CWA ICWA Final Stage IV : Cost Audit and Management Audit - December 2002

CWA ICWA Final - Stage IV • Cost Audit and Management Audit • December 2002

This Paper has 36 answerable questions with 0 answered.

F—19(CAM) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100

Answer Question Nos. 1 and 5, which are compulsory and two each from the remaining questions of Sections I & II.
Section — I(50 marks)
Marks

Answer Question Nos. 1 and 5, which are compulsory and
two each from the
remaining questions of Sections I & II.

Section — I(50 marks)

Marks

(a)

State merely whether the following statements are ’True’ or ’False’. You need not give any reasons/explanations for your answer:

1x10=10

(i)

Every company required to maintain Cost Records under section 209(1)(d) of the companies Act is required to get such records audited under section 233(B) of the companies act.

(0)

(ii)

There is a set of Cost Accounting Record Rules prescribed under section 209(1)(d) of the companies Act, which is applicable to all the companies requiring Cost Audit.

(0)

(iii)

Royalty is an item of Cost of Production under the Cost Accounting Record Rules.

(0)

(iv)

Cost Audit is statutorily recognized form of audit in most of the countries.

(0)

(v)

Efficiency Audit ensures an optimum return on the Capital Employed.

(0)

(vi)

Depreciation in excess of that computed under section 205(2) of the Companies Act cannot be taken for determination of cost under the Cost Accounting Record Rules.

(0)

(vii)

cost Auditor is entitled to get the Notice of the General Body Meeting.

(0)

(viii)

Capital Work–in–progress is required to be shown in the Cost Records.

(0)

(ix)

Cost Auditor has right of access to the Financial Books of the company.

(0)

(x)

Cost Auditor has a Statutory right to visit the Branch of the company.

(0)

(b)

Production 13,600 units
	Particulars	Total Rs. Lakhs	Cost Rs./Unit
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii)	Raw Materials Wages and Salaries Stores and Chemicals Services and Utilities Depreciation Other Overheads Administration Overheads Stock Adjustment Total Selling Overheads Total Interest Total Cost of Sales Sales Realisation (inclusive of Excise Duty) Margin of Profit	679.47 15.96 20.20 87.64 0.80 4.41 6.40 Nill 814.88 18.75 833.63 42.60 876.23 1294.00 417.77	4,996 117 149 4644 6 32 47 Nill 5,991 138 6,129 314 6,443 9,515 3,072

You are required to arrive at the following Ratios for the purpose of Para 24 fo the Annexure to the Cost Audit Report for the product only:

(a)	Profit as a percentage of Capital Employed.

(b)	Profit as a percentage to Sales Turnover.

Note:

1.	Working Capital is assessed as 3months cost of sales (of relevant elements of cost only) as separate data relating to Current Assets and Current Liabilities for the product is not available.
2.	Ratio of Net Block to depreciation is 10:1. The value of Gross Block is Rs.75 lakhs and Capital Work-in-progress is Rs.20 lakh.
3.	Excise duty is 40% of the selling Price.

5+5=10

(0)

(a)

State briefly the salient features of the "Cost Audit Report Rules, 2001" highlighting the main difference over the Existing Provisions.

(0)

(b)

ABC Ltd. has received an enquiry for the supply of 2,00,000 numbers of Special Type of Machine Parts. Capacity exists for the manufacture of the machine parts, but a fixed investment of Rs.80,000 and Working capital to the extent of 25% of Sales Value will be required if the job is undertaken.
The costs are estimated as follows:

Raw Materials − 20,000 kgs @Rs.2.50 per kg.
Labour Hours − 9,000 of which 1,000 would be over time hours payable at double the labour rate.
Labour Rate − Rs.2 per hour.
Factory Overhead − Rs.2 per direct labour hours.
Selling and Distribution Expenses − Rs.23,000

Material Recovered at the end of the operation will be Rs.6,000 (estimated).
The company expects a Net Return of 25 % on Capital Employed.

You are the Management Accountant of the company. The Managing Director requests you to prepare a Cost and Price Statement indicating the price which should be quoted to the customer.

(0)

(a)

Following data is available for the company relating ot the Cost of Production of a product subjected to Cost Audit.
Prepare the Export Profitability Statement to be included in the Annexure to the Cost Audit Report.

