CWA ICWA Final Stage IV : Cost Audit and Management Audit - December 2008

CWA ICWA Final - Stage IV • Cost Audit and Management Audit • December 2008

This Paper has 46 answerable questions with 0 answered.

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

The figures in the margin on the right side indicate full 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

The figures in the margin on the right side indicate full 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 justification need be given:

1x10

(i)

Under utilisation of capacity has no impact on cost of production.

(0)

(ii)

A person can be appointed as a Cost Auditor only if he is not in full employment elsewhere.

(0)

(iii)

Goodwill included in fixed assets is to be excluded in computing Capital Employed.

(0)

(iv)

Defaults in payments to financial institutions is a subject matter of comment by the Cost Auditor in his report.

(0)

(v)

Profit on sale of fertiliser to farmers by a sugar factory should be deducted in computing the cost of sugarcane purchased.

(0)

(vi)

According to Cost Accounting Record Rules, inter–divisional transfer of intermediate products for captive consumption should be effected at market price.

(0)

(vii)

A large scale footwear unit in the co–operative sector need not maintain cost accounting records.

(0)

(viii)

Cost incurred on repairs to machinery after a plant shut down caused by workers voilence is to be excluded from cost of production.

(0)

(ix)

A Director on the Board, who is a nominee of a financial institution is covered by the definition of a related party.

(0)

(x)

A small scale unit manufacturing saving cream on contract basis for a large scale multinational company need not maintain cost accounting records u/s 209(1)(d).

(0)

(b)

How will you treat the following items in the Cost Accounting Records?

2x5

(i)

Interest received on security deposit with the Electricity Board.

(0)

(ii)

Commission paid to the Managing Director, as a percentage of profit, included in the financial accounts under the head ‘Salaries and Wages’.

(0)

(iii)

Voluntary Retirement Compensation paid to workers, included under ‘Wages’.

(0)

(iv)

‘CENVAT’ availed as credit on purchased raw materials.

(0)

(v)

Profit on sale of fertilisers to cane–growers by a sugar company.

(0)

(a)

Following data is available for a company relating to 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) 9,000 units Sales (Export) 1,000 units Materials Consumed 20 tonnes @ Rs. 5/kg. Imported Component @ Rs. 3/unit (One unit/unit of production) Direct Labour Factory Overhead Administrative Overhead Freight & Packing (Local Sales) Packing for Export Handling at Port Opening Work–in–Progress Closing Work–in–Progress	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

Additional Information

(i) Export incentive of 10% on F.O.B. is receivables.

(ii) Draw Back–on–Duty paid on Raw Materials and Components available on exports are Rs. 2,500.

(0)

(b)

Explain the basic concept of ’VAT’. What are its advantages?

4+4

(0)

Following is the Balance Sheet of Speciality Chemicals Ltd.

	(Rs. in lakhs)
	31.3.2008		31.3.2007
SOURCES Share Capital Reserve & Surplus; General Reserve Capital Subsidy from State Govt. Debenture Redemption Reserve Revaluation Reserve Profit & Loss Account Secured Loans: Debentures Term Loans Cash Credits Unsecured Loans: Fixed Deposits Interest Free Sales Tax Loan Total:	2,830 500 1,695 930 30 7,200 795 1,170 300 1,350	180 5,985 9,165 1,650 16,980	3,010 500 855 1,110 330 3,300 2,115 1,073 337 1,087	180 5,805 6,488 1,424 13,897
USES: Net Block Capital W.I.P. (including Capital Advances) Investments Current Assets, Loans & Advances Less: Current Liabilities & Provisions Miscellaneous Expenditure	3,630 1,770	12,998 1,342 757 1,860 23 16,980	3.095 1,355	10,852 450 840 1,740 15 13,877

Notes:

