Types of Financing

Original descriptive practice: 30 saved, 2 at 3 marks, 23 at 5 and 5 at 10. Equity/preference/debt, venture funding, securitisation, leases, bank/trade/export finance and international/contemporary sources. Original practice, not ICAI questions or official marking schemes. Native tables scroll on phones. Original preparation is not a live or complete official question bank.

Boundaries: Current regulatory limits/eligibility are held unless explicitly verified. Contract terms and rates are supplied for cases. Tax benefits, lease accounting and securitisation derecognition are not automatic. Zero coupon is not zero cost; online or ESG labels are not regulatory permission or guaranteed success.

FM-C02-D001 · 5 marks

A manufacturer needs funding for a plant used over many years, recurring base working capital and a three-month seasonal inventory peak. The CFO proposes financing every need with a three-month borrowing repeatedly renewed, though renewal is not guaranteed. Required: Distinguish the needs and assess the funding proposal. (5 marks)

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Marks	Credit	Working / case application
1	Long asset	The plant is a long-duration investment; short debt renewal creates maturity mismatch.
1	Base working funds	Recurring operating funds may have a continuing component despite individual current assets turning over.
1	Seasonal need	A three-month peak is temporary and can be matched to suitable short-term funding.
1	Renewal risk	Repeated renewal is not assured; inability to roll over can strain cash before long assets yield funds.
1	Response	Evaluate suitable longer-term funding for continuing needs and feasible short-term facilities for peaks with cash forecasts, terms/cost/risk; no fixed universal funding ratio.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 2

FM-C02-D002 · 3 marks

A firm lists retained earnings, a new share issue, a bank borrowing and cash generated from selling a redundant asset as if each were a new outside loan. Required: Correct the source classification. (3 marks)

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Marks	Credit	Working / case application
1	Internal	Retention and proceeds from the firm's redundant asset are internal sources in this conceptual classification.
1	External	New share capital and bank borrowing are external procurement, but only the latter is the stated loan.
1	Avoid duplication	Retained earnings are not extra cash in addition to the cash already available; verify actual accessible funds before counting finance.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 4

FM-C02-D003 · 5 marks

An early-stage firm has uncertain receipts and no capacity for obligatory loan instalments. It considers new equity but the founder fears dilution and says equity is cost-free because no interest is paid. Required: Assess equity's relevant features. (5 marks)

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Marks	Credit	Working / case application
1	Payment flexibility	Equity does not carry the stated fixed loan-interest/repayment obligations, which may suit uncertain early cash generation.
1	Investor return	No interest coupon does not make equity free; investors require appropriate returns for their risk.
1	Control	New voting equity may dilute existing control; quantify from actual terms rather than assume every issue loses control.
1	Residual risk	Equity holders have residual income/capital claims after relevant prior claims, increasing their exposure.
1	Balanced decision	Compare growth funding, cash capacity, investor expectations and control/issue terms without treating equity as automatically optimal or asserting unverified legal issuance rights.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 5

FM-C02-D004 · 5 marks

A company compares a preference share issue with a debenture. Both quote an annual 9% payment. The board says the matching percentage makes their ownership, claims and payment obligations identical. Terms and legal conditions must still be reviewed. Required: Explain why the instruments are not interchangeable. (5 marks)

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Marks	Credit	Working / case application
1	Capital nature	Preference share capital is share capital with stated preferential rights; a debenture represents borrowing/creditor status.
1	Payment character	Preference dividend and debt interest differ in their nature; the quoted rate alone does not establish identical payment obligations.
1	Priority	Preference priority is relative to equity; it does not put preference shareholders ahead of creditors in every claim.
1	Terms	Check cumulative/non-cumulative, redemption/conversion and actual debenture terms instead of assuming all preference shares are cumulative.
1	Cost/legal boundary	Any tax/cash/rights comparison needs applicable assumptions and terms; no universal exemption, guaranteed dividend or identical risk follows from 9%.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 12

