CS EP - Module I : Company Accounts Cost and Management Accounting - December 2010

CS EP - Module I • Company Accounts Cost and Management Accounting • December 2010

This Paper has 41 answerable questions with 4 answered.

Roll No………
Time allowed : 3 hours	Maximum marks : 100
Total number of questions : 8	Total number of printed pages : 10

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)

PART — A

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

(a)

State, with reasons in brief, whether the following statements are true or false :

(i)

Accounting Standard–15 deals with earnings per share.

(0)

(ii)

Premium on issue of debentures shall be credited to debentures account along with nominal value of debentures.

(0)

(iii)

As per Accounting Standard–26, intangible asset arising from research should not be recognised as an asset.

(0)

(iv)

No buy–back of partly–paid shares is allowed.

(0)

(v)

An underwriter while entering into a contract for issue of shares should be a registered company.

(0)

(2 marks each)

(b)

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

(i)

In case of part redemption of debentures, the balance in sinking fund is equal to ––

(a)	50% of the amount of debentures issued till that date
(b)	75% of the amount of debentures issued till that date
(c)	In proportion to the issue of debentures till that date
(d)	No limit.

(0)

(ii)

The International Financial Reporting Standard-4 deals with ––

(a)	Share based payments
(b)	Financial investments
(c)	Insurance contracts
(d)	Evaluation of mineral resources.

(1)

(iii)

Which one is not a statistical book ––

(a)	Shares calls book
(b)	Register of share warrants
(c)	Register of power of attorneys
(d)	Register of directors’ shareholdings.

(0)

(iv)

Securities premium account is shown on the liability side under the heading ––

(a)	Share capital
(b)	Reserves and surplus
(c)	Current liabilities and provisions
(d)	None of the above.

(1)

(v)

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.

(0)

(1 mark each)

(c)

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

(i)

The applications bearing the stamp of the respective underwriters are called ___________.

(1)

(ii)

The debentures issued as collateral security has to be mentioned by way of a note in the balance sheet under ___________.

(0)

(iii)

The International Financial Reporting Standard-8 deals with ___________.

(0)

(iv)

___________ advises the Central Government on the formulation and implementation of Accounting Standards in India.

(0)

(v)

The voluntary return of shares by a shareholder to the company for cancellation is called ___________.

(0)

(1 mark each)

(a)

Following are the information of two companies for the year ended 31^st March, 2010 :

	Company A Rs.	Company B Rs.
Equity shares of Rs.10 each 10% Preference shares of Rs.10 each Profit after tax	8,00,000 6,00,000 3,00,000	10,00,000 4,00,000 3,00,000

Assuming that the market expectation is 18% and 80% of the profits are distributed, what is the price per share you would pay for the equity shares of each company &andash;&andash; (i) if you are buying a small lot; and (ii) if you are buying controlling interest shares?

(0)

(6 marks)

(b)

The balance sheet of Zed Ltd. as on 31^st March, 2010 was as follows :

Liabilities	Rs.	Assets	Rs.
Issued and paid-up capital : 20,000 Equity shares of Rs.10 each Profit and loss account 10% Debentures Sundry creditors	2,00,000 1,80,000 1,20,000 1,00,000	Freehold property Stock Sundry debtors Cash at bank	2,00,000 1,20,000 1,00,000 1,80,000
	6,00,000		6,00,000

It was resolved at the annual general meeting :

(i)	To pay a dividend of 10% and corporate dividend tax @ 12.5% and surcharge of 10% and 2% education cess.
(ii)	To issue one bonus share for every four shares held.
(iii)	To give existing shareholders the option to buy one share of Rs.10 @ Rs.14 for every four shares held prior to the bonus issue.
(iv)	To redeem the debentures at a premium of 5%. All the debenture holders took up the option.

Pass necessary journal entries.

(0)

(9 marks)

The authorised capital of Moon Ltd. is Rs.5,00,000 consisting of 2,000, 6% preference shares of Rs.100 each and 30,000 equity shares of Rs.10 each. The following was the trial balance of Moon Ltd. as on 31^st March, 2010 :

Debit Balances	Rs.
Investment in shares at cost Purchases Selling expenses Stock on 1^st April, 2009 Salaries and wages Cash in hand Interim preference dividend for the half year ended 30^th September, 2009 Discount on issue of debentures Preliminary expenses Bills receivable 4 Interest on bank overdraft Interest on debentures upto 30^th September, 2009 Sundry debtors Freehold property at cost Furniture at cost less depreciation of Rs.15,000 Income–tax paid in advance for 2009–10 Technical know-how fees at cost, paid during the year Audit fees	50,000 4,90,500 79,100 1,45,200 52,000 12,000 6,000 2,000 1,000 41,500 7,800 3,750 50,100 3,50,000 35,000 10,000 1,50,000 5,000
	14,90,950
Credit Balances	Rs.
Sundry creditors 6% Preference share capital Equity share capital fully paid–up 5% Mortgage debentures secured on freehold properties Dividends Profit and loss account (1^st April, 2009) Sales (Net) Bank overdraft secured by hypothecation of stocks and receivables	87,850 2,00,000 2,00,000 1,50,000 4,250 28,500 6,70,350 1,50,000
	14,90,950

