CS Inter Group I : Company Accounts and Cost and Management Accounts - December 2007

CS Inter - Group I • Company Accounts and Cost and Management Accounts • December 2007

This Paper has 42 answerable questions with 0 answered.

Roll No…………………
Time allowed : 3 hours	Maximum marks : 100
Total number of questions : 8	Total number of printed pages : 5

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 correct or incorrect :

(i)

In the financial statement of banking companies, bills for collection are shown in the assets side of the balance sheet.

(0)

(ii)

As per Accounting Standards, investments classified as long–term investments should be carried in the financial statements at lower of cost or fair value.

(0)

(iii)

As per Accounting Standards, investments classified as long–term investments should be carried in the financial statements at lower of cost or fair value.

(0)

(iv)

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

(0)

(v)

Goodwill is a rough measure of the earning power of the capital employed by an entity.

(0)

(2 mark each)

(b)

Re–write the following sentences after filling–up the blank space with appropriate word(s)/figure(s) so as to convey the correct meaning :

(i)

In the financial statements of electricity companies, on replacement of an asset, amount realised from sale of old material is credited to ________________.

(0)

(ii)

In the financial statements of insurance companies, liabilities under the existing policies are determined by _____________ valuation in case of life insurance.

(0)

(iii)

The system by which data definition, access, consistency and security are maintained is called_______________.

(0)

(iv)

The company which is amalgamated into another company is called ________________.

(0)

(v)

In the financial statement of an electricity company, original cost of an asset is Rs.1,00,000. Present cost of its replacement is Rs.1,30,000. The amount spent in its replacement is Rs.1,52,000. The amount to be capitalised will be Rs.______________.

(0)

(1 mark each)

(c)

Following particulars are available from the books of Rajat Ltd. :

	Rs.
Net profit before provision for income–tax and managerial Net profit before provision for income–tax and managerial Depreciation provided in the books Provision for repairs of machinery during the year Depreciation allowable under Schedule XIV of the Companies Act, 1956 Actual expenditure incurred on repairs during the year	98,04,100 35,00,000 2,50,000 28,00,000 1,50,000

You are required to calculate the managerial remuneration in the following cases :

(i)	If there is one whole–time director; and
(ii)	If there are two whole–time directors, a part–time director and a manager.

(0)

(5 marks)

(a)

Write short notes on any two of the following :

(i)

Commission on re–insurance accepted

(0)

(ii)

Effect of uncertainties on revenue recognition (AS–9)

(0)

(iii)

Outsourcing of accounting functions.

(0)

(4 marks each)

(b)

From the following balance sheets of Exe Ltd. and Wye Ltd. as on 31^st March, 2007, work out — (i) net amount due to minority interest; and (ii) cost of control :

Balance Sheets of Exe Ltd. and Wye Ltd. as on 31^st March, 2007
Liabilities Share capital :	Exe Ltd. (Rs.)	Wye Ltd (Rs.)
Shares of Rs.100 each General reserve Profit and loss account Creditors	15,00,000 1,50,000 2,00,000 1,87,500 20,37,500	5,00,000 1,00,000 75,000 1,20,000 7,95,000
Assets
Sundry assets Investments : 4,000 Shares of Rs.100 each	14,77,500 5,60,000 20,37,500	7,95,000 — 7,95,000

The assets of Wye Ltd. included equipments worth Rs.1,50,000 which was revalued at Rs.1,25,000. The investments of Exe Ltd. were in shares of Wye Ltd. and the same were acquired on 31st March, 2007.

(0)

(7 marks)

(a)

The subscribed share capital of a company consists of 10,000, 14% preference shares of Rs.100 each and 2,00,000 equity shares of Rs.10 each. All the shares are fully paid–up.

The average annual profit of the company after providing depreciation but before taxation is Rs.25,00,000. It is considered necessary to transfer Rs.1,25,000 to general reserve before declaring any dividend. Rate of taxation is 50%.

The normal return expected by investors on equity shares from the type of business carried on by the company is 20%.

From the above information, calculate the following :

(i)	Amount available for equity dividend;

(ii)	Rate of dividend; and

(iii)

Value of an equity share.