FM-C02-D005 · 5 marks

A lawful issue has two Rs 10 lakh preference classes, each at 8%. Class C is explicitly cumulative; class N is explicitly non-cumulative. No dividend is declared for year 1. The exercise asks only the contractual dividend arithmetic carried forward under these stated terms; no statutory distribution permission is to be inferred. Required: Calculate year 1 arrears and year 2 current-plus-arrears claims under the supplied terms and explain the distinction. (5 marks)

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Marks	Credit	Working / case application
1	Annual amount	Rs 10 lakh x 8% = Rs 0.8 lakh per class per year.
1	C arrear	C carries Rs 0.8 lakh year 1 dividend arrears.
1	C year 2	C current-plus-arrears contractual amount is Rs 1.6 lakh, subject to actual declaration/payment conditions.
1	N year 2	N has no carried year 1 dividend under stated non-cumulative terms; year 2 current amount is Rs 0.8 lakh.
1	Boundary	Do not claim every preference share is cumulative or treat these arithmetic amounts as automatic legally payable debt instalments.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 8

FM-C02-D006 · 5 marks

A profitable company retains cash generated internally. It later makes a bonus share issue by capitalising eligible reserves under case-supplied lawful mechanics. The founder adds both retention and the face value of bonus shares to calculate new cash funds. Required: Explain the funding error and relevant trade-off. (5 marks)

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Marks	Credit	Working / case application
1	Retention source	Retention can support internal finance when actual funds are available.
1	Bonus mechanism	Capitalising reserves changes the equity presentation/share structure in the stated mechanism, not a new receipt from investors.
1	No duplicate cash	Do not add bonus face value as cash raised on top of retained funds.
1	Opportunity cost	Retention has shareholder return/payout opportunity considerations; it is not inherently cost-free money.
1	Decision	Assess actual cash, growth uses and payout/control implications; do not assume accounting reserves always equal liquid funds.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 10

FM-C02-D007 · 10 marks

Zen has 4 lakh equally voting equity shares; founder owns 2.4 lakh. An approved lawful rights issue offers one new share for every four held at Rs 25 per new share. All offered shares will be subscribed, with no issue costs. Founder scenario A: subscribes to all his entitlement. Founder scenario B: takes none, and other eligible participants subscribe the entire issue. No sale proceeds from rights are assumed. Required: Calculate new shares/cash raised, founder holdings and percentage in both cases; discuss control and why issue proceeds are not profit. (10 marks)

Case-supplied terms; see scenario for assumptions.

Item	Shares
Existing total	400000
Founder existing	240000
Rights ratio	1 for 4

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Marks	Credit	Working / case application
1	Issue count	400000 / 4 = 100000 new shares.
1	Cash raised	100000 x Rs 25 = Rs 25 lakh.
1	Total shares	400000 + 100000 = 500000 after subscription.
1	Founder entitlement	240000 / 4 = 60000 new shares.
1	Founder payment A	60000 x Rs 25 = Rs 15 lakh.
1	Holding A	240000 + 60000 = 300000, or 60% of 500000.
1	Holding B	240000 / 500000 = 48% if he subscribes none.
1	Control interpretation	Pro-rata subscription preserves his percentage here; non-subscription dilutes it. Voting/control arrangements beyond supplied equal votes are not inferred.
1	Funds nature	Issue receipts are capital funding, not operating profit from issuing own equity.
1	Decision boundary	Compare affordability and dilution using actual terms; no guaranteed share price, legal rights-transfer outcome or automatic valuation gain is implied.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 6

FM-C02-D008 · 5 marks

One loan instrument is secured by assets and repayable at maturity; another is unsecured but convertible into a stated number of equity shares at the holder's option. A manager says "secured" means no default risk and "convertible" means the liability disappears today. Required: Evaluate the two claims and terms needed. (5 marks)

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Marks	Credit	Working / case application
1	Security effect	Collateral provides recourse but does not guarantee full timely recovery or eliminate default risk.
1	Repayment obligation	Debt payment/maturity obligations remain subject to contract before valid conversion/redemption.
1	Conversion option	A holder option is not current automatic conversion; inspect exercise dates/ratio/conditions.
1	Dilution	Actual conversion changes equity shares/control depending on stated terms; calculate only when terms are available.
1	Choice	Assess cash obligations, asset encumbrance, conversion and risk/cost together rather than instrument labels alone.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 11

