thu cs cost

7/30/2019 thu cs cost

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Company accounts cost and management accounting

Dec 2008

This Paper has 53 answerable questions with 0 answered.

Roll No

Time allowed : 3 hours MaximTotal number of questions : 8 Total number of p

PART A

(Answer Question No. 1 which is COMPULSORY andany two of the rest from this part)

1. (a) State, with reasons in brief, whether the following statements are correct or incorrect :

(i) The bonus share issue cannot be made unless the existing partlypaid shares are fully paidup.

(ii) In India, corporate financial statements in general do not include a cash flow statement to explain

movement of cash during the accounting period.(iii) A company is not under any legal obligation to make good its past losses before distributing its

current profits as dividends.

(iv) The Accounting Standard-21 mandates an Indian company to present consolidated financial

statements.

(v) In India, corporate financial statements are prepared recognising legal forms of the transaction and

ignoring the substance.

(2 marks each)

(b) Choose the most appropriate answer from the given options in respect of the following :

(i) Securities premium money can be used for(a) Payment of dividend

(b) Writing off goodwill(c) Issuance of fully paid bonus shares

(d) None of the above.

(ii) Loss suffered from the date of acquisition of business to the date of incorporation should be

debited to(a) Goodwill account

(b) Profit and loss account

(c) Capital reserve account

(d) Capital reduction account.(iii) Prepaid expenses are shown in balance sheet as

(a) Current assets

(b) Intangible assets

(c) Wasting assets(d) Fixed assets.

(iv) The balance of forfeited shares after reissue of the same is transferred to


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(a) Capital reserve account

(b) Share capital account

(c) Profit and loss account

(d) Debenture redemption fund account.

(v) Divisible profits include

(a) General reserves(b) Profit on revaluation of assets

(c) Profit prior to incorporation period(d) Capital reserve.

(1 mark each)

(c) Rewrite the following sentences after fillingup the blank spaces with appropriate word(s)/figure(s):

(i) Accounting as a language of business communicates the financial results of corporate enterprise

to various________ by means of financial statements.

(ii) If a company offers to its equity shareholders the right to buy one equity share of Rs.100 each at

Rs.120 for every 4 equity share of Rs.100 each and the market value of a share is Rs.180, then thevalue of the right is Rs.________ .

(iii) The bonus share can be issued only if _________ of the company permits such an issue.

(iv) Accounting Standard17: Segment reporting is mandatory for all commercial, industrial and

business reporting corporate enterprises, whose turnover for the accounting period exceeds Rs._______.

(v) Consolidated financial statements are presented by a _______ company to provide financial

information about the economic activities of its group.

(1 mark each)

2. (a) Write short notes on any two of the following :(i) Objectives of international accounting standards.

(ii) Loss on issue of debentures.

(iii) Firm underwriting.

(3 marks each)

(b) Following is the balance sheet of Anupam Ltd. as on 31st March, 2008 :

Liabilities Rs.

2,00,000, 14% Preference shares

of Rs.100 each, fully called

Less: Calls in arrears @ Rs.20 per share

2,00,00,000

4,00,000 1,96,00,00010,00,000 Equity shares of Rs.10

each, Rs.8 per share calledLess: Callsinarrears

80,00,00020,000

79,80,000

Add : Callsinadvance

Securities premiumGeneral reserve

10,000 79,90,000

5,10,0001,50,00,000


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10,000, 15% Debentures @ Rs.1,000 each, fully paidCurrent liabilities and provisions

1,00,00,00010,00,000

5,41,00,000

Assets

Fixed assets

InvestmentsOther current assets

Cash and bank balances

1,30,00,000

28,00,0002,15,00,000

1,68,00,000

5,41,00,000

On 1st April, 2008, the Board of directors decided that

(i) The fully paid preference shares are to be redeemed at a premium of 4% on 1st May, 2008 and for

that purpose 6 lakh equity shares of Rs.10 each are to be issued at a premium of 5%.

(ii) 3,000 Equity shares owned by Mohan, an existing shareholder, who has failed to pay the allotment

money and the first call money @ Rs.3 and Rs.2.50 per share respectively, equity shares are to be

forfeited on 31st May, 2008.

(iii) The final call of Rs.2 per share is to be made on 7th July, 2008 on equity shares.

All the above are duly complied with according to schedule. The amount due on the issue of fresh issueand on final call are also duly received except from Sohan who had failed to pay the first call for his

1,400 equity shares, has again failed to pay the final call also. These shares of Sohan are to be forfeitedon 31st August 2008.

Show the necessary journal entries.

(9 marks)

3. (a) Comment on any two of the following statements :

(i) As a matter of prudence, whole of free reserves should not be utilised in the case of buyback of

shares.

(ii) As a matter of sound commercial policy, current profits are to be applied while paying dividendout of current profits without making good past losses.

(iii) In case of undersubscription of shares, question of returning the money does not arise at all.

(3 marks each)

(b) Following are the balance sheets of Asha Ltd. and Bipasha Ltd. as on 31st March, 2008 :

Liabilities Asha Ltd.Rs.

Bipasha Ltd.Rs.

Capital (Rs.10 per share)Profit and loss account

Loan from Asha Ltd.

Bills payable

10,00,0004,00,000

80,000

14,80,000

8,00,0002,00,000

80,000

60,000

11,40,000

Assets

Machinery 3,00,000 2,80,000


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FurnitureDebtors

Loan to Bipasha Ltd.

Shares in Bipasha Ltd.

Bills receivable

50,0002,50,000

80,000

7,00,000

1,00,000

14,80,000

20,0008,00,000

40,000

11,40,000

Asha Ltd. purchased 75% shares of Bipasha Ltd. for Rs.7,00,000 on 31st March, 2008. Bills payable of

Bipasha Ltd. include bills of Rs.20,000 accepted in favour of Asha Ltd.

Prepare a consolidated balance sheet.

(9 marks)

4. (a) Distinguish between any two of the following :

(i) Underwriters and brokers.

(ii) Marked applications and unmarked applications.

(iii) Callsinarrears and callsinadvance.

(3 marks each)

(b) Following is the balance sheet of Ramesh Ltd. as on 31st March, 2008 :

Liabilities Rs.