(0)

(2 marks each)

(b)

Following is the balance sheet of Navyug Construction Ltd. as on 31^st March, 2007

Liabilities		Rs.
Authorised capital : 20,000 Equity shares of Rs.10 each Issued, subscribed and paid–up capital : 12,000 Equity shares of Rs.10 each Less: Calls in arrear (Rs.3 per share on 3,000 shares) Sundry creditors Provision for taxes	Rs.1,20,000 Rs. 9,000	2,00,000 1,11,000 15,425 4,000 1,30,425
Assets: Goodwill Land and buildings Machinery Stock Book debts Cash at bank Preliminary expenses		10,000 20,500 50,850 10,275 15,000 1,500 1,500
Profit and loss account : Balance as per last balance sheet Less : Profit for the year	Rs.22,000 Rs. 1,200	20,800 1,30,425

The directors have had a valuation made of the machinery and found it overvalued by Rs.10,000. It is proposed to write down this asset to its true value and to extinguish the deficiency in the profit and loss account and to write off goodwill and preliminary expenses by adoption of the following scheme :

(i)	Forfeit the shares on which the calls are outstanding.
(ii)	Reduce the paid–up capital by Rs.3 per share.
(iii)	Re–issue the forfeited shares at Rs.5 per share.
(iv)	Utilise the provision for taxes, if necessary.

The shares on which the calls were in arrear were duly forfeited and re–issued as fully paid shares of Rs.7 each on payment of Rs.5 per share.

You are required to pass necessary journal entries and prepare the balance sheet of the company after carrying out the terms of the scheme as set–out above.

(0)

(9 marks)

(a)

The following information is extracted from the books of Nishan Electricity Co. Ltd. for the year ended 31^st March, 2007 :

	Rs.
Net profit before charging debenture interest 10% Debenture interest paid during the year Capital base arrived at by the company	67,50,150 11,25,000 3,10,89,000 40,68,450

You are required to indicate the disposal of surplus of the company.

(0)

(4 marks)

(b)

The life assurance fund of Navjivan Assurance Co. Ltd. stood at Rs.33,00,800 on 31^st March, 2006. Net liability as per actuary’s valuation was determined to be Rs.26,50,800. The company had distributed interim bonus of Rs.80,000 to its policy–holders during the last two years. The company proposes to carry forward Rs.1,50,000, the balance is to be distributed in between policy–holders and shareholders. Show the distribution of profit.

(0)

(5 marks)

(c)

Journalise the following transactions :

(i)	950, 14% Debentures of Rs.100 each, issued at par and redeemable at par, were converted into equity shares of Rs.10 each issued at par.

(ii)	950, 14% Debentures of Rs.100 each, issued at par and redeemable at par, were converted into equity shares of Rs.10 each issued at a discount of 5%.

(iii)

Rs.95,000, 14% debentures of Rs.100 each, issued at par and redeemable at par, were converted into equity shares of Rs.10 each issued at Rs.9.50 paid–up.

(0)

(2 marks each)

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)

When the amount of under/over absorption is significant, it should be disposed off by carrying over as a deferred charge to the next accounting year.

(0)

(ii)

A fixed budget is concerned with budgeting of fixed assets.

(0)

(iii)

Bin card is maintained by the costing department.

(0)

(iv)

Stock is not a quick asset for the purpose of calculating acid test ratio.

(0)

(v)

When FIFO method is used in process costing, the opening stock costs are subtracted from the new costs.

(0)

(2 marks each)

(b)

Re–write the following sentences after filling–up the blank space with appropriate word(s)/figure(s) so as to convey the correct meaning :

(i)

Standard costing works on the principle of ___________.

(0)

(ii)

Costs which are pertinent for decision–making are termed as ____________.

(0)

(iii)

Costs which are ascertained after they have been incurred are known as ________________.

(0)

(iv)

_________ costing is also known as service costing and it is used where services are rendered but articles are not produced.

(0)

(1 mark each)

(c)

Distinguish between any two of the following :

(i)

‘Job costing’ and ‘contract costing’.

(0)

(ii)

‘Explicit costs’ and ‘implicit costs’.

(0)

(iii)

‘Single overhead rate’ and ‘multiple overhead rate’.

(0)

(3 marks each)

(a)

Comment on any two of the following :

(i)

Controlling of selling and distribution overheads is a difficult task.