FM-C02-D009 · 5 marks

A project has a sanctioned long-term facility, but disbursement awaits documented conditions and may take several weeks. The firm proposes a short bridge loan to meet eligible interim payments. Its cash plan assumes the long-term disbursement has already arrived. Required: Explain bridge purpose and the risks/response. (5 marks)

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Marks	Credit	Working / case application
1	Temporary gap	Bridge finance can cover the interval before anticipated longer-term funding is received.
1	Not double funding	Sanction is not cash received; do not treat bridge plus undisbursed facility as two unrestricted cash balances.
1	Take-out risk	Conditions/delay can leave bridge outstanding longer than expected; verify long-term release terms.
1	Terms/cost	Assess bridge maturity, interest/security and feasible repayment if the intended take-out is late.
1	Cash planning	Map actual disbursement and eligible payments and a contingency, not rely on automatic release or assume every bridge is available to every borrower.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 17

FM-C02-D010 · 10 marks

A start-up considers two offered venture-funding contracts, each supplying Rs 20 lakh today. Contract E issues 25% post-issue equity to the investor, with no fixed cash coupon. Contract R, explicitly approved/lawful for this exercise, requires royalty of 3% of eligible sales and no interest; principal settlement is governed separately and must not be assumed waived. Forecast eligible sales are Rs 40 lakh, Rs 60 lakh and Rs 80 lakh in years 1-3. Both investors offer relevant mentoring. Required: Calculate annual/total royalty, compare payment/control/support features and identify missing terms. No current venture-capital ownership limit or mandatory royalty range is supplied. (10 marks)

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Marks	Credit	Working / case application
1	Year 1 royalty	40 x 3% = Rs 1.2 lakh.
1	Year 2 royalty	60 x 3% = Rs 1.8 lakh.
1	Year 3 royalty	80 x 3% = Rs 2.4 lakh.
1	Total royalty	Rs 5.4 lakh over the three forecast years; not the total lifetime contract cost.
1	Equity feature	E transfers the stated 25% post-issue equity and investor return is not a fixed coupon in this offer.
1	Royalty feature	R payments depend on stated eligible sales, not profit; loss years can still generate royalty if sales occur under the contract.
1	Missing principal terms	Clarify principal settlement/maturity and other charges under R; no interest does not establish no repayment/cost.
1	Support	Mentoring/network/management help can be valuable but quality and commitments require assessment, not a guaranteed outcome.
1	Control/obligations	Compare equity/control and royalty cash burden with forecasts and other rights instead of lowest immediate coupon only.
1	No invented rule	Do not assert module 49% cap or 2-15% range as universal current regulation, or pick a lifetime-cost winner without complete cash/exit/valuation terms.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 19

FM-C02-D011 · 5 marks

A lender pools car-loan receivables and transfers them to an SPV, which issues securities backed by the pool. It claims this automatically removes every default risk and derecognises the loans under all accounting frameworks. Borrowers keep paying through the original servicing channel. Required: Explain the mechanism and qualify the claims. (5 marks)

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Marks	Credit	Working / case application
1	Pool	Illiquid individual receivables are grouped into a securitisable income-producing pool.
1	SPV/investors	The SPV acquires the stated pool and issues marketable interests/securities to investors as structured.
1	Funding	Transfer proceeds can provide funds to the originator for further activity, subject to actual terms/costs.
1	Risk boundary	Loan default, servicing and retained support risks depend on structure; a pool/security label does not eliminate all risk.
1	Accounting boundary	Derecognition requires applicable accounting criteria and transfer facts; unchanged borrower servicing alone proves neither derecognition nor its failure.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 20

FM-C02-D012 · 10 marks

A case-supplied valid structure transfers a Rs 100 lakh loan pool to an SPV for Rs 92 lakh cash. Originator pays Rs 2 lakh transaction fees and places Rs 5 lakh of these receipts in a restricted reserve which cannot fund new lending. A separate guarantee exposes it to up to Rs 4 lakh of pool losses; no loss has yet occurred and no accounting recognition conclusion is supplied. Required: Calculate unrestricted cash, identify use/restriction/risk and assess " Rs 100 lakh new cash with zero remaining risk". Do not decide accounting derecognition. (10 marks)

