CA PE II Group II : Cost Accounting and Financial Management - June 2009

CA PE II - Group II • Cost Accounting and Financial Management • June 2009

This Paper has 26 answerable questions with 0 answered.

Roll No…………
Total No. of Questions — 9]	[Total No. of Printed Pages — 5
Time Allowed : 3 Hours	Maximum Marks : 100

Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.

Question Nos.1 and 6 are compulsory.

Attempt three questions out of the remaining question numbers 2, 3, 4 and 5 and attempt two questions from the remaining Questions Nos. 7, 8 and 9.

Working notes should form part of the answer.

Marks

(a)

ABC Ltd. manufactures and sells three types of products P, Q and R. The company has been following conventional method of costing and wishes to shift to Activity Based Costing system. Following data are given for a month:

Products	P	Q	R
Sales – No. of units Selling price – Rs. per unit Prime cost – Rs. per unit Gross production units/production run No. of defective units/production run Set up cost/production run – Rs. Inspection hours/production run Machine hours/production run	50,000 18.00 12.00 5,040 40 400 6 40	1,12,000 14.00 9.00 5,620 20 600 8 24	54,000 12.00 8.00 6,020 20 500 8 60

Overhead costs :	Rs.
Set–up Inspection Machines Selling	20,500 1,46,000 2,84,000 3,24,000

The following additional information is given:

(i)	No accumulation of inventory is considered. All good units produced are sold.
(ii)	Included in the total selling overhead is advertisement cost of Rs.1,66,000. This cost is incurred only for products Q and R. However product P needs no advertisement.
(iii)	Product Q needs special packing and Rs.1,08,000 is the amount on packing which is included in the total selling overhead cost given above.
You are required to present:
(i)	Product wise profitability statement under the conventional system assuming all manufacturing and selling overheads are allocated on the basis of unit sold.
(ii)	Product wise profitability statement as per Activity Based Costing system.

(0)

(b)

What is Cost reduction? Explain its scope.

(0)

(c)

Distinguish between:

(i)

Batch costing and Uniform costing.

(0)

(ii)

Normal process loss and Abnormal process loss. ---------

(0)

(a)

Bright Shoe–Polish Company manufacturing black and brown polish in one standard size of tin retailing at Rs.12.00 and Rs.13.30 respectively. Following information is supplied to you:

Opening Stock:
Black polish Brown polish	2,400 tins 8,000 tins
Closing Stock:
Black polish Brown polish	5,400 tins 3,000 tins
Sales:
Black polish Brown polish	72,000 tins 30,000 tins
Direct materials:
Polish Tins Direct wages Production overhead Administration and selling overhead	Rs.2,46,000 Rs.1,20,000 Rs.2,04,000 Rs.3,06,000 Rs.1,02,000

The opening stock of black and brown polish was valued at its production cost. The cost of raw materials for brown polish is 10 per cent higher than that for black, but there is no difference in the cost of tins. Direct wages for brown polish are 8 per cent higher than those of black polish and production overheads are considered to very with direct wages. Administration and selling overhead is absorbed at a uniform rate per tin of polish sold.
Prepare a statement to show the cost and profit per tin of polish.

(0)

(b)

State ‘essentials of Good Cost Accounting system’.

(0)

(a)

The following details are available from the books of accounts of a contractor with respect to a particular construction work for the year ended 31^st March, 2009:

	Rs.
Contract price Cash received from contractee (90% of work certified) Material sent to site Planning and estimation cost Direct wages paid Cost of plant installed at site Direct expenses Establishment expenses Material returned to store Head office expenses apportioned Cost of work uncertified	91,00,000 71,91,000 35,82,600 3,50,000 32,62,700 7,00,000 1,68,000 2,03,000 14,840 2,50,000 3,17,000
On 31^st March, 2009:
Material at site Accrued direct wages Accrued direct expenses Value of plant (as revalued)	85,400 78,120 9,310 6,16,000

Required:

(i)
(ii)

Prepare the Contract account for the year ended 31^st March, 2009.
Show the relevant Balance Sheet entries.

(0)

(b)

What are the essential requisites for the installation of uniform costing system ?

(0)

(a)

ABC Pvt. Ltd. has furnished its Profit and Loss account for the year ended 31^st March, 2009 and also given a statement showing reconciliation between the profit as per financial records and cost records. The Profit and Loss account is given below:

Profit and Loss account for the year ended 31^st March, 2009					(Rs.)
Particulars		Amount	Particulars		Amount
To To To To To To To To To To	Opening Stock: Raw Materials W.I.P. Finished goods Purchases Direct wages Factory overheads Administrative exp. Selling exp. Goodwill written off Interest on loans Legal charges Net profit	95,500 45,000 78,000 6,42,000 2,22,000 2,45,000 1,98,500 3,42,000 80,000 50,000 42,000 1,42,000	By By By	Sales Closing Stock: Raw Materials W.I.P. Finished goods Dividend received on shares	17,80,000 99,000 58,000 80,000 1,65,000
Total		21,82,000	Total		21,82,000

Reconciliation Statement as at 31^st March, 2009 is given below:		(Rs.)
	Amount	Amount
Profits as per financial records Add: Raw Material – Closing stock W.I.P. – Opening Stock Finished goods – Operating Stock Finished goods – Closing Stock Goodwill written off Interest on loans	1,500 2,000 3,000 1,000 80,000 50,000	1,42,000
Legal charges	42,000	1,79,500
Less: Raw Material – Opening Stock W.I.P. – Closing Stock Dividend received on shares	2,500 3,500 1,65,000	3,21,500 1,71,000
Profits as per cost records		1,50,500

You are required to draw up the following accounts in the cost ledger of ABC Pvt. Ltd.:

