CS Inter Group I : Company Accounts and Cost and Management Accounts - December 2008

CS Inter - Group I • Company Accounts and Cost and Management Accounts • December 2008

This Paper has 50 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)

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)

The interest rate charged on calls–in–arrears and the interest rate payable on calls–in–advance are the same as per provisions of Table–A of Schedule–I of the Companies Act, 1956.

(0)

(ii)

A company can issue its shares at a discount exceeding 10% by passing a special resolution.

(0)

(iii)

In firm underwriting, the underwriters have a right to take up the agreed number of shares or debentures, even if the issue is over-subscribed.

(0)

(iv)

Profits prior to incorporation, if any, can be used for writing off the revenue losses occurred after the commencement of business of company.

(0)

(v)

A company can pay interest on capital during certain period, even if there is no profit.

(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)

The reserve for unexpired risk in case of marine insurance is _________% of net premium income.

(0)

(ii)

The public utility concerns, e.g., electricity, railways, etc., maintain their accounts on the basis of special system known as _________ system.

(0)

(iii)

The formula for Dividend Yield Ratio is _________.

(0)

(iv)

The subscription list for public issue should not be kept open for more than _________ days except for rights issue and infrastructure companies.

(0)

(v)

The annual accounts of a foreign subsidiary company need to be _________ to the annual accounts of the holding company.

(0)

(1 mark each )

(c)

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

(i)

In the financial statements of banking companies, capital adequacy ratio is based on ––
(a) Capital and debts of the bank
(b) Capital funds and risk assets of the bank
(c) Secured and un–secured assets of the bank
(d) None of the above.

(0)

(ii)

As per IRDA Regulations, an insurance company is required to prepare ––
(a) Revenue account
(b) Profit and loss account
(c) Balance sheet
(d) All of the above.

(0)

(iii)

Under double account system, profit or loss is derived from ––
(a) Profit and loss account
(b) Revenue account
(c) Income and expenditure account
(d) Receipts and payments account.

(0)

(iv)

In the financial statements of electricity companies, preliminary expenses account appears on ––
(a) Assets side of the general balance sheet
(b) Debit side of the revenue account
(c) Debit side of the income and expenditure account
(d) Debit side of receipts and expenditure on capital account.

(0)

(v)

In the financial statements of banking companies, rebate on bill discounted is shown in the ––
(a) Assets side of the balance sheet
(b) Liabilities side of the balance sheet
(c) Income side of the income statement
(d) Expenses side of the income statement.

(0)

(1 mark each )

(a)

Write short notes on any two of the following :

(i)

Writing off discount on issue of debentures.

(0)

(ii)

Payment of dividend out of capital profits.

(0)

(iii)

Rebate on bills discounted.

(0)

(3 marks each )

(b)

The partners of Adarsh Agencies decided to convert their partnership into a limited company with effect from 1st January, 2007. The consideration was agreed at Rs.2,34,00,000. The company got the certificate of incorporation on 1st April, 2007. Meanwhile, the business was continued on behalf of the company and the consideration was settled on that day with interest at 12% per annum. The company prepared its first final accounts on 31st March, 2008 and prepared following summarised profit and loss account :

			Rs.
Sales Less :	Cost of goods sold Salaries Advertisement Discount Depreciation Misc. office expenses Managing director’s salary Interest Rent	3,27,60,000 23,40,000 14,04,000 23,40,000 3,60,000 2,40,000 1,80,000 19,02,000 14,40,000	4,68,00,000 4,29,66,000
Net profit			38,34,000

The company’s only borrowing was a loan of Rs.1,00,00,000 at 12% per annum to pay the purchase consideration and working capital requirement. The company was able to double the monthly sales of the firm from 1st April, 2007, but the alaries increased three times from that date. The company had to occupy additional space from 1st July, 2007 at a rent of Rs.60,000 per month.
Prepare the profit and loss account apportioning cost and revenue between pre and post incorporation period.

(0)

(7 marks)

(a)

Attempt any two of the following :

(i)

List out six accounting standards which are mandatory.

(0)

(ii)

Is it possible to distribute the amount of securities premium as dividends? Explain.

(0)

(iii)

What is the principal reason for non-acceptability of International Accounting Standards (IAS) throughout the world ?