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Marks	Credit	Working / case application
1	Cash receipt	Rs 92 lakh, not the Rs 100 lakh pool face value.
1	After fees	92 - 2 = Rs 90 lakh.
1	Unrestricted cash	90 - 5 = Rs 85 lakh available for other uses on the supplied restriction.
1	Reserve distinction	Rs 5 lakh remains restricted cash, not an additional available funding source or a transaction fee by itself.
1	No extra guarantee payment	The Rs 4 lakh exposure is not an actual immediate payment because no loss/call is stated.
1	Retained risk	The separate guarantee creates retained contingent exposure up to the case limit.
1	Pool risk	Investors remain exposed according to terms to loan/structure risks; securitisation is not default-free.
1	Funding role	The Rs 85 lakh can support new lending if other constraints allow; avoid claiming Rs 100 lakh has arrived.
1	Accounting boundary	Applicable derecognition/consolidation/guarantee treatment requires separate criteria/facts.
1	Decision controls	Review reserve terms, servicing, fees and loss-support mechanics with forecasts, rather than claim universal risk transfer or count cash and face value twice.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 20

FM-C02-D013 · 5 marks

Offer O gives cancellable short use of rapidly changing equipment; the lessor maintains it and retains the stated residual/obsolescence risk. Offer F requires payments over most of useful life, is non-cancellable on supplied terms, and allocates maintenance and economic risks substantially to the user. The legal owner is the lessor in both. Required: Compare the chapter's economic lease patterns without issuing an AS/Ind AS accounting conclusion. (5 marks)

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Marks	Credit	Working / case application
1	O pattern	Short cancellable use with lessor risk/service responsibility resembles the operating pattern described.
1	F pattern	Long obligatory use with substantially transferred economic risks resembles the financing pattern described.
1	Legal title	Lessor legal ownership alone does not settle the economic pattern; use and risks matter.
1	Business fit	Compare technological change/flexibility, obligations and maintenance/risk allocation for the intended need.
1	Framework boundary	Accounting recognition/classification and tax depend on applicable rules/terms; these conceptual labels do not universally determine entries or deductions.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 22

FM-C02-D014 · 5 marks

A business sells equipment for Rs 18 lakh cash and leases the same equipment back. It says retained physical use proves no sale cash is received and later says the receipt makes all rentals cost-free. Required: Explain the funding mechanism and both errors. (5 marks)

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Marks	Credit	Working / case application
1	Roles	The former owner becomes the user/lessee; the buyer becomes owner/lessor under the supplied sale/lease structure.
1	Cash proceeds	The stated Rs 18 lakh cash receipt can release funds while use continues.
1	Continued use	Physical continuity does not by itself negate the stated cash transfer.
1	Future obligations	Lease rentals/terms remain obligations; a sale receipt does not make subsequent use cost-free.
1	Boundary	Assess terms/cash/risk and applicable accounting separately; not all legal/documented sale-leasebacks automatically create profit or derecognition.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 23

FM-C02-D015 · 5 marks

A lessor pays Rs 4 lakh equity and borrows Rs 16 lakh to acquire an asset leased to a user. In another deal, an equipment maker pays the lessor a sales commission for placing its machines through leasing. The student labels both arrangements ordinary customer bank loans. Required: Identify the mechanisms and cash/party implications. (5 marks)

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Marks	Credit	Working / case application
1	Leveraged pattern	The first involves lessor, lessee and a funding lender, rather than only a user's direct bank loan.
1	Funding split	Asset finance totals Rs 20 lakh, 80% debt and 20% lessor contribution on supplied figures, not universal statutory proportions.
1	Claims	Rental flows must meet lender/lessor claims according to contract; the third-party debt does not disappear.
1	Sales aid	Manufacturer tie-up/commission supports sales through lessor leasing activity, matching a sales-aid pattern.
1	Terms/risks	Check contracts and cost/service/risk allocations; no automatic depreciation/deduction entitlement or fixed 80% borrowing requirement follows.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 23

