Media including print, electronic and outdoor advertising were put to use. Appeal used was that of humour. A huge visibility through point-of-sale was also arranged. Promotion policy was very aggressive considering that 50 crores were spent in a market of 250 crores.
The Place: Getting Trito replaced by Ringo in Big-Bazaar and food Bazaar chain of stores was a great success for PTC. To motivate a higher margin than the Trepsico was provided for. PTC even otherwise has extensive distribution network.
A perfect blend of marketing mix has made it possible to go so far and so early. Since the marketing strategy has remained successful, they need to carry it forward. However, they also need to keep a restrain on promotion as spending huge amount of money on marketing for a share in the market of 250 crores seems to be too high. Such an expensive campaign is only suitable if the company is able to increase the market size itself and not merely its own in the existing market share. To achieve this it requires competencies. Otherwise, it might be difficult to sustain high expenditure over a very long period of time.
Wednesday, September 17, 2008
CA Final - MICS - MAY 2008 - Question Paper - Solved
Question No. 1 is Compulsory. Answer any four questions from the remaining six questions (Answers in ICAI MICS Study Material Page No are given at the end of each question)
1(a) Discuss various factors that render manual audit method ineffective in IS Audit? - 17.2
1(b) Briefly explain the components of an analysis and design work bench? - 19.9
1(c) Briefly discuss any five database control features? - 13.8; 13.9
1(d) Discuss briefly the powers of Central Government under Section 87 to make rules in respect of Information technology Act, 2000? - 16.19 (5 x 4 = 20 Marks)
2(a) What is Work-in-Process Control System? Describe briefly the system interfaces, files and inputs and reports involved in this system? (10) - 11.40
2(b) Describe the main prerequisites of a MIS which makes it an effective tool. Explain the major constraints in operating? (10) - 3.6
3(a) Discuss in detail, how the investigation of present system is conducted by the system analyst? (10) - 7.25; 7.26
3(b) Briefly explain various kinds of controls that can be incorporated in the system to make frauds difficult to perpetrate? (10) - 15.13
4(a) Briefly explain the characteristics and features of an Enterprise Resource Planning? (5) - 12.5
4(b) Briefly discuss four basic components of Decision Support System? (5) - 5.5
4(c) Define the following computer fraud and abuse technique: (10)
o War dialing - 15.11
o Scavenging - 15.10
o Cracking - 15.9
o Internet Terrorism - 15.9
o Masquerading - 15.10
5(a) Discuss various issues that should be considered while designing system input? (5) - 8.14
5(b) Briefly explain the risks associated with client/server model? (5) - 6.9
5(c) “Personnel Information System deals with flow of information relating to people” Explain? (5) - 4.24
5(d) Briefly describe various steps involved in system testing? (5) - 9.21
6(a) Briefly explain the best approach to implement information security policy? (5) - 18.12
6(b) What is the purpose of System Evaluation? How is it performed? (5) - 10.9
6(c) Discuss, how a controlled source program library environment can help to deter unauthorized changes to program? (5) - 13.20
6(d) Briefly explain the role of Information Security Administrator? (5) - 18.20
Question 7: Write short notes on the following: (4 x 5 = 20 Marks)
7(a) Closed and Open Systems - 1.5
7(b) Programmed Decisions - 3.13
7(c) Program Documentation - 9.16
7(d) Firewalls - 13.30
5(b) Briefly explain the risks associated with client/server model? (5) - 6.9
5(c) “Personnel Information System deals with flow of information relating to people” Explain? (5) - 4.24
5(d) Briefly describe various steps involved in system testing? (5) - 9.21
6(a) Briefly explain the best approach to implement information security policy? (5) - 18.12
6(b) What is the purpose of System Evaluation? How is it performed? (5) - 10.9
6(c) Discuss, how a controlled source program library environment can help to deter unauthorized changes to program? (5) - 13.20
6(d) Briefly explain the role of Information Security Administrator? (5) - 18.20
Question 7: Write short notes on the following: (4 x 5 = 20 Marks)
7(a) Closed and Open Systems - 1.5
7(b) Programmed Decisions - 3.13
7(c) Program Documentation - 9.16
7(d) Firewalls - 13.30
Tuesday, September 16, 2008
Share Transactions - Business Income or Capital Gains
In relation to share transactions, the question that frequently comes up, while determining tax liability on such transactions, is as to whether the shares in question were held as stock-in-trade or as an investment. The taxpayers need clear-cut, well-structured, specific instructions for investing in the capital market.
Tax liability on share transactions
1. Transfer [as defined under section 2(47)] of a capital asset [as defined under section 2(14)] resulting in capital gain may either be of long-term [as defined under section 2(29B)] or short-term [as defined under section 2(42B)] of the Income-tax Act, 1961 (‘the Act’).
The period of holding is the criterion for determining its nature : it is long-term capital gain, if asset has been held for more than twelve months prior to transaction and short-term capital gain, when it is held for a period less than twelve months.
Shares held as capital asset by the investor will be chargeable under the head ‘Capital gains’.
The tax liability in respect of long-term capital gains of shares, securities and units is elaborated in section 112 and such gain, if covered by securities transaction tax, is exempt under section 10(38) of the Act.