Equity shares of Rs.10 each

12% Preference shares of Rs.100 eachGeneral reserve

Profit and loss account

15% DebenturesCreditors

10,00,000

10,00,0006,00,000

4,00,000

10,00,0008,00,000

48,00,000Assets

GoodwillBuilding

Plant

5,00,00015,00,000

10,00,000

Investment in 10% stock (market value of Rs.5,20,000,

nominal value Rs.5,00,000)

StockDebtors

Cash

Preliminary expenses

4,80,000

6,00,0004,00,000

1,00,000

2,20,000

48,00,000

Additional informationAssets are revalued as follows:Building : Rs.32,00,000; Plant : Rs.18,00,000; Stock : Rs.4,50,000; and Debtors : Rs.3,60,000.

Average profit before tax of the company is Rs.12,00,000 and 12.5% of the profit is transferred to

general reserve, rate of taxation being 50%. Normal dividend expected on equity shares is 8% while


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fair return on capital employed is 10%.

Goodwill may be valued at 3 years purchase of super profits.

Ascertain the value of each equity share under fair value method.

(9 marks)

PART

B

(Answer Question No.5 which is compulsory and

any two of the rest from this part.)

5. (a) State, with reasons in brief, whether the following statements are true or false :

(i) Cost accounting is a branch of financial accounting.

(ii) Bin card shows the value of a material at any moment of time.

(iii) In absorption costing, the valuation of inventories is higher than in marginal costing technique.

(iv) A budget manual is a summary of all the financial budgets.

(v) Cost reduction is cost control.

(2 marks each)


(i) Administration overheads are recovered as a percentage of(a) Direct materials

(b) Direct wages

(c) Prime cost(d) Works cost.

(ii) For contracts which are very near to completion, the profit is ascertained by the formula

(a) Estimated profit Work certified / Contract price(b) Estimated profit Work certified / Contract price Cash received / Workcertified

(c) Estimated profit Work certified / Contract price Cost of work / Total cost to date

Any of the above in the absence of specific instruction.

(iii) The type of process loss that should not affect the cost of inventories is

(a) Abnormal loss(b) Normal loss

(c) Seasonal loss

(d) Standard loss.

(iv) CostVolumeProfit analysis is most important for the determination of the

(a) Volume of operations necessary to breakeven(b) Variable revenues necessary to equal fixed costs

(c) Relationship between revenues and costs at various levels of operation

(d) Sales volume necessary to equal fixed costs.

(v) For shoe manufacturers, the most suitable cost system is(a) Job costing

(b) Batch costing

(c) Contract costing


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(1 mark each)

(c) Rewrite the following sentences after fillingup the blank spaces with appropriate word(s)/figure(s) :

(i) Cost is a fact whereas price is a __________.

(ii) Imputed costs are relevant for _________.

(iii) A __________ is the cost that has already been incurred and cannot be avoided by decisions taken

in the future.

(iv) Economic lot size is the order size that _________ the total cost of ordering and storing.

(v) A profit centre is a division or organisational unit concerned with controlling both _________ and

costs.

(1 mark each)

6. (a) Write short notes on any two of the following :

(i) Bases of apportionment.(ii) Cost plus contracts

(iii) Labour turnover.

(3 marks each)

(b) A factory is currently working at 50% capacity and produces 1,000 units. From the following

information, you are required to estimate profits of the factory when it works at 60% and 80% working

capacity respectively and offer your critical comments:

At 60% working capacity, raw material cost increases by 2% and selling price falls by 2%. At 80%

working capacity, raw materials cost increases by 5% and selling price falls by 5%. At 50% capacity

working, the product costs Rs.180 per unit and is sold at Rs.200 per unit. The unit cost of Rs.180 ismade up as follows:

Rs.

Raw materialLabour

Factory overheads

Administration overheads

10030

30 (40% fixed)

20 (50% fixed)

(9 marks)

7. (a) What are the objectives of financial statement analysis ?

(6 marks)

OR

"Although including interest in the normal cost is practically difficult but excluding interest altogether may

lead to wrong managerial decisions." Comment.

(6 marks)

(b) A company has annual fixed cost of Rs.1,40,00,000. In the year 200708, sales amounted to


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Rs.6,00,00,000 as compared with Rs.4,50,00,000 in the preceding year 200607. Profit in 200708 is

Rs.42,00,000 more than that in 2006-07. On the basis of the above information, answer the following:

(i)

(ii)

(iii)

At what level of sales, the company would have breakeven?

Determine profit/loss on a forecasted sales volume of Rs.8,00,00,000.

If there is a reduction in selling price by 10% in the financial year 200809 and company desires to

earn the same amount of profit as in 200708, what would be the required sales volume ?

(9 marks)

8. (a) Distinguish between any two of the following :

(i) Budget period and control period.

(ii) Cash and cash equivalents.

(iii) Cost sheet and production account.

(3 marks each)

(b) From the following information, prepare a cash flow statement showing net cash flows from operating

activities, investing activities and financing activities as per Accounting Standard3 (Revised) :Rs. in Lakhs

Net profit

Dividend paid (including dividend tax)

Book value of assets soldAmortisation of capital grant

Carrying amounts of investments sold

Interest expenses

Increase in working capital (excluding cashand bank balances)

Expenditure on construction workinprogress

Receipt of grant for capital projectsProceeds from short term borrowingsClosing cash and bank balances

Provision for taxation

Incometax paidLoss on sale of assets

Depreciation charged

Profit on sale of investmentsInterest on investments

Interest paid during the year

Purchase of fixed assets

Investment in joint ventureProceeds from callsinarrears

Proceeds from longterm borrowings

Opening cash and bank balances

25,000

8,535

1856

27,765

10,000

56,075

34,740

1220,5756,988

5,000

4,24840

20,000

1002,506

10,520

14,560

3,8502

25,980

5,003

(9 marks)


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Company accounts, cost and management accounting

June 2009


Roll No


PART A



(i) Accounting Standards (AS) are formulated by International Accounting Standard Board.

(ii) A joint stock company cannot purchase its ownshares.