(i)	Material control account
(ii)	W.I.P. control account
(iii)	Finished goods control account
(iv)	Cost of sales account
(v)	Costing profit and loss account

(0)

(b)

X Ltd. is reviewing its stock policy, and has the following alternatives available for the evaluation of stock:

(i)	Purchase stock twice in a month, 400 units.
(ii)	Purchase monthly, 800 units
(iii)	Purchase every three months, 2,400 units
(iv)	Purchase six monthly, 4,800 units
(v)	Purchase annually, 9,600 units

It is ascertained that the purchase price per unit is Rs.40 for deliveries upto 2,000 units. A 5% discount is offered by the supplier on the whole order where deliveries are 2,001 to 4,000 units and 10% reduction on the total order for deliveries in excess of 4,000 units. Each purchase order incurs administration costs of Rs.250. Interest on capital and other storage costs are Rs.12.50 per unit of average stock quantity held.

Calculate the optimum order size.

(0)

(c)

State the areas of activity for which accounting records are to be maintained under Cost Accounting records rules.

(0)

(a)

Explain the following:

(i)

Opportunity cost and out–of–pocket cost

(0)

(ii)

High points and low points method of segregating semi–variable costs

(0)

(iii)

Efficiency audit and propriety audit.

(0)

(b)

Enumerate the important objectives of Cost accounting.

(0)

(c)

The standard time for a job is 50 hours. The hourly rate of guaranteed wages is Rs.9. Because of saving in time, a worker X gets an hourly wages of Rs.10.80 under Rowan premium bonus system. For the same saving in time, calculate the hourly rate of wages a worker Y will get under Halsey premium bonus system assuming 50 per cent Bonus to worker.

(0)

(a)

The following are the summarised Balance Sheet of XYZ Ltd. as on 31^st March, 2008 and 2009:

(Rs. in 000’)
Liabilities	31.3.08	31.3.09	Assets	31.3.08	31.3.09
Share capital Reserve and surplus 12% debenture Sundry creditors Outstanding rent Income–tax payable	3,900 1,690 – 936 52 520	5,200 2,600 1,300 1,222 65 195	Plant & machinery Land & building Investment Inventories Sundry debtors Prepaid selling expenses Cash at bank Cash in hand	3,978 1,040 130 676 728 26 494 26	5,525 1,040 130 975 1,131 52 1,677 52
	7,098	10,582		7,098	10,582

Profit & Loss account for the year ended 31^st March, 2009
(Rs. in 000’)
	Rs.		Rs.
To Opening stock To Purchases To Wages To Gross profit C/d	806 2,080 650 3,900 7,436	By Sales By Closing stock	6,331 1,105 7,436
To Depreciation To Office expensesM To Rent To Selling & distribution expenses To Income – tax To Net profit C/d	390 390 130 780 1,040 1,560 4,290	By Gross profit B/d By Discount By Commission By Dividend	3,900 39 91 260 4,290
To Dividend To Balance C/d	650 2,600 3,250	By Balance B/d By Net profit B/d	1,690 1,560 3,250

You are required to prepare a Cash flow statement as per AS-3 (revised).

(0)

(b)

Discuss the proposition made in Modigliani and Miller approach in capital structure theory.

(0)

(a)

Given below are the data on a capital project ‘M’:

Annual cost saving
Useful life
Internal rate of return
Profitability index
Salvage value

Rs. 60,000
4 years
15 %
1.064
0

You are required to calculate for this project M:

(i)	Cost of project
(ii)	Payback period
(iii)	Cost of capital
(iv)	Not present value.

Given the following table of discount factors:

Discount factor	15%	14%	13%	12%
1 year 2 years 3 years 4 years	0.869 0.756 0.658 0.572 2.855	0.877 0.769 0.675 0.592 2.913	0.885 0.783 0.693 0.613 2.974	0.893 0.797 0.712 0.636 3.038

(0)

(b)

Explain the role of Finance Manager in the changing scenario of financial management in India.

(0)

(a)

A company currently has an annual turnover of Rs. 50 lakhs and an average collection period of 30 days. The company wants to experiment with a more liberal credit policy on the ground that increase in collection period will generate additional sales.
From the following information, kindly indicate which policy the company should adopt:

Credit policy	Average collection period	Annual sales (Rs. lakhs)
A B C D	45 days 60 days 75 days 90 days	56 60 62 63

Costs : Variable cost : 80% of sales
Fixed cost : Rs. 6 lakhs per annum
Required (pre–tax) return on investment : 20%
A year may be taken to comprise of 360 days.

(0)

(b)

(i)

What is meant by Venture capital financing?

(0)

(ii)

Name the various financial instruments dealt with in the International market.

(0)

(a)

The capital structure of a company as on 31^st March, 2009 is as follows:

	Rs.
Equity capital : 6,00,000 equity shares of Rs. 100 each Reserve and surplus 12% debenture of Rs. 100 each	6 crore 1.20 crore 1.80 crore

For the year ended 31^st March, 2009 the company has paid equity dividend @24%. Dividend is likely to grow by 5% every year. The market price of equity share is Rs. 600 per share. Income-tax rate applicable to the company is 30%.

Required:

(i)	Compute the current weighted average cost of capital.
(ii)	The company has plan to raise a further Rs. 3 crore by way of long–term loan at 18% interest. If loan is raised, the market price of equity share is expected to fall to Rs. 500 per share. What will be the new weighted average cost of capital of the company?

(0)

(b)

A company operates at a production level of 5,000 units. The contribution is Rs. 60 per unit, operating leverage is 6, combined leverage is 24. If tax rate is 30%, what would be its earnings after tax?

(0)

(c)

Discuss the advantages of raising funds by issue of equity shares.

(0)

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