(0)

(ii)

Standard costing and budgetary systems vary in scope despite the similarity in the basic principles.

(0)

(iii)

The assumptions in break–even analysis limit the accuracy of break–even point and makes it unrealistic.

(0)

(4 marks each)

(b)

The following data is obtained from the records of an industrial unit :

		Rs.
Sale of 4,000 units @ Rs.25 each Material consumed Variable overheads Labour charges Fixed overheads Net profit	40,000 10,000 20,000 18,000	1,00,000 88,000 12,000

You are required to calculate :

(i)	The number of units by selling which the company will neither lose nor gain anything.
(ii)	The sales needed to earn a profit of 20% on sales.
(iii)	The extra units which should be sold to obtain the present profit if it is proposed to reduce the selling price by 20%.
(iv)	The selling price to be fixed to bring down its break–even point to 500 units under present conditions.

(0)

(8 marks)

(a)

In the course of manufacture of the main product 'A', by–products 'X' and 'Y' also emerge. The joint expenses of manufacture amount to Rs.2,39,100. All the three products are processed further after separation and sold as per details given below :

	Main Product	By–Product
	'A'	'X'	'Y'
Sales (Rs.) Cost incurred after separation (Rs.) Profit on sales (%)	1,80,000 12,000 25	1,20,000 10,000 20	80,000 8,000 15

Total fixed selling expenses are 10% of total cost of sales which are apportioned to the three products in the ratio of 1 : 2 : 2.

(i)	Prepare a statement showing the apportionment of joint costs to the main product and the two by–products.
(ii)	If the by–product 'X' is not subjected to further processing and is sold at the point of separation for which there is a market at Rs.1,17,000 without incurring any selling expenses, would you advise its disposal at this stage ?

(0)

(b)

(7 marks)

Amex Ltd. gives the following condensed balance sheets relating to years 2006 and 2007 and the profit and loss appropriation account for the year 2007 :

Balance Sheets of Amex Ltd. as on 31^st March, 2006 and 2007
Liabilities	2006 (Rs.)	2007 (Rs.)
Share capital Reserves Profit and loss account Debentures Creditors for goods Provision for income–tax	5,00,000 1,50,000 40,000 3,00,000 1,70,000 60,000 12,20,000	6,00,000 1,80,000 65,000 2,50,000 1,60,000 80,000 13,35,000
Assets Gross block Less : Depreciation Net block Stock in trade Book debts Cash in hand and at bank Misc. expenditure : Discount on issue of shares Preliminary expenses	10,00,000 3,70,000 6,30,000 2,40,000 2,50,000 80,000 10,000 10,000 12,20,000	11,20,000 4,60,000 6,60,000 3,70,000 2,30,000 60,000 7,500 7,500 13,35,000

Profit and Loss Appropriation Account for the year ended 31^st March, 2007
Debit Particulars	Rs.	Particulars	Credt Rs.
To Transfer to reserves To Interim dividend paid To Balance carried to balance sheet	30,000 80,000 65,000 1,75,000	By Balance b/d By Net profit for current year	40,000 1,35,000 1,75,000

You are required to prepare cash flow statement showing the following :

(i)	Cash from operating activities.

(3 marks)

(ii)	Cash from financing activities.

(2 marks)

(iii)

Cash from investing activities.

(1 mark)

(iv)	Net increase/decrease in cash.

(1 mark)

(0)

(a)

Attempt any two of the following :

(i)

What are the essential steps required for installation of an efficient and effective management accounting system ?

(0)

(ii)

Discuss the treatment of spoilage and defectives in cost accounting.

(0)

(iii)

Why is cost sheet necessary when production account is prepared ?

(0)

(4 marks each)

(b)

Following information is available from the books of Manbhavan Ltd. :

Debtors velocity
Stock velocity
Creditors velocity
Gross profit ratio

:
:
:
:

3 months
6 months
2 months
20%

Gross profit for the year ended 31st March, 2007 was Rs.10,00,000. Closing stock for the same period was Rs.40,000 more than what it was at the beginning of the year. Bills receivable and bills payable were Rs.1,20,000 and Rs.73,334 respectively.
You are required to calculate ––

(i)	Sales;
(ii)	Sundry debtors;
(iii)	Sundry creditors; and
(iv)	Closing stock.

(0)

(7 marks)

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