You are required to prepare profit and loss account for the year ended 31^st March, 2010 and the balance sheet as on that date after taking into account the following :

(i)	Closing stock was valued at Rs.1,42,500.
(ii)	Purchases include Rs.5,000 worth of goods and articles distributed among valued customers.
(iii)	Salaries and wages include Rs.2,000 being wages incurred for installation of electrical fittings which were recorded under furniture.
(iv)	Bills receivable include Rs.1,500 being dishonoured bills, 50% of which had been considered irrecoverable.
(v)	Bills receivable of Rs.2,000 maturing after 31^st March, 2010 were discounted.
(vi)	Depreciation on furniture to be charged @ 10% on written down value.
(vii)	Rs.1,000 discount on issue of debentures to be written off.
(viii)	Interest on debentures for the half year ended on 31^st March, 2010 was due on that date.
(ix)	Provide provision for taxation Rs.4,000.
(x)	Technical know–how fees is to be written off over a period of 10 years.
(xi)	Rs.500 of preliminary expenses are to be written off.
(xii)	Salaries and wages include Rs.10,000 being directors’ remuneration.
(xiii)	Sundry debtors include Rs.6,000 debts due for more than 6 months.
(xiv)	Rate of corporate dividend tax is 12½% and surcharge of 10% and 2% education cess.

Keeping in mind the requirements of Part–I and Part–II of Schedule VI of the Companies Act, 1956, prepare the profit and loss account for the year ended 31^st March, 2010 and balance sheet as on that date of Moon Ltd. as close thereto as possible. Figures for the previous year can be ignored.

(0)

(15 marks)

On 1^st October, 2009, Poddar Ltd. acquired 12,000 equity shares of Bhansali Ltd. of the face value of Rs.10 each at a price of Rs.1,70,000. The balance sheets of two companies as on 31^st March, 2010 are as follows :

Liabilities	Poddar Ltd. (Rs.)	Poddar Ltd. (Rs.)
Equity shares of Rs.10 each General reserve (1^st April, 2009) Profit and loss account (1^st April, 2009) Profit for the year Creditors Bills payable	10,00,000 4,20,000 90,000 1,70,000 2,40,000 80,000	2,00,000 1,00,000 40,000 45,000 92,000 60,000
	20,00,000	5,37,000
Assets
Goodwill Land and building Plant and machinery Stock Debtors Investments Bills receivable Bank Cash	3,00,000 4,00,000 5,00,000 2,00,000 3,00,000 2,00,000 20,000 60,000 20,000	70,000 1,00,000 1,00,000 40,500 1,34,500 – 30,000 50,000 12,000
	20,00,000	5,37,000

Out of the debtors and bills receivable of Poddar Ltd. Rs.50,000 and Rs.16,000 respectively represented those due from Bhansali Ltd. The stock in the hands of Bhansali Ltd. includes goods purchased from Poddar Ltd. at Rs.20,000 which includes profit charged by latter company @ 25% at cost. Prepare a consolidated balance sheet as on 31^st March, 2010 and also show your workings.

(0)

(15 marks)

PART – B
(Answer Question No.5 which is compulsory and any two of the rest from this part.)

PART – B

(Answer Question No.5 which is compulsory and
any two of the rest from this part.)

(a)

State, with reasons in brief, whether the following statements are true or false :

(i)

If a worker saves half of time of the standard time, the incentive under Halsey Plan and Rowan Plan will be the same.

(0)

(ii)

The method of costing used in a refinery is operating costing.

(0)

(iii)

Fixed budgets are budgets of fixed assets.

(0)

(iv)

Opportunity cost is recorded in the books of account.

(0)

(v)

Margin of safety is the difference of actual sale and standard sale.

(0)

(2 marks each)

(b)

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

(i)

In element–wise classification of overheads, which one of the following is not included ––

(a)	Fixed overheads
(b)	Indirect labour
(c)	Indirect materials
(d)	Indirect expenditure.

(1)

(ii)

Obsolete stocks are those having ––

(a)	Low turnover rate
(b)	No demand for technological change
(c)	No present demand, but may be in future
(d)	None of the above.

(0)

(iii)

Holiday pay is treated as ––

(a)	Fringe benefits cost
(b)	Direct labour cost
(c)	Overheads
(d)	Abnormal loss charged to profit and loss account.

(0)

(iv)

Incentive schemes include ––

(a)	Piece rate wage plan
(b)	Time rate wage plan
(c)	Differential piece rate wage plan
(d)	None of the above.

(0)

(v)

The management accounting is an extension of ––

(a)	Financial accounting
(b)	Responsibility accounting
(c)	Cost accounting
(d)	All of the above.

(0)

(1 mark each)

(c)

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

(i)

The three categories of inventory for a manufacturer are raw material, work–in–process and ___________ .

(0)

(ii)

The time lost by workers who are paid on time basis, is known as ______________.

(0)

(iii)

Quick ratio is the indicator of __________ position of an enterprise.