(iii) If the rate ofdividenddeclared by a company is 22%, then under the Companies (TransferofProfitsto Reserves) Rules, 1975 the percentage of profits to be transferred to reserves should be10%.

(iv) The law limits the commission in case of issue of shares to 10% of the issue price of shares and in

case of debentures to 5% or such lower rate as is provided in the articles of association.

(v) Contingent liabilities relating to outsiders must be shown on the liability side of the consolidated

balance sheet.

(2 marks each)

(b) Rewrite the following sentences after fillingin the blank spaces with appropriate word(s)/figure(s):

(i) According to the provisions of section 198 of the Companies Act, 1956, maximum limit on thetotal managerial remuneration payable bypublic companyis ________ ofnet profits.

(ii) A company must pay the dividends within ________ days of its declaration.

(iii) Preliminaryexpenseis a ________ asset.

(iv) Discount on the issue of debenture is a ________ loss.

(v) If the purchase price of the debenture includes the interest for the expired period, it is known as________.

(1 mark each)

(c) Gaurav Ltd. had issued 12%, Rs.10,00,000 debentures @ Rs. 100 each in the past. For the purpose ofredemption, it maintains a debenture redemption fund with an annual contribution of Rs.90,000. On 1stApril, 2008, the fund stood at Rs.4,50,000 represented by 6%, Rs.5,00,000 government loan.

On 31st March, 2009, Rs.2,00,000 government loan was sold @ Rs.93.50 and the proceeds wereutilised to purchase debentures for cancellation @ Rs.85 each. Assume that Rs.20,000 debentures have

been redeemed out of capital and the balance with face value of Rs.1,80,000 has been redeemed out of
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debenture redemption fund account.

Prepare debenture account, debenture redemption fund account and debenture redemption fundinvestment account.


(i) Accounting Standard10 : Accounting for fixed assets

(ii) Issue of shares at a discount

(iii) Taxation on distributed profits.

(3 marks each)

(b) Following are the abridged balance sheets of Harry Ltd. and Say Ltd. as on 31st March, 2009 :

Liabilities Hary Ltd.

(Rs.)

Say Ltd.

(Rs.)

Equity share capital (Rs.100 each)

General reserveProfit and loss account

Current liabilities

10,00,000

1,00,0001,60,000

4,40,000

17,00,000

5,00,000

1,70,0001,30,000

2,00,000

10,00,000

Assets

Fixed assetsInvestment in shares of Say Ltd.

Current assets

4,80,0005,00,000

7,20,000

17,00,000

2,50,000

7,50,000

10,00,000

Additional information :

(i) On 1st July, 2008, Hary Ltd. acquired 3,000 shares in Say Ltd. The reserves and surplus position of

Say Ltd. as on 1st April, 2008 was as under:

General reserve

Profit and loss a/c (Cr.)

Rs.2,50,000

Rs.1,20,000

(ii) On 1st October, 2008, Say Ltd. issued one equity share for every four shares held as bonus shares

out of general reserve. No entry has been made in the books of Say Ltd. for issue of bonus shares.

(iii) On 30th September, 2008, Say Ltd. declared a dividend out of preacquisition profits @ 25% on

Rs.4,00,000, its capital on that date. Hary Ltd. credited the dividend to its profit and loss account.

(iv) Say Ltd. owed Hary Ltd. Rs.50,000 for purchase of stock from Hary Ltd. The entire stock is heldby Say Ltd. on 31st March, 2009. Hary Ltd. made a profit of 25% on cost.

Prepare a consolidated balance sheet of Hary Ltd. and its subsidiary Say Ltd. as on 31st March, 2009.

(9 marks)

3. (a) Abridged balance sheet of Rama Ltd. as on 31st March, 2009 is as follows :

Liabilities Rs.

Share capital 6,00,000


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Reserves and surplusBank overdraft

Creditors

Provision for taxation

Proposed dividend

50,00010,000

60,000

1,10,000

60,000

8,90,000Assets

Fixed assetsCurrent assets

3,70,0005,20,000

8,90,000

The net profits of the company after deducting working expenses but before providing for taxation

were as under :

Year200607

200708200809

Rs.3,18,000

3,40,0003,12,000

On 31st March, 2009, fixed assets were at Rs.4,50,000. Sundry debtors on the same date includedRs.10,000 which is irrecoverable. Having regard to the type of business, a 10% return on average

capital employed is considered as reasonable. Ascertain the value of goodwill on the basis of threeyears purchase of annual super profits. Also calculate goodwill by capitalisation of average

maintainable profits. Depreciation on fixed assets is charged @ 10% per annum and the rate of tax is

30%.

(6 marks)

(b) Following is the profit and loss account of Azad Ltd. for the year ended 31st March, 2009 :Rs.

To Office and administrative expensesTo Selling and distribution expenses

To Directors feesTo Managerial remuneration

To Interest on debentures

To Donation to charitable trust

To Compensation for breach of contractTo Depreciation on fixed assets

To Investment revaluation reserve

To Provision for taxationTo General reserveTo Balance c/d

3,10,0001,92,000

39,5001,70,000

18,500

15,000

27,0003,12,000

12,500

7,40,0002,50,0008,46,500

29,33,000

By Balance b/dBy Gross profit b/d

By Subsidies

3,43,20024,15,000

1,39,300


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By Interest on investmentBy Transfer fees

By Profit on sale of machinery (W.D.V. Rs.30,000)

9,5001,000

25,000

29,33,000

Additional information :

Original cost of the machinery sold was Rs.40,000.

Depreciation on fixed assets as per Schedule XIV of the Companies Act, 1956 was Rs.3,42,000.

You are required to calculate managerial remuneration in the following situations :

(i) when there is only wholetime director;

(ii) when there are two wholetime directors; and

(iii) when there are two wholetime directors, a managing director and a parttime director.

(6 marks)

(c) Differentiate between shares and debentures.

(3 marks)

4. (a) Jolly Ltd. has the following balance sheet as on 31st March, 2008 :

Liabilities Rs.