Production	10,000 units
		Rs.
Sales (Local) Sales(Export) Materials consumed Imported component @ Rs.3 /unit Direct Labour Factory Overhead Administrative overhead Freight & Packing (Local Sales) Packing for Export Handling at Port Opening work–in–progress Closing work–in–progress	9,000 units 1,000 units 20 Tonnes @Rs.5 kg	2,02,500 20,000 1,00,000 30,000 10,000 15,000 5,000 4,500 2,000 500 10,000 5,000	(one unit/unit of production)

Additional Information:

(i)	Export incentive of 10% on F.O.B is receivable.
(ii)	Draw Back–on–Duty paid on Raw Materials and Components available on exports is Rs.2,500.

(0)

(b)

(i)

Why is Cost Audit Report not made public? Whether the members of Parliament have access to the Cost Audit Report?

2x4=8

(0)

(ii)

A company manufacturing Cotton Textiles, wrote off in the same year the expenditure in replacement of Copper Rollers used for Printing Fabrics and Stainless Steel Frames used for Drying Yarn. Whether the Cost Auditor can qualify the report for these?

(0)

(iii)

A person has been appointed as Cost Auditor for twenty products manufactured in seven companies. He is again proposed for appointment as Cost Auditor for three more products manufactured by two other companies. Will this appointment be ‘In Order’?

(0)

(iv)

A person is doing Internal Audit on one of the factories manufacturing ‘Cement’ in a company. He was proposed for appointment as Cost Auditor in another factory of the same company manufacturing cement for the same period. Is this appointment as Cost Auditor ‘In Order’?

(0)

List the steps to be taken by a company from the time the Cost Audit is ordered for its product and the report is submitted by the Cost Auditor to the Government, specifying the time schedule and penalties for noncompliance.

(0)

Section—II (50 marks)

Section—II (50 marks)

(a)

Indicate whether the following statements are ‘True’ or ‘False’. You need nit give reasons for your answer:

1x10=10

(0)

(i)

Management audit in certain specified companies may be ordered by the Government by a special notification.

(0)

(ii)

Management Audit can be conducted efficiently only by an expert in the area of Cost Audit.

(0)

(iii)

Audit of Human Resource Development is outside the scope of Management Audit.

(0)

(iv)

Operational Audit is merely an extension of Internal Auditing into Operational Areas.

(0)

(v)

Management Auditors should not only be qualified Cost/Charted Accountant but have sound understanding of Audit procedures.

(0)

(vi)

A practicing Cost Accountant cannot be appointed as Cost Auditor of a Cooperative Society.

(0)

(vii)

Manufacturing and Other Companies (Auditor’s Report) Order (MAOCARO), 1988 does not apply to foreign companies.

(0)

(viii)

Main objective of Internal Audit is to prevent errors and frauds.

(0)

(ix)

Internal Audit is compulsory in large manufacturing companies.

(0)

(x)

Physical verification is not a part of Stock Audit conducted by a Bank.

(0)

(b)

He Escalation Clause of a long term contract stipulates the following quantities and rates of Materials of A, B and C and following number of Labour Hours of X, Y and Z and their rates of pay.
The actuals are also shown below:

			Actuals
	Qnty Tonnes	Rate Rs.	Qnty Tonnes	Rate Rs.
Materials
A B C	1500 800 200	50 30 100	1750 900 210	47 33 102

			Actuals
Labour	Hours	Hourly Rate Rs.	Hours	Hourly Rate Rs.
X Y Z	4800 2400 9600	2.00 1.00 1.50	4500 3000 10000	2.25 1.50 1.75

Compute the amount of the Final Claim so far as Rate is concerned.

(0)

What do understand by “Anti–dumping duty”? Briefly explain the provisions in the Cost Accounting Record Rules and Cost Audit (Report) Rules covering this aspect.

(0)

List the tasks that can be performed by a Cost and Management Accountant in practice in the following areas:

5x3=15

(a)

Direct Tax Laws;

(0)

(b)

Central Excise; and

(0)

(c)

Banks and Financial Institutions.

(0)

The following data are extracted from the accounts of a factory manufacturing industrial alcohol for pollution control:

Rs.
(a)	Undertaking environment impact studies	2,45,000
(b)	Depreciation of Bio-gas Plant installed during the year	6,75,000
(c)	Other materials purchased for manufacture of Compost manure	5,40,000
(d)	Salaries and Wages for Bio-gas and Compost manure plant	1,20,000
(e)	Sale Proceeds of manure sold	3,40,000

How you will treat he above items in the Cost Accounting Records taking into account the social responsibility of the company for preventing pollution?

(0)

Disclaimer ♣ Privacy Policy ♣ Who We Are ♣ Terms of Service