(1)	Debentures are redeemable as follows: Rs. 18 crores at the end of the 5th, 6th and 7th years in equal installments. The earliest date of redemption is 30.9.2008. Rs. 15 crores in five semi–annual installments from 30.6.2008 Rs. 39 crores in five semi–annual installments of Rs. 6 crores each and one final installment of Rs. 9 crores, commencing from 30.6.2012.
(2)	Term Loan and Fixed Deposits repayable before 31.3.2009. Rs. 173 crores (previous year Rs. 607 crores).
(3)	Interest free Sales Tax Loan is repayable from the year 2013.
(4)	Rs. 750 lakhs of Term Loans were foreclosed during 2007–08 from the proceeds of the debenture issue.
(5)	Net Block includes value of Trade Market of Rs. 187 lakhs (previous year Rs. 217 lakhs).
(6)	Loans & Advances include intercorporate deposit of Rs. 105 lakhs (previous year Rs. 180 lakhs).

Calculate the Capital Employed to be shown in Para 24 of the Annexure to the Cost Audit Report for the year 2007–08.

(0)

Give an illustrative list of expenses which should not be included in cost, but shown in the Reconciliation Statement in Para 28 of the Annexure to the Cost Audit Report.

(0)

Section II (50 Marks)

Section II (50 Marks)

5.	(a)	State whether the following statements are "True" or "False". No reason for justification need be given:		1x10
		(i)	In computing the cost of production for captive consumption, as per CAS–4, administrative overheads which are not directly related to production activity may be excluded.		(0)
		(ii)	Interest costs should be included in inventory valuation for the purpose of bank audit.		(0)
		(iii)	The special audit report under section 14A or 14AA of the Central Excise Act should be submitted in the prescribed form.		(0)
		(iv)	Leather tanning industry is an industry causing above average environmental pollution.		(0)
		(v)	Corporate Image of a company is built up exclusively by its product quality and is not affected by its attitude towards its other stakeholders.		(0)
		(vi)	The objective of internal audit is not confined to detection of frauds, but extends to all areas of operational efficiency.		(0)
		(vii)	Management audit imposes barriers in executive decision making.		(0)
		(viii)	In the process of decision making by WTO, the European Union shall have the number of votes equal to the number of its member states.		(0)
		(ix)	While issuing a certificate containing a number of pages and annexures, every page should bear the signature and seal of the Cost Accountant.		(0)
		(x)	The Managing Director of the company can be appointed as the Chairman of the Audit Committee.		(0)
	(b)	Fill up the blanks:		1x10
		(i)	The Audit Committee shall meet at least ________ a year as per SEBI guidelines.		(0)
		(ii)	The Secretariat of WTO as headed by a ________		(0)
		(iii)	Corporate image implies the ________ of a corporate body in all its fields of business.		(0)
		(iv)	As per OECD principles, the corporate governance framework should ensure ________ of all shareholders.		(0)
		(v)	Central Excise Revenue Audit (CERA) is conducted by the organisation of ________.		(0)
		(vi)	Audit of valuation of goods under Central Excise Act is carried out u/s ________.		(0)
		(vii)	The report of the Cost Accountant u/s 14A or 14AA of the Central Excise Act is considered as a ________ under the Evidence Act.		(0)
		(viii)	For the purpose of antidumping law, injury margin means the difference between ________ of the domestic industry and landed cost of the imported product.		(0)
		(ix)	The Audit of CENVAT availed can be ordered only by the ________.		(0)
		(x)	According to CIMA terminology, the aim of management audit is to identify existing and potential within an organisation and to recommend ways to rectify these ________.		(0)
6.	What is the scope of work for a Cost Accountant as a Loss Assessor under the Insurance Act? Give an illustrative list of the types of claims and points to be considered in assessing the quantum of loss.			15	(0)
7.	What do you understand by ‘Anti–dumping duty’? Briefly explain the provisions in the Cost Accounting Records Rules and Cost Audit (Report) Rules covering this aspect.			15	(0)
8.	Write short notes on any three of the following:			5x3
	(a)	Systems Audit;			(0)
	(b)	Environmental Pollution;			(0)
	(c)	Corporate Governance;			(0)
	(d)	Productivity Audit;			(0)
	(e)	Consumer Services Audit.			(0)

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