FM-C02-D016 · 5 marks

A supplier permits Rs 10 lakh payment at day 30 or Rs 9.8 lakh at day 10. A purchaser calls the extra 20 days "free" credit. Ignore tax, use a 360-day year, and treat cash-discount forgone over cash price as the simple cost base; compounding is not required. Required: Calculate implicit period and simple annualised cost, and explain the choice. (5 marks)

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Marks	Credit	Working / case application
1	Discount forgone	10 - 9.8 = Rs 0.2 lakh.
1	Funds retained/base	Rs 9.8 lakh retained for 20 extra days relative to early payment.
1	Period cost	0.2 /9.8 =2.040816% for 20 days.
1	Simple annualised	(0.2/9.8)x(360/20)=36.7347%, about 36.73%; this is not an effective compounded annual rate.
1	Decision	Compare feasible alternative funding/opportunity use and terms; no explicit interest does not establish zero cost. Do not automatically forego or take discount without cash/financing assessment.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 24

FM-C02-D017 · 3 marks

The business receives Rs 4 lakh customer advance for future goods and has Rs 1 lakh wages incurred but not yet paid. The manager calls the advance earned profit and the unpaid wages a permanent free grant. Required: Correct the financing interpretation. (3 marks)

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Marks	Credit	Working / case application
1	Advance	Cash can support liquidity but carries the future supply/refund obligations under terms; it is not automatically earned profit.
1	Accrual	Unpaid incurred wages temporarily leave funds in the business but remain obligations, not permanent grants.
1	Limits	Spontaneous financing affects timing, not permission to delay payment indefinitely or ignore fulfilment/cost.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 24

FM-C02-D018 · 10 marks

A valid sanctioned revolving facility has Rs 15 lakh limit. The quoted 10% annual rate applies only to actual drawn balances, with a 360-day year. The firm draws Rs 6 lakh for 30 days and Rs 10 lakh for the next 30 days; no other charges/draws occur, and the two periods are sequential. A separate full-disbursement loan would advance Rs 15 lakh for 60 days at the same rate. Surplus loan cash earns nothing; ignore tax/compounding. Availability remains subject to actual terms beyond the supplied case. Required: Calculate interest under both, compare costs and explain why a sanctioned limit is not cash already drawn or guaranteed unlimited finance. (10 marks)

Case-supplied terms; see scenario for assumptions.

Period / offer	Draw ( Rs lakh)	Days	Annual rate
Revolver period 1	6	30	10%
Revolver period 2	10	30	10%
Full loan	15	60	10%

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Marks	Credit	Working / case application
1	First period	6 x 10% x 30/360 = Rs 0.05 lakh.
1	Second period	10 x 10% x 30/360 = Rs 0.083333 lakh.
1	Total revolving	Rs 0.133333 lakh, about Rs 13333.33.
1	Full loan	15 x 10% x 60/360 = Rs 0.25 lakh = Rs 25000.
1	Difference	Loan cost exceeds revolving cost by Rs 0.116667 lakh, about Rs 11666.67 on assumptions.
1	Drawn balance	Use actual sequential drawn balances, not limit x 60 days for the revolving interest.
1	Limit versus cash	The Rs 15 lakh sanction caps facility drawings; it is not automatically an actual cash receipt.
1	Comparison scope	Result depends on zero other charges/surplus return stated; fees/conditions can change comparison.
1	Liquidity/risk	Review repayment/recall/security/drawing conditions and cash needs; do not assume perpetual renewal.
1	Decision	Revolving meets the stated variable draw need at lower stated interest, subject to actual access and suitability; neither facility is unlimited or free.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 27

FM-C02-D019 · 5 marks

A bank discounts a Rs 8 lakh eligible bill for 90 days at 12% per annum, using 360 days, and takes a further Rs 0.02 lakh fee upfront. The bank contract explicitly retains recourse to the customer if the debtor fails to pay. Ignore tax. Required: Compute net proceeds and assess "full face-value cash, no remaining risk". (5 marks)