(0)

(3 marks each )

(b)

The balance sheet of Sudesh Ltd. as at 31st March, 2007 was as under :

Liabilities		Rs. in Lakhs
Share capital in equity shares of Rs.100 each General reserve Profit and loss account : Balance brought forward Profit for the year Trade creditors	1.20 0.60	6.00 3.00 1.80 1.20 12.00
Assets Land and building Machinery balance brought forward Less : Depreciation for the year Stock (at cost) Debtors Cash and bank balances Preliminary expenses	3.50 0.50	4.00 3.00 2.00 1.50 1.00 0.50 12.00

Bhupesh Ltd. purchased 4,000 equity shares of Rs.100 each on 1st October, 2006 in Sudesh Ltd. on which date it was found that land and building were undervalued by Rs.1 lakh and machinery was worth only Rs.2.75 lakh. In preparing the consolidated balance sheet of holding company, it was decided to adopt proper value of assets and write off preliminary expenses.
On the basis of above information, ascertain –
(i) Goodwill or capital gain;
(ii) Revenue profits; and
(iii) Minority interest.

(0)

(9 marks )

(a)

Differentiate between any two of the following :

(i)

‘Reserves’ and ‘provisions’.

(0)

(ii)

‘Internal reconstruction’ and ‘external reconstruction’.

(0)

(iii)

‘Double account system’ and ‘double entry system’.

(0)

(3 marks each)

(b)

The balance sheet of Beauty Ltd. as at 31st March, 2008 was as follows :

Liabilities	Rs.
Equity shares of Rs.10 each General reserves Profit and loss account 12% Debentures Provision for depreciation on equipments Staff welfare fund Proposed dividend Sundry creditors	10,00,000 5,00,000 2,00,000 6,00,000 3,00,000 80,000 1,50,000 3,70,000 32,00,000
Assets Goodwill Equipments (at cost) Stocks Debtors Cash at bank Advertisement suspense account	2,00,000 18,00,000 7,00,000 3,00,000 1,50,000 50,000 32,00,000

The following further information is available :

(i)

For this type of business, a fair return on capital employed after tax is 18%.

(ii)

Equipments are to be revalued at Rs.16,00,000.

(iii)

Stocks are considered to have a net realisable value of Rs.6,60,000.

(iv)

Goodwill in this type of business is normally valued at 3 years’ super profits.

(v)

Included in the debtors is a balance of Rs.20,000 which may prove irrecoverable.

(vi)

Profits for the last three years (before interest and taxes) are as follows :

Year
2007–08
2006–07
2005–06

Rs.
10,80,000
10,20,000
11,00,000

(vii)

Company profits are taxed @ 40%.

You are required to calculate the ––

(i)	value of goodwill; and
(4 marks)
(ii)	value of each equity share on net asset basis.
(5 marks)

(0)

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)

The components or material which are so damageed in manufacturing process, which can neither be repaired nor be reconditioned are known as defectives.

(0)

(ii)

Preventive cost is incurred to motivate the workers to give more output so that they can earn more wages.

(0)

(iii)

Equivalent production cost represents production of a process in terms of cost of material only, which is under semi–manufactured stage.

(0)

(iv)

Standard cost is also known as pre–determined cost of production.

(0)

(v)

Cash flow statement and cash budgets are totally different from each other.

(0)

(2 marks each)

(b)

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

(i)

No profit on incomplete contract should be transferred to profit and loss account if the value of work–in–progress is less than _________ of contract price.

(0)

(ii)

A statement which is classified in three main categories, i.e., operating, investing and financing is known as _________.

(0)

(iii)

The difference between the actual sales and sales at break-even point is known as _________.

(0)

(iv)

The level of stock between the minimum level and nil stock is known as _________ stock level.

(0)

(v)

The price that one sub-unit of an organisation charges for product or services to another sub-unit of the same organisation is known as _________.

(0)

(1 mark each)

(c)

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

(i)

Labour cost variance is the difference between ––
(a) Standard labour cost and actual labour cost
(b) Fixed labour cost and variable labour cost
(c) Estimated labour cost and standard labour cost
(d) None of the above.

(0)

(ii)

When FIFO method is used in the process costing, the value of opening stock is––
(a) Kept separate from the cost of the new period
(b) Added to the cost of the new period
(c) Subtracted from the cost of the new