Share capital :

Issued, subscribed and fully paidup (10,000 equity shares of

Rs.100 each)

5,000 Preference shares of Rs.100 eachCapital reserve

Securities premium accountGeneral reserveProfit and loss account

Current liabilities

10,00,000

5,00,0001,00,000

1,00,0002,00,0001,00,000

10,00,000

30,00,000

AssetsFixed assets

Current assets

22,00,000

8,00,000

30,00,000

The preference shares are to be redeemed at 10% premium. Fresh issue of equity shares is to be madeto the extent it is required under the Companies Act, 1956 for the purpose of this redemption. Theshortfall in funds for the purpose of the redemption after utilising the proceeds of the fresh issue are to

be met by taking a bank loan. Show journal entries.

(6 marks)

(b) Silver Ore Co. Ltd. was formed on 1st April, 2007 with an authorised capital of Rs.6,00,000 in shares

of Rs.10 each. Of these, 52,000 shares had been issued and subscribed but there were callsinarrears


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on 100 shares. From the following trial balance as on 31st March, 2008, prepare the trading and profit

and loss account and the balance sheet :

Rs. Rs.

Cash at bank

Share capital

PlantSale of silver

Mines

Promotional expenses

Interest on fixed deposit upto 31stDecember

Dividend on investment less 22% tax

Royalties paid

Railway track and wagonsWages of miners

Advertising

Carriage on plantFurniture and buildings

Administrative expenses

RepairsCoal and oil

Cash

Investments in shares of Tin Mines

Brokerage on Tin Mines6% Fixed deposit in Syndicate Bank

1,05,500

40,000

2,20,000

6,000

10,000

17,000

74,2205,000

1,800

20,90028,000

900

6,500530

80,000

1,000

89,000

7,06,350

5,19,750

1,79,500

3,9003,200

7,06,350

Depreciate plant and railway track and wagons by 10%, furniture and building by 5%. Write off one

third of the promotional expenses. Value of silver on 31st March, 2008 was Rs.15,000. On 10thDecember, 2007, the directors forfeited 100 shares of which only Rs.7.50 per share had been paid.

Ignore corporate dividend tax.

(9 marks)

PART B



5. (a) State, with reasons in brief, whether the following statements are true or false :

(i) At breakeven point, the company earns only marginal profit.(ii) Fixed cost per unit remains fixed.

(iii) Liquidity ratios measure long-term solvency of a concern.

(iv) Rent on owned building is included in cost accounts.

(v) Job costing can be used in industries using standard costing.

(2 marks each)


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(b) Rewrite the following sentences after fillingin the blank spaces with appropriate word(s)/figure(s) :

(i) Inflated price method of valuing material issue is suited when __________.

(ii) Abnormal wastage __________ part of cost of production.

(iii) __________ in a contract provides that the contract price would be suitably enhanced on the

happening of a specified contingency.

(iv) Direct material + direct labour + factory overheads = ______.

(1 mark each)

(c) Distinguish between any two of the following :

(i) Bin card and stores ledger.

(ii) Fixed cost and variable cost.

(iii) Absorption costing and marginal costing.

(3 marks each)

6. (a) A company has provided you the following details :Liabilities 31.12.2007

(Rs.)

31.12.2008

(Rs.)

Share capital

Debentures

Reserve for doubtful debtsTrade creditors

Profit and loss a/c

70,000

12,000

70010,360

10,040

1,03,100

74,000

6,000

80011,840

10,560

1,03,200

Assets

CashDebtorsStock

Land

Goodwill

9,00014,90049,200

20,000

10,000

1,03,100

7,80017,70042,700

30,000

5,000

1,03,200

Additional information

Dividend paid Rs.3,500; and

Land was purchased for Rs.10,000.

Prepare a cash flow statement as per Accounting Standard3 (Revised).

(6 marks)

(b) Lookahead Ltd. produces and sells a single product. Sales budget for the calendar year 2009 for each

quarter is as under :

QuarterI

No. of Units to be Sold12,000


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IIIII

IV

15,00016,500

18,000

The year 2009 is expected to open with an inventory of 4,000 units of finished product and close with

an inventory of 6,500 units.

Production is customarily scheduled to provide for twothirds of the current quarters demand plusonethird of the following quarters demand. Thus production anticipates sales volume by about one

month. The standard cost details for one unit of the product is as follows:

Direct materials 10 Kgs. @ 50 paise per kg.

Direct labour 1 hour 30 minutes @ Rs.4 per hour.

Variable overheads 1 hour 30 minutes @ Re.1 per hour.

Fixed overheads 1 hour 30 minutes @ Rs.2 per hour based on a budgeted production volume of

90,000 direct labour hours for the year.

Answer the following

(i) Prepare a production budget for the year 2009 by quarters, showing the number of units to be

produced.

(ii) If the budgeted selling price per unit is Rs.17, what would be the budgeted profit for the year as a

whole ?

(iii) In which quarter of the year the company is expected to breakeven ?

(3 marks each)

7. (a) Material-A is used as follows :

Minimum usageMaximum usage

Normal usage

Ordering quantitiesDelivery period

500 units per week1,500 units per week

1,000 units per week

1,600 units46 weeks

Calculate

(i) Maximum level.

(2 marks)

(ii) Minimum level. (2 marks)

(iii) Ordering level

(2 marks)

(b) On 1st July, 2007, Delux Ltd. undertook a contract for Rs.5,00,000. On 30th June, 2008 when the

accounts were closed, the following details about the contract were gathered :

Rs.


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Material purchasedWages paid

General expenses

Plant purchased

Materials on hand (30.6.2007)

Wages accrued (30.6.2008)Work certified

Cash receivedWork uncertified

Depreciation of plant

1,00,00045,000

10,000

50,000

25,000

5,0002,00,000

1,50,00015,000

5,000

The above contract has an escalation clause which reads as follows :

"In the event of prices of materials and rates of wages increase by more than 5%, the contract price

would be increased accordingly by 25% of the rise in the cost of materials and wages beyond 5% ineach case."

It was found that since the date of signing the agreement, the prices of materials and wage ratesincreased by 25%. The value of the work certified does not take into account the effect of the above

clause.

Prepare the contract account.

(6 marks)

(c) Differentiate between Halsey wage plan and Rowan wage plan.