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Marks	Credit	Working / case application
1	Discount	8 x 12% x 90/360 = Rs 0.24 lakh.
1	Net cash	8 -0.24 -0.02 = Rs 7.74 lakh.
1	Not face cash	Discount/fee reduce the immediately available funding; Rs 8 lakh is face value, not receipt.
1	Recourse	Stated debtor failure can trigger customer recourse; discounting does not eliminate this retained risk.
1	Terms	Review actual maturity/collection/recourse and fees; do not generalise all bill purchases as the same legal/accounting transfer.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 27

FM-C02-D020 · 5 marks

A corporate treasury team wants short-term borrowing and an investment for temporary surplus. It calls its own proposed commercial paper a sovereign obligation and a government T-bill a company loan. Current issue eligibility/maturity rules have not been verified. Required: Distinguish concepts and separate regulatory availability. (5 marks)

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Marks	Credit	Working / case application
1	CP	Commercial paper is conceptually an unsecured short-term borrowing instrument of an eligible issuer, not inherently sovereign debt.
1	T-bill	Treasury bills are government short-term securities; buying one invests surplus rather than raises the company's own CP cash.
1	Issuer/investor	Distinguish issuing a liability for finance from acquiring another issuer's instrument as investment.
1	Risk/liquidity	Assess issuer credit, maturity and market/terms rather than assume all money-market instruments have identical risks.
1	Regulatory hold	Verify current eligible issuers/ratings/maturities before any actual issue; no module numerical limit is treated as a complete current rule.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 25

FM-C02-D021 · 5 marks

An exporter needs funds to purchase and pack goods before shipment, then to bridge collection after valid export documents are generated. The manager requests the same stage label for both and assumes every order guarantees a bank advance and insurance payout. Required: Distinguish the funding stages and conditions without stating a universal 180-day regulatory deadline. (5 marks)

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Marks	Credit	Working / case application
1	Pre-shipment	Funding purchase/manufacture/packing before shipment matches pre-shipment or packing-credit purpose.
1	Post-shipment	Funding against eligible shipped receivables/documents until collection matches post-shipment purpose.
1	Evidence	Order/credit/documentation and borrower/transaction eligibility need actual verification; an order alone does not guarantee sanction.
1	Risks	Consider collection/country/currency risks and contract/coverage terms, not automatic guarantee of all losses.
1	Boundary	Confirm current bank/regulatory repayment and insurance requirements before acting; no universal deadline or coverage entitlement inferred from module shorthand.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 28

FM-C02-D022 · 5 marks

A company can seek a six-month loan from another company with surplus funds or solicit deposits from members of the public. It assumes both can be accepted on the same terms without a compliance check because the module describes deposits as finance. Required: Compare concepts and identify limits of this conclusion. (5 marks)

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Marks	Credit	Working / case application
1	Intercorporate	Funds from another company are distinct from broadly soliciting public deposits.
1	Terms	Actual amount, maturity, interest/security and repayment terms govern cash cost/risk.
1	Compliance	Corporate borrowing/deposit eligibility, approvals and current rules must be checked for the exact arrangement.
1	No universal threshold	Do not apply module 35% or duration wording as a complete current statutory permission.
1	Finance choice	Compare lawful accessible sources and cash capacity; a conceptual source list is not evidence any offer/sanction exists.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 31

FM-C02-D023 · 5 marks

A zero-coupon instrument provides Rs 7 lakh today and requires Rs 10 lakh at maturity after three years. There are no periodic coupons. The issuer says it is free financing. No annual yield calculation is required. Required: Explain cash structure, total rupee cost and decision considerations. (5 marks)

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Marks	Credit	Working / case application
1	Receipt	Issuer receives Rs 7 lakh, not maturity face value today.
1	Maturity	Rs 10 lakh is the stated cash repayment at maturity.
1	Economic cost	Rs 3 lakh difference is the total contractual rupee financing cost before other charges/tax.
1	No coupon not no cost	Absent periodic interest does not mean no return to the investor or no issuer funding cost.
1	Timing	Plan the maturity obligation and compare timing-adjusted alternatives; Rs 3/7 overthree years is not automatically an annual yield or accounting accrual rule.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 34

FM-C02-D024 · 5 marks

A Rs 50 lakh bond resets interest for the next quarter at a stated annual interest benchmark plus 2 percentage points. The benchmark changes from 6% to 7.5%. Calculate annualised interest at each rate and quarter interest for the new rate using one-fourth of a year. Ignore tax/fees. Management says floating means exchange-rate reset and no future interest-rate risk. Required: Calculate and correct the claims. (5 marks)