(0)

(iv)

_____________ costs are not useful for decision making as all past costs are irrelevant.

(0)

(v)

When there is no __________ , the profit figures revealed under marginal and absorption costing are identical.

(0)

(1 mark each)

From the following balance sheets and information, prepare a cash flow statement of Rajat Ltd. for the year ended 31 March, 2010 as per Accounting Standard–3 (revised) :

Balance Sheet
Liabilities	As on 31^st March, 2010 (Rs.)	As on 31^st March, 2009 (Rs.)
Equity share capital 10% Redeemable preference capital Capital redemption reserve Capital reserve General reserve Profit and loss account 9% Debentures Sundry creditors Bills payable Liabilities for expenses Provision for taxation Proposed dividend	6,00,000 — 1,00,000 1,00,000 1,00,000 70,000 2,00,000 95,000 20,000 30,000 95,000 90,000	5,00,000 2,00,000 — — 2,50,000 50,000 — 80,000 30,000 20,000 60,000 60,000
	15,00,000	12,50,000
Assets
Land and building Plant and machinery Investments Inventory Bills receivable Sundry debtors Cash and bank Preliminary expenses Voluntary separation payments	1,50,000 7,65,000 50,000 95,000 65,000 1,75,000 65,000 10,000 1,25,000	2,00,000 5,00,000 80,000 90,000 70,000 1,30,000 90,000 25,000 65,000
	15,00,000	12,50,000

Additional information :

(i)	A piece of land being sold out for Rs.1,50,000 (cost Rs.1,20,000) and the balance land was revalued. Capital reserve consisted of profit on sale and profit on revaluation of land and building.
(ii)	On 1^st April, 2004, a plant was sold for Rs.90,000 (original cost Rs.70,000 and written down value Rs.50,000) and debentures worth Rs.1 lakh were issued at par as part consideration for plant of Rs.4.5 lakh acquired.
(iii)	Part of the investments (cost Rs.50,000) was sold for Rs.70,000.
(iv)	Pre–acquisition dividend received Rs.5,000 was adjusted against cost of investment.
(v)	Directors have proposed 15% dividend for the current year.
(vi)	Voluntary separation cost of Rs.50,000 was adjusted against general reserve.
(vii)	Income–tax liability for the current year was estimated at Rs.1,35,000.
(viii)	Depreciation @ 15% has been written off from plant account, but no depreciation has been charged on land and building.

(0)

(15 marks)

(a)

Explain briefly the role of a management accountant in a business enterprise.

(0)

(5 marks)

(b)

Pooja Pipes Ltd. uses about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valve costs Rs.1.50 per unit when bought in large quantities; and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs.18. It takes 45 days to receive delivery from the date of an order and a safety stock of 3,250 valves is desired.

You are required to determine (i) The most economical order quantity and frequency of orders; (ii) the re–order point; and (iii) the most economical order quantity if the valves cost Rs.4.50 each instead of Rs.1.50 each.

(0)

(5 marks)

(c)

A factory produces 300 units of a product per month. The selling price is Rs.120 per unit and variable cost is Rs.80 per unit. The fixed expenses of the factory amount to Rs.8,000 per month.
Calculate ––

(i)	The estimated profit in a month wherein 240 units are produced.
(ii)	The break–even sales quantity.
(iii)	The sales to be made to earn a profit of Rs.7,000 per month.

(0)

(5 marks)

(a)

Write a short note on ‘pre–determined overheads rate’.

(0)

(3 marks)

(b)

The cost of sale of Product-A is made up as follows :

Rs.

Materials used in manufacturing
Materials used in packing
Materials used in selling the product
Materials used in the factory
Materials used in the office
Labour required in production
Labour required for supervision of the management for factory
Direct expenses – factory
Indirect expenses – factory
Office expenses
Depreciation – office building and equipment
Depreciation – factory
Selling expenses
Freight on materials
Advertising

5,500
1,000
150
75
125
1,000
200
500
100
125
75
175
350
500
125

Assuming that all products manufactured are sold, what should be the selling price to obtain a profit of 25% on selling price ?

(0)

(6 marks)

(c)

The Finance Manager of Jay Electrical Ltd. is preparing a flexible budget for the accounting year commencing from 1^st April, 2011. The company produces Component-K of a product. Direct material costs Rs.7 per unit. Direct labour averages Rs.2.50 per hour and requires 1.60 hours to produce one unit of Component-K. Salesmen are paid a commission of Re.1 per unit sold. Fixed selling and administration expenses amount to Rs.85,000 per year. Manufacturing overheads has been estimated in the following amounts under specified conditions of volume :

Volume of production (in units)	1,20,000 Rs.	1,50,000 Rs.
Expenses : Indirect material Indirect labour Inspection Maintenance Supervision Depreciation – Plant and equipment Engineering services	2,64,000 1,50,000 90,000 84,000 1,98,000 90,000 94,000	3,30,000 1,87,500 1,12,500 1,02,000 2,34,000 90,000 94,000
Total manufacturing overheads	9,70,000	11,50,000

Normal capacity of production of company is 1,25,000 units.
Prepare a budget of total cost at 1,40,000 units of output.

(0)

(6 marks)

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