(3 marks)

8. From the following information, prepare the projected trading and profit and loss account for the next

financial year ending 31st March, 2009 and the projected balance sheet as on that date :

Gross profit ratioNet profit to equity capital

Stock turnover ratio

Average debt collection periodCreditors velocity

Current ratio

Proprietary ratio (Fixed assets to capital employed)Capital gearing ratio (Preference shares and debentures

to total long-term funds)

General reserve and profit and loss to equity

shareholders fundPreference share capital to debentures

25%10%

5 times

2 months3 months

2

80%

30%

20%2

Cost of sales consists of 40% for materials and balance for wages and overheads. Gross profit is

Rs.6,00,000.

(15 marks)


16/31


Dec 2009


Roll No


PART A



(i) Interest on debentures is payable only when there isprofit.

(ii) An underwriter while entering into a contract for issue ofsharesshould be a company.

(iii) Partly paid-up preference shares can be redeemed.

(iv) Dividendcan be paid on callsinadvance.

(v) Interest cannot be paid out of capital during construction period.

(2 marks each)


(i) As per the provisions laid down in Table-A of Schedule-I of the Companies Act, 1956, the amount

of call as the percentage of the face value of shares should not exceed

(a) 10%

(b) 25%

(c) 20%


(ii) The minimum percentage of the face value of shares that should be called for as

applicationmoneyis

(a) 5

(b) 10

(c) 15

(d) 20.

(iii) Debentures issued as collateral security will be debited to

(a)Bank account

(b) Debentures suspense account

(c) Debenturesaccount

(d) Collateral security account.

(iv) Preliminary expenses are

(a) Current liability

(b) Current assets
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(c) Fictitious assets

(d) Contingent liability.

(v) As per section 77A of the Companies Act, 1956, every buy-back should be completed within a

period of

(a) 3 months from the date of passing special resolution(b) 12 months from the date of passing special resolution

(c) 6 months from the date of passing special resolution

(d) 1 month from the date of passing special resolution.

(1 mark each)

(c) Rewrite the following sentences after fillingin the blank spaces with appropriate word(s)/figure(s) :

(i) Issue of debentures to vendors is known as issue of debentures ___________.

(ii) Profit prior to incorporation should be credited to __________ account.

(iii) If forfeited shares are re-issued at a discount, the amount of discount should in no case exceed the

amount credited to __________.(iv) Accounting standards are formulated under the authority of the ____________.

(v) Yield basis valuation of shares may take the form of valuation based on rate of return and

___________.

(1 mark each)

2. (a) What is amortisation period of intangible assets ? Can useful life of the intangible assets exceed the

period of legal rights?

(6 marks)

(b) Suraj Ltd. issued to public 1,50,000 equity shares of Rs.100 each at par. Rs.60 per share were payable

along with the application and the balance on allotment. This issue was underwritten equally by A, B,and C for a commission of 3%. Applications for 1,40,000 shares were received as per details givenbelow :

Underwriter Firm

Underwriting

Applications

Marked

Applications

Total

Applications

AB

C

Unmarked Applications

5,0005,000

3,000

40,00046,000

34,000

45,00051,000

37,000

7,000

1,40,000

It was agreed to credit the unmarked applications to A and C. Suraj Ltd. accordingly made theallotment and received the amounts due from the public. The underwriters settled their accounts.

You are required to(i) prepare a statement of liability of the underwriters assuming that the benefitof firm underwriting is given to individual underwriters; and (ii) journalise the above transactions

(including cash) in the books of Suraj Ltd.


18/31

(6 marks)

(c) Give the necessary journal entries both at the time of issue and redemption of debentures in the

following case:

Eagle Ltd. issued Rs.1,00,000, 15% debentures of Rs.100 each at a discount of 5%, but redeemable at a

premium of 5% at the end of 4 years.

(3 marks)

3. (a) On the basis of following information, compute the value of an equity share and a preference share ofboth Chelsi Ltd. and Nensi Ltd.(i) when only a few shares are sold; and (ii) when controlling shares

are to be sold :

Chelsi Ltd.

(Rs.)

Nensi Ltd.

(Rs.)

Profit after tax

12% Preference share capital (shares of

Rs.100 each)

Equity share capital (shares of Rs.10 each)

10,00,000

10,00,000

50,00,000

10,00,000

20,00,000

40,00,000

(6 marks)

(b) What do you understand by provision for taxation? What factors are to be considered while

estimating the provision for taxation?

(6 marks)

(c) Ronny Ltd. forfeited 200 shares of Rs.10 each, Rs.8 per share being calledup on which a shareholder

paid application and allotment money of Rs.5 per share but did not pay the first call money of Rs.3 per

share. Of these forfeited shares, 150 shares were subsequently re-issued by the company as fully paid-up for Rs.8 per share. Give journal entries for the forfeiture and re-issue of shares.

(3 marks)

4. (a) Anuj Ltd. had an accumulated amount of general reserve of Rs.5,00,000. The directors of Anuj Ltd.decided to declare bonus shares out of the general reserve and to utilise the dividend in the following

manner :

(i) To make 10,000 partly paid shares of Rs.10 each paid-up at Rs.6 each, as fully paid-up.

(ii) To distribute 4 fully paid bonus shares of Rs.10 each at Rs.12 each, for 5 fully paid existing 20,000

shares of Rs.10 each.

Show journal entries in the books of Anuj Ltd. to give effect to the above adjustments.

(6 marks)

(b) "Issue of bonus shares by the subsidiary company does not affect the cost of control." Comment.

(6 marks)

(c) "Accounting Standards are mandatory for all companies." Comment.

(3 marks)

PART B


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(i) All longterm costs are controllable.

(ii) Rent on own building is not included in cost accounts.

(iii) Under differential piece rate of incentive scheme, there is no encouragement to improve the

performance of the workers.

(iv) By job rotation, labour turnover can be controlled/reduced upto some extent.

(v) Administration overheads are incurred due to management policy and they are easily controllable.