The taxability of short-term capital gain, as per section 111A of the Act, is at a flat rate of 20 per cent (as increased by the appropriate cess and additional surcharge).
Income from transfer of stock-in-trade by a trader is treated as business income under the head ‘Profits and gains of business or profession’, taxable at the rate of 30 per cent in addition to education cess and surcharge.
Debatable issue
2. Tax treatment of share transactions has become debatable—whether the transaction involves transfer of stock-in-trade or it is from transfer of shares held as investment, resulting in business income or capital gain, respectively.
Present Scenario
3. The tax authorities have set certain parameters to distinguish between stock-in trade and investment vide CBDT Instruction No. 1827, dated August 31, 1989 [F.No 181/1/89-IT(AI)]. Consequent upon the reduction of tax on short-term capital gain and total exemption of long-term capital gain by the Finance (No. 2) Act, 2004, with effect from April 1, 2005, some of the assessees are of the view that the tax authority treats their transaction as business income when the number of transactions is large in number. It could be attributable to lack of clarity and discretionary instruction. The supplementary instruction draft dated May 16, 2006 (F.No.149/287/2005-TPL), circulated by the CBDT fuelled further confusion in the minds of trader/investor, as the proposed instruction listed fifteen parameters, viz. :—
(i) Whether the purchase and sale of securities was allied to his usual trade or business/was incidental to it or was an occasional independent activity.
(ii) Whether the purchase is made solely with the intention of resale at a profit or for long-term appreciation and/or for earning dividends and interest.
(iii) Whether scale of activity is substantial.
(iv) Whether transactions were entered into continuously and regularly during the assessment year.
(v) Whether purchases are made out of own funds or borrowings.
(vi) The stated objects in the Memorandum and Articles of Association in the case of a corporate assessee.
(vii) Typical holding period for securities bought and sold.
(viii) Ratio of sales to purchases and holding.
(ix) The time devoted to the activity and the extent to which it is the means of livelihood.
(x) The characterization of securities in the books of account and in balance sheet as stock-in-trade or investments.
(xi) Whether the securities purchased or sold are listed or unlisted.
(xii) Whether investment is in sister/related concerns or independent companies.
(xiii) Whether transaction is by promoters of the company.
(xiv) Total number of stocks dealt in.
(xv) Whether money has been paid or received or whether these are only book entries.
The draft instructions also advise that no single criterion of the above fifteen items would be decisive and the total effect of all factors should be considered to determine the exact status of the activity.
This led to severe market reaction and the Finance Minister, Mr. P. Chidambaram was compelled to assure the investors not to panic, as the instructions would be finalized taking into view the concerns of the taxpayers.
Judicial cases
4. In the landmark judgment of G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594, the Supreme Court observed that the presence of various factors is responsible for the inference whether transaction is in the nature of trade or not. It is not a matter of merely counting the number of facts and circumstances; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction.
If the purchase of share is solely and exclusively with the intention of resale at a profit, with no intention of holding or otherwise enjoying it or using it, then the nature would definitely be that of trade, concluded the Supreme Court.
This was further upheld in H. Mohmed & Co. v. CIT [1977] 107 ITR 637, where the Gujarat High Court observed that a stock-in-trade is something in which a trader or a businessman deals, whereas his capital asset is something with which he deals. Thus, the test of intention is also a very important factor. The High Court also held that selling outright in the course of the business activity and deriving income from exploitation of one’s own assets is the distinctive factor.
The Supreme Court, in Sardar Indra Singh & Sons Ltd. v. CIT [1953] 24 ITR 415, held that surplus resulting from sale of shares and securities constitutes business income. The High Court, in another important case, elaborated that any income arising from the sale of securities, closely connected with the main business, is business income.
Some of the other important cases are : State Bank of Hyderabad v. CIT [1985] 151 ITR 703/20 Taxman 123 (AP), Karam Chand Thapar & Bros. (P.) Ltd. v. CIT [1971] 82 ITR 899 (SC), CIT v. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 (SC) and AR.N. Ramaswami Chettiar v. CIT [1963] 48 ITR 771 (Mad.).
In a recent case the appellate Tribunal has held that volume or magnitude of transactions should not be the basis of considering such income as business income and that short-term capital gains, even if generated through a large number of transactions, would attract 10 per cent tax. The ITAT’s order, that the money an investor makes by exiting a stock within a year of purchase will be treated as ‘capital gains’ and not as ‘business income’, assumes significance as the department, normally, treats short-term capital gains as business income, if such gains are generated through a large number of transactions (i.e., sale and purchase of shares).
The above order would continue to be a guideline for the tax authorities and investors, until further notification from the Government in this regard.
Conclusion
5. India is poised for charting a high growth trajectory. The economy is buoyant. There is need for investors’ support to realize the dream. The role of administration is at the centre stage to provide fully transparent simple laws, guidelines for building confidence amongst the investors.
It is prudent and pragmatic to accept that investors operate in the stock market for gain with the element of high risk. There seems no scope for ‘to be determined on the facts and circumstances of the case’ or for (mis) interpretation by the tax authority and consultants, leaving room for corruption and litigation. The taxpayers need clear-cut, well-structured, specific instructions for investing in the capital market.
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