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Marks	Credit	Working / case application
1	Old rate	6%+2 percentage points=8%;50 x 8%= Rs 4 lakh annualised.
1	New rate	7.5%+2 percentage points=9.5%;50 x 9.5%= Rs 4.75 lakh annualised.
1	Quarter	4.75/4= Rs 1.1875 lakh for the next quarter on supplied convention.
1	Benchmark distinction	This contract resets by an interest benchmark, not automatically by currency exchange rates.
1	Risk	Future rates can alter payment burden; floating does not eliminate all risk or guarantee cheaper financing.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 34

FM-C02-D025 · 5 marks

Instrument C converts Rs 12 lakh principal into equity at Rs 40 per share under explicitly supplied lawful terms. Instrument W is a separate detachable warrant allowing purchase of 10000 shares at Rs 30 each; exercising W does not cancel the bond principal. The analyst treats both as free shares and deletes all debt. Required: Explain the distinct mechanisms and calculate supplied share/cash amounts. (5 marks)

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Marks	Credit	Working / case application
1	C shares	Rs 1200000/ Rs 40=30000 shares on valid conversion.
1	C obligation	Conversion settles the specified principal through shares under supplied terms; it is not a current automatic deletion before exercise/conditions.
1	W mechanism	A detachable warrant is a separate right to subscribe under its terms, not identical to conversion of principal.
1	W cash/shares	Exercise brings 10000 x Rs 30= Rs 3 lakh new cash for 10000 shares, while principal remains as stated.
1	Dilution/terms	Both can alter equity/control if exercised; evaluate dates/rights and avoid assuming universal legality, free shares or cancellation of unrelated debt.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 33

FM-C02-D026 · 5 marks

A non-US company offers receipts in a case-supplied compliant US depositary programme, each representing four ordinary shares held through the mechanism. It offers 50000 receipts. A separate foreign company contemplates receipts in India. A report calls every receipt a new unsecured corporate bond. Required: Distinguish mechanisms and calculate underlying shares without deciding current listing/regulatory eligibility. (5 marks)

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Marks	Credit	Working / case application
1	ADR concept	The stated US depositary receipt mechanism represents underlying foreign-company shares, not automatically a corporate debt loan.
1	Underlying count	50000 x 4=200000 ordinary shares represented.
1	GDR comparison	Global depositary receipts similarly represent underlying shares through an international depositary structure; venue/programme terms must be checked.
1	IDR direction	A foreign issuer's depositary-receipt fundraising in India matches the IDR concept, distinct from an Indian company raising outside India.
1	Boundary	Receipt ratio does not prove shares are newly issued or cash raised; determine actual issuance/sponsored structure and current compliance separately.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 40

FM-C02-D027 · 5 marks

A permitted foreign-currency loan requires USD 100000 principal repayment. At inception the planning exchange rate is Rs 80/USD; at maturity the spot rate is Rs 85/USD. Ignore interest/fees. Management says the lower quoted foreign interest rate alone settles the choice. No hedge exists. Required: Calculate principal rupee change and evaluate financing risk. (5 marks)

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Marks	Credit	Working / case application
1	Initial equivalent	100000 x 80= Rs 80 lakh.
1	Maturity equivalent	100000 x 85= Rs 85 lakh.
1	Increase	Rs 5 lakh more rupee principal outflow from the stated depreciation.
1	Rate alone insufficient	Compare full funding terms, currency exposure and cash capacity, not interest coupon alone.
1	Boundary	Assess matching foreign receipts/available hedges and actual current permissions; no automatic ECB route/eligibility or risk-free cheaper borrowing inferred.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 36

FM-C02-D028 · 5 marks

Offer G restricts proceeds to eligible environmental projects with required reporting. Offer S permits general corporate use but changes contractual financing terms if specified sustainability KPIs are not met. The manager calls both proof that all outcomes are already green and that compliance checks are unnecessary. Required: Compare project-use and target-linked concepts. (5 marks)