(2 marks each)


(i) The most suitable cost system where the products differ in type of materials and work performed is

(a) Job costing

(b) Process costing

(c) Operating costing


(ii) Current liabilities are equal to

(a) Working capital + current assets

(b) Working capitalcurrent assets

(c) Current assetsworking capital

(d) Current assets + working capital

(iii) Non-controllable cost is the cost which

(a) Is not subject to control at any level of managerial supervision

(b) Cannot be controllable during a particular financial year

(c) Cannot be controllable at any cost


(iv) Reordering level is equal to

(a) Maximum consumption x minimum reorder period

(b) Maximum consumption x maximum reorder period

(c) Minimum consumption x minimum reorder period

(d) Normal usage x normal delivery period.(v) A budget designed to remain unchanged irrespective of the level of activity actually attained is

called

(a) Master budget

(b) Fixed budget

(c) Current budget

(d) Flexible budget.


20/31

(1 mark each)

(c) Rewrite the following sentences after fillingin the blank spaces with appropriate word(s)/figure(s) :

(i) Material losses due to abnormal reasons should be transferred to _______.

(ii) __________ determines the priorities of functional budgets.

(iii) The ratio of total liquid assets to current liabilities is known as _________.

(iv) Breakeven chart is the graphical relationship between ___________.

(v) _________ is the allotment of proportion of items of cost to cost centre/cost units.

(1 mark each)

6. (a) The sales turnover and profit during two periods were as follows :

Period-1

Period-2

Sales : Rs.20 lakh; and Profit : Rs.2 lakh

Sales : Rs.30 lakh; and Profit : Rs.4 lakh

Calculate :

(i) P/V ratio;

(ii) Sales required to earn a profit of Rs.5 lakh; and

(iii) Profit when sales are Rs.10 lakh.

(b) The total overhead expenses of a factory are Rs.4,46,380. Taking into account the normal working ofthe factory, overheads were recovered from production at Rs.1.25 per hour. The actual hours worked

were 2,93,104. How would you proceed to close the books of account, assuming that besides 7,800

units produced of which 7,000 were sold ? There were 200 equivalent units in workinprogress.

On investigation, it was found that 50% of the unabsorbed overheads were on account of increase in the

cost of indirect material and indirect labour and the other 50% was due to factorys inefficiency.(6 marks)

(c) What are the limitations ofmanagement accounting?

(3 marks)

7. (a) A worker under the Halsey Plan of remuneration has a day rate of Rs.1,200 per week of 48 hours, plus

a cost of living bonus of Rs.10 per hour worked. He is given an 8-hour task to perform, which he

accomplishes in 6 hours. He is allowed 30% of the time saved as premium bonus. What would be histotal hourly rate of earnings, and what difference would it make if he were paid under the Rowan Plan ?

(6 marks)

(b) A chemical manufacturing unit uses Material-A as the basic material. The cost of Material-A is Rs.20per kg. and the input-output ratio is 120%. Due to a sudden shortage in the market, Material-A becomesnon-available and the manufacturing unit is considering the use of one of the following substitutes

available:

Material Material InputOutput Ratio Rs. Per Kg.

B1 135% 26

B2 115% 30


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You are required to recommend which of the above substitutes is to be used. Also indicate additional

cost required to be incurred.

(6 marks)

(c) Write a note on zero base budgeting (ZBB). (3 marks)

8. (a) From the following information provided by Jolly Ltd., you are required to prepare the balance sheet :

Current ratio

Liquidity ratio

Proprietary ratioWorking capital

Reserves and surplus

Bank overdraft

2.5

1.5

0.75Rs.6,00,000

Rs.4,00,000

Rs.1,00,000

There is no long-term loan or fictitious assets. You are also required to show the necessary working

notes.

(6 marks)

(b) What are the benefits of cash flow statement? Mention the parties who are benefited from preparing

cash flow statement.

(6 marks)

(c) What is margin of safety? How may it be improved?

(3 marks)


22/31


June 2010


Roll No

Time allowed : 3 hours MaximTotal number of questions : 8 Total number of pr

NOTE : All working notes should be shown distinctly.

PART A

(Answer Question No. 1 which is COMPULSORY and

any two of the rest from this part)

1. (a) State, with reasons in brief, whether the following statements are correct or incorrect:

(i) Accounting policies vary from enterprise to enterprise.

(ii) In the absence of declaration ofdividend, there is no need to provide for depreciation in

theaccountsof companies.

(iii) Securities premiummoneycan be distributed as dividend.

(iv) For calculating minority interest, there is a need to distinguish between capital andrevenueprofitsof the subsidiary.

(v) While preparing the consolidated balance sheet, a contingent liability in respect of

atransactionbetween the holding and the subsidiary companies is disappeared from the foot note.

(2 marks each)


(i) Indian accounting standards are formulated under the authority of the

(a) Council of the Institute of Chartered Accountants of India

(b) National Advisory Committee on Accounting Standards

(c) International Accounting Standard Board

(d) Accounting Standard Board.

(ii) As per section 79 of the Companies Act, 1956 from the date of receiving the sanction of the

CentralGovernment, a company must issue shares at discount within a period of

(a) One month(b) Two months

(c) Three months

(d) Six months.

(iii) As per section 387 of the Companies Act, 1956, total remuneration to manager should not exceed

the rate of net profit of the company except with approval of the Central Government

(a) 5%
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(b) 2%

(c) 11%

(d) 10%

(iv) Profit on cancellation of own debentures should be transferred to

(a) Profit and loss account(b) Profit and loss appropriation account

(c) Capital reserve account

(d) Reserve capital account.

(v) Profit prior to incorporation is transferred to

(a) General reserve

(b) Capital reserve

(c) Goodwill account

(d) Profit and loss account.

(1 mark each)

(c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) :

(i) Goodwill is ____________ asset.

(ii) Preliminary expenses being of capital nature may be written-off against ___________.

(iii) Collateral security implies ___________ security given for a loan.

(iv) Interim dividend is a dividend declared at any time between the ________ where the final

dividend is declared.

(v) Stock reserve for unrealised profit in respect of inter-company transactions should be created by

debiting __________ and crediting __________ while preparing consolidated profit and lossaccount.

(1 mark each)


(i) Non-acceptability of International Accounting Standards

(ii) Capitalisation of profits and reserves

(iii) Phases of generation of intangible assets.

