CWA ICWA Final Stage IV : Cost Audit and Management Audit - June 2005

CWA ICWA Final - Stage IV • Cost Audit and Management Audit • June 2005

This Paper has 32 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 whether the following statements are “True” or “False”. No reason or explanation need be given:

1x10=10

(i)

The Cost Auditor is appointed by the Board of Directors with the approval of the Central Government.

(0)

(ii)

Revaluation reserves form part of net worth.

(0)

(iii)

Capital employed is to be reported in para 23 of the Annexure to the Cost Audit Report as the average of the amount as on the date of the balance sheet for the year under Cost Audit and that of the previous year.

(0)

(iv)

Loss on sale of a machine in a production cost centre (capital equipment) is part of the cost of production.

(0)

(v)

Goodwill included under Fixed Assets is part of capital employed.

(0)

(vi)

The shareholders of a company have no statutory right to demand an copy of the Cost Audit Report.

(0)

(vii)

The Cost Auditor has no right of access to the company’s records other than those prescribed under the relevant Cost Accounting Record Rules.

(0)

(viii)

Every company required to maintain cost accounting Records under section 209(1)(d) must get them audited under section 233B of the Companies Act.

(0)

(ix)

There is no statutory provision for audit of cost accounts on an annual basis.

(0)

(x)

Cost Audit can be conducted by a group of practicing cost accountants constituted as a body corporate.

(0)

(b)

Define the following terms as per the Cost Audit Report Rules, 2001:

2x5=10

(i)

Net worth

(0)

(ii)

Net sales.

(0)

(iii)

Profit

(0)

(iv)

Value Addition

(0)

(v)

Normal Price.

(0)

In the course of cost audit of a company, you come across the following discrepancies:

	As per Cost Acctg. Recors	As per Financial Accounts/Annual Reports	As per internal MIS Reports
Production (MT) Good quality Seconds Depreciation (Rs. lakhs)	124725 1241 81.07	125966 – 124.00	124900 1250 75.70
Power Generated (KWH) Norms of Consumption of power	(For actual no. of days worked) 28686750	(For the whole year) 28372415	(As per standards) 28370165 225 KWH/T of Production.

How will you deal with the above discrepancies in the Cost Audit Report?

(0)

A company manufacturing a single product has an installed capacity of 2.5 lakhs M.T. During the year 2003–04 capacity utilisation was 100% and cost details were as under:
Unit variable costs were Rs. 915 per M.T. as detailed below:

Raw Materials
Labour
Power (Variable)
Consumables
Packing

Rs./T
600
150
65
20
80
915

(0)

The Closing inventory of steel materials shows the following items as on 31.3.2005:

Item	Category	Cost Per Tonne Rs.	Net Realisable Value Per Tonne Rs.	Quantity in stock (MT)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15	Bars " " " " C.R. Sheets " " " Angles " " " " "	20,100 15,600 8,400 7,500 12,800 42,000 26,600 15,300 6,500 7,800 12,400 6,900 8,400 9,000 7,500	22,400 14,900 8,700 7,200 13,300 41,500 25,100 15,400 6,300 7,300 11,900 7,000 8,200 9,000 7,000	120 135 150 100 80 70 60 80 100 120 110 90 75 60 80

How would you determine the inventory value as per the “Cost or Net Realisable Value” basis?

(0)

Section — II (50 marks)

Section — II (50 marks)

(a)

Fill up the Blanks in the following statements:

1x10=10

(i)

Corporate objectives represent the _____ for the organisation as laid down by itself.

(0)

(ii)

Corporate image implies the _____ of a corporate body in all its fields of business from the judgemental view of its different stockholders.

(0)

(iii)

Activity based costing is the extended application of _____ _____ to activity centres.

(0)

(iv)

The main objective of the function of sales management is to _____ and _____ customers and _____ the position of the organisation in the market.

(0)

(v)

Every audit means monitoring the energy efficiency of different _____ and _____ in a plant.

(0)

(vi)

_____ cost should not be considered in inventory valuation for bank finance.

(0)

(vii)

India had to remove_____ _____ on imports as per WTO stipulation.

(0)

(viii)

The _____ _______ is the highest executive body of the WTO responsible for carrying out its functions.

(0)

(ix)

Margin of Dumping means the difference between ______ ______ and ______ ______.

(0)

(x)

Environmental audit is the systematic review by regulatory authorities of ______, _______ and _____ for meeting environmental regulations.

(0)

(b)

What do the following abbreviations stand for?

(i)
(ii)
(iii)
(iv)
(v)

MAP
OECD
GAAP
APC
GERA

(vi)
(vii)
(viii)
(ix)
(x)

DTA
CEGAT
GATT
TRIPS
MFN

(0)

Pharma companies have, as principal promotion for their products, to manufacture for free distribution to the doctors “Free Medical Samples” (FMS). These sample packs of products are not saleable and so have no sales values. However as manufactured products they are subjects to Excise Duty. The Assessable values of these samples are based on the cost buildup method of A.V. determination as per Cost Accounting Standard 4 (CAS–4) which will be certified by a Cost Accountant in practice. The Cost Sheet proforma for such productions for captive consumption is given as Appendix I in the CAS. Give a specimen of the statement of Cost of Production as per CAS–4

(0)

Elegant Appliances Ltd. is manufacturing a range of domestic appliances and is planning to introduce a new washing machine for which a feasibility study has been carried out.
The following data are from the study:

(a)	The proposal will need a capital investment of Rs. 70 crores.
(b)	The installed capacity of the new facility is 80,000 machine per annum.
(c)	The market price for a comparable quality machine is Rs. 7,500/- per unit, and the study indicates that the new machine would be able to fetch a premium of Rs. 1,200/unit.
(d)	The depreciation on the new facility will be charged at 7% p.a.
(e)	The additional fixed costs of the new facility will be Rs. 1,200 lakhs per annum.
(f)	The current Weighted Average Cost of capital of Elegant Appliances Ltd. is 15%.
Calculate the indicative target cost which the company should seek to achieve.

(0)

From the following data extracted from the Cost Accounting Records of a ministeel plant, prepare a report to the management analysis the reasons for the variance in profit from the Budget. (Ignore increase/decrease in opening and closing stocks):

	Budget		Actuals
	Quantity	Value Rs. lakhs	Quantity	Value Rs. lakhs
Production/Sales Sale Value Raw Material Consumed Power Consumed Other Variable Costs Contribution Fixed Expenses Profit/Loss before Taxes	33000 T 37500 T 198 (Lakh KWH)	5280 3000 841 949 490 300 190	30500 T 35880 T 195.2 (Lakh KWH)	4697 3050 869 686 92 260 168

(0)

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