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Marks	Credit	Working / case application
1	Use-of-proceeds	G uses eligible-project allocation/reporting, matching the supplied project-based green structure.
1	Target-linked	S is tied to specified performance targets and contractual consequences, not necessarily restricted project proceeds.
1	Terms	Check KPI definitions, measurement, target dates and payment consequences rather than infer from a label.
1	Evidence	Assess allocations/reporting/verification and actual performance; naming a bond ESG does not prove environmental success.
1	Boundary	Current regulatory classification/compliance and investor claims require applicable rules/evidence; do not describe SLBs universally as a simple mix of green/social project bonds.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 39

FM-C02-D029 · 5 marks

Three online offers raise funds: A exchanges contributions for equity; B promises principal plus interest repayment; C receives voluntary donations with no ownership or debt return. Platform fees are 2% of funds raised. The founder says all three are free donation money automatically allowed for every company. Required: Classify and assess obligations/fees/availability. (5 marks)

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Marks	Credit	Working / case application
1	Equity	A creates stated investor ownership and related rights/dilution.
1	Lending	B creates repayment/interest obligations and lender default risk.
1	Donation	C has no ownership/debt return under supplied terms, though purpose/conditions may still matter.
1	Fees	2% platform fee reduces usable proceeds even when no interest coupon is paid; "online" does not mean cost-free.
1	Permission	Verify applicable platform, issuer and regulatory rules before actual fundraising; the chapter concept is not a blanket Indian securities/P 2 P permission or guarantee.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 41

FM-C02-D030 · 10 marks

A lawful machinery order needs Rs 24 lakh cash. The business has Rs 4 lakh usable internal funds, leaving Rs 20 lakh to fund. Three verified offers are supplied for this exercise: A: Rs 20 lakh term-loan proceeds today,12% annual simple interest on that principal for one year, with principal due at year end. B: lawful new equity Rs 20 lakh today, no fixed coupon; existing 100000 equally voting shares, new 50000 equally voting shares; founder currently holds 60000 and subscribes none. C: equipment lease avoiding the Rs 24 lakh purchase, with Rs 5 lakh upfront and Rs 7 lakh annual rental for three years; no purchase/residual ownership right. No other costs/tax/discount rate given. The Rs 4 lakh internal funds remain the only immediately available cash for lease upfront. Required: Calculate A payment, B dilution and C immediate gap/nominal rentals; compare decision factors without declaring an annual-cost/NPV winner from incomplete data. (10 marks)

Case-supplied terms; see scenario for assumptions.

Offer	Cash / rights	Payments
A loan	20 now	Principal 20 plus 12% interest after 1 year
B equity	20 now; 50000 new shares	No fixed coupon; rights/dilution
C lease	5 upfront; no asset ownership	7 yearly for 3 years

Show answer and marking

Marks	Credit	Working / case application
1	A interest	20 x 12%= Rs 2.4 lakh for the year.
1	A year-end cash	Rs 20 lakh principal+ Rs 2.4 lakh interest= Rs 22.4 lakh.
1	B total shares	100000+50000=150000 shares.
1	B percentage	60000/150000=40%, down from 60% on supplied equally voting structure.
1	C upfront gap	Rs 5 lakh upfront less Rs 4 lakh available= Rs 1 lakh; no arranged extra cash is assumed.
1	C nominal payments	5+7 x 3= Rs 26 lakh total nominal rental/upfront cash, with no acquired residual ownership right as stated.
1	Unlike horizons	A one-year repayment, B residual equity and C three-year use/ownership rights are not comparable lifetime costs merely from totals.
1	Risk/control	A imposes cash debt service; B dilutes votes/return rights; C has rental/use obligations and flexibility defined by actual contract.
1	Missing evidence	Need business cash forecasts, comparative horizons/terminal value, risk/discounting and actual terms/conditions for a sound value/cost ranking.
1	Choice boundary	Select a feasible suitable source with liquidity/control/value assessment, not automatic cheapest nominal rate or lowest immediate outflow; verify legal/tax/accounting separately.

Original case; indicative capped allocation, not an official marking scheme. Equivalent correct reasoning credited; no duplicate credit.

Official concept source, PDF page 5