(3 marks each)

(b) Following are balance sheets of H Ltd. and S Ltd. as at 31st March, 2009 :

LiabilitiesH Ltd.

(Rs.).

S Ltd

(Rs.).

Share capital (Shares of Rs.100 each) 5,00,000 5,00,000

General reserve as on 1st April, 2008 1,00,000 60,000

Profit and loss account 1,40,000 90,000

Bills payable 40,000

Creditors 80,000 50,000


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8,20,000 4,40,000

Assets

Goodwill 40,000 30,000

Other fixed assets 3,60,000 2,20,000

1,500 Shares in S Ltd. at cost 2,40,000

Stock 1,00,000 90,000

Debtors 20,000 75,000

Cash at bank 60,000 25,000

8,20,000 4,40,000

The profit and loss account of S Ltd. showed a balance of Rs.50,000 on 1st April, 2008. A dividend of

15% was paid on 15th October, 2008 for the year 2007-08. The dividend was credited by H Ltd. to its

profit and loss account. H Ltd. acquired shares on 1st October, 2008. The bills payable of S Ltd. wereall issued in favour of H Ltd. and the same were got discounted by H Ltd. Included in the creditors of S

Ltd. are Rs.20,000 for goods supplied by H Ltd. The stock of S Ltd. includes goods to the value of

Rs.8,000 which were supplied by H Ltd. at a profit of 33.33% on cost. Prepare consolidated balance

sheet of H Ltd. and S Ltd. as on 31st March, 2009.

(9 marks)

3. The following balances have been extracted from the books of Pioneer Traders Ltd. as on 30 September,2009 :

Dr.

(Rs. 000)

Cr.

Share capital (Authorised and issued) :

Equity (15,00,000 Shares of Rs.100 each) 1,50,000

8% Redeemable preference (40,000 shares) 40,000

Securities premium 2,500

Preference share redemption 4,800

General reserve 10,000

Land (cost) 30,000

Buildings (cost less depreciation) 70,000

Furniture (cost less depreciation) 2,000

Motor vehicle (cost less depreciation) 3,500

Trading accountgross profit 90,000

Establishment charges 25,000

Rate, taxes and insurance 1,200

Commission 600

Discount received 500

Interest on investments 800

Depreciation 6,000

Sundry office expenses 6,000

Payment to auditors 400

Sundry debtors and creditors 10,660 2,560

Profit and loss account (as on 30.9.2008) 1,000


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Unpaid dividend 200

Cash in hand 1,200

Cash at bank in current account 19,500

Security deposit 1000

Outstanding expenses 600

Investments in G.P. Notes 20,000

Stock in trade (at or below cost) 35,300

Provision for taxation (year ended 30.9.2008) 7,000

Income-tax paid under dispute (year ended 30.9.2008) 10,000

Advance payment of income-tax 22,000

2,69,160 2,69,160

The following further details are available :

(i) The preference shares were redeemed on 1st October, 2008 at a premium of 20% but no entries

were passed for giving effect thereto, except payment standing to the debit of preference shareredemption account.

(ii) Depreciation as provided upto 30th September, 2009 is as follows :

(i) BuildingRs.2,10,00,000.

(ii) FurnitureRs.20,00,000.

(iii) Motor vehiclesRs.60,00,000.

(iii) Establishment charges include Rs.18,00,000 paid to managing director as remuneration in terms of

agreement which provides for a remuneration of 5% of annual net profits.

(iv) Payment to auditors includes Rs.1,00,000 for taxation work in addition to audit fees.(v) Market value of investments on 30th September, 2009 is Rs.1,80,00,000.

(vi) Sundry debtors include Rs.40,00,000 due for a period exceeding six months.

(vii) All receivables and deposits are considered good for realisation.

(viii) Income-tax demand for the year ended 30th September, 2008 Rs.1,00,00,000 has not been provided

for against which appeal is pending.

(ix) Income-tax is to be provided @ 34%. Also provide for tax on divisible profit @ 16%.

(x) Directors recommended payment of dividend on equity shares at the rate of 12%.

(xi) Ignore previous years figures.

You are required to prepare the profit and loss account for the year ended 30th

September, 2009 and a

balance sheet as at that date.

(15 marks)

4. (a) Balance sheet of Diamond Ltd. as at 30th June, 2009 is given below :

Liabilities Rs.


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Share capital : 40,000 Shares of Rs.10 each 4,00,000

General reserve 80,000

Profit and loss account 64,000

Sundry creditors 2,56,000

Income-tax reserve 1,20,000

9,20,000

Assets

Land and buildings 2,20,000

Plant and machinery 2,60,000

Patents and trade marks 40,000

Preliminary expenses 24,000

Stock 96,000

Debtors 1,76,000

Bank balance 1,04,000

9,20,000

The expert valuer valued the land and buildings at Rs.4,80,000, goodwill at Rs.3,20,000 and plant and

machinery at Rs.2,40,000. Out of the total debtors, it is found that debtors of Rs.16,000 are bad. Theprofits of the company have been as follows :

31st

March, 2007 : Rs.1,84,000

31s

March, 2008 : Rs.1,76,000

31st

March, 2008 : Rs.1,92,000

The company follows the practice of transferring 25% of profits to general reserve. Similar type of

companies earn at 10% of the value of their shares. Plant and machinery, and land and buildings havebeen depreciated at 15% and 10% respectively. Ascertain the value of shares of the company by using

(i) Intrinsic value method;

(ii) Yield value method; and

(iii) Fair value method.

(6 marks)

(b) Rax Ltd. invited applications from public for 1,00,000 equity shares of Rs.10 each at a premium ofRs.5 per share. The entire issue is underwritten by the underwriters A, B, C, and D to the extent of

30%, 30%, 20%, and 20% respectively with the provision of firm underwriting of 3,000, 2,000, 1,000and 1,000 shares respectively. Underwriters are entitled to maximum commission as per law. Thecompany has received applications for 70,000 shares from public out of which applications for 19,000,

10,000, 21,000 and 8,000 shares were marked in favour of A, B, C and D respectively. Calculate the

liability of each underwriter treating firm underwriting on par with marked applications. Also ascertainthe underwriting commission @ 2.5% payable to each underwriter.

(6 marks)


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(c) Buy-back may be misused by the corporate entities at the cost of innocent investors. Give your

comments.

(3 marks)

PART B



5. (a) State, with reasons in brief, whether the following statements are correct or incorrect:

(i) Under Flux Method, labour turnover is calculated by number of workers left divided by average

number of workers.

(ii) In cost plus contracts, the contractor runs a risk of incurring a loss.

(iii) There is no need to record attendance of piece rate workers since attendance is not relevant for

ascertaining the amount of wages to be paid.

(iv) A profit centre whose performance is measured by its return on investment (ROI) is known asinvestment centre.

(v) Contribution is not only the criterion for deciding profitability.

(2 marks each)


(i) The rate of change of labour force in an organisation during a specified period is called

(a) Labour efficiency

(b) Labour turnover

(c) Labour productivity


(ii) When a contract is not complete at the end of the year, profit on incomplete contract

(a) Is not considered

(b) Is considered for inclusion in the profit for the year

(c) Is considered for the inclusion of a part of the year


(iii) When prices fluctuate widely, the method that will avoid the effect of fluctuations is

(a) FIFO

(b) LIFO

(c) Simple average

(d) Weighted average.

(iv) Fixed costs remain fixed

(a) Over a short period

(b) Over a long period and within relevant range

(c) Over a short period and within a relevant range


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(d) Over a long period.

(v) When the under or over absorbed overheads amount is significant, it should be disposed off by

(a) Transferring to costing profit and loss account

(b) Using a supplementary rate

(c) Carry over to next year(d) None of the above.

(1 mark each)

(c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) :

(i) ______________ expenses are excluded from cost.

(ii) An account giving details of cost of production, cost of sales and profit made during a particular

period is called _____________.

(iii) The process of apportionment of factory overheads among production and service department is

called ____________ of factory overheads.

(iv) The time for which the employer pays remuneration to workers but obtains no direct benefit iscalled ___________.

(v) A system that keeps a running and continuous record that tracks inventories and cost of goods sold

on day-to-day basis is called ________.

(1 mark each)

6. Summarised income statement and balance sheet of Progressive Ltd. are given below :

Income Statement for the Year ended 31st December, 2009

(Rs. 000)

Sales 1,600

Less: Cost of goods sold 1,310Gross margin 290

Less: Selling and administration expenses 40

Net operating income (EBIT) 250

Less: Interest 45

Earnings before tax 205

Less : Tax paid 82

Net income after tax 123

Earnings per share (EPS) is Rs. 3.075.

Balance Sheet as at 31st December, 2009

Liabilities(Rs.

000)

Paid-up capital (40,000 shares of Rs. 10 each fully

paid)400

Retained earnings 120


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Debentures 700

Creditors 180

Bills payable 20

Other current liabilities 80

1500

Assets (Rs. 000)

Net fixed assets 800

Inventory 400

Debentures 175

Marketable securities 75

Cash 50

1500

Price per share is Rs.15.

Industrys average ratios are :

Current ratio .......... 2.4

Quick ratio .......... 105

Sales to inventory .......... 8.0

Average collection period .......... 36 days

Price per share/book value of share .......... 1.6

Debts to assets .......... 40%

Times interest earned .......... 6

Profit margin .......... 7%

Price to earnings ratio .......... 15Return to total assets .......... 11%

(i) Progressive Ltd. would like to borrow Rs.5,00,000 from a bank for less than a year. Evaluate the

firms current financial position by calculating ratios that you feel would be useful for the banks

evaluation.

(ii) What problem areas are suggested by your ratio analysis ? What are the possible reasons for them ?

(iii) Do you think that the bank should give the loan ?

(iv) If Progressive Ltd.s inventory utilisation ratio (sales to inventory) and average collection period

were reduced to industry average, what amount of funds would be generated ?

(15 marks)


(i) Superiority of zero base budgeting (ZBB) to traditional budgeting

(ii) Activity based costing

(iii) Cash, cash equivalents and cash flows.


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(3 marks each)

(b) Two manufacturing companies which have the following operating details decided to merge :

CompanyI CompanyII

Capacity utilisation (%) 90 60

Sales (Rs. in lakhs) 540 300

Variable costs (Rs. in lakhs) 396 225

Fixed costs (Rs. in lakhs) 80 50

Assuming that the proposal is implemented, calculate

(i) Break-even sales of the merged plant and the capacity utilisation at that stage.

(ii) Profitability of the merged plant at 80% capacity utilisation.

(iii) Sales turnover of the merged plant to earn a profit of Rs.75 lakh.

(iv) When the merged plant is working at a capacity to earn a profit of Rs.75 lakh, what percentage

increase in selling price is required to sustain an increase of 5% in fixed overheads ?

(9 marks)

8. (a) A company manufactures 5,000 units of a product per month. The cost of placing an order is Rs.100.The purchase price of the raw material is Rs.10 per kg. The re-order period is 4 to 8 weeks. The

consumption of raw materials varies from 100 kgs. to 450 kgs. per week, the average consumption

being 275 kgs. The carrying cost of inventory is 20% per annum. You are required to calculate

(i) Re-order quantity

(ii) Re-order level

(iii) Maximum level

(iv) Minimum level

(v) Average stock level.

Assume 52 weeks in a year.

(6 marks)

(b) Following information is available for a factory for the year 2008 :

Rs.

Direct material ......... 3,00,000

Direct wages ......... 2,50,000

Factory overheads ......... 1,50,000

Administrative overheads ......... 1,68,000

Selling overheads ......... 1,12,000

Distribution overheads ......... 70,000

Profit ......... 2,10,000

A work order has been executed in the year 2008 and the expenses incurred werematerials


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Rs.4,000; and wages Rs.2,500.

Assuming that in the year 2009 the rate of factory overheads has increased by 20%, distributionoverheads have gone down by 10% and selling and administration overheads have each gone up by

12.5%, at what price should the product be sold so as to earn the same rate of profit on the selling price

as in the year 2008 ? Factory overheads are based on direct wages while other overheads are based onfactory cost.

(9 marks)

June 2011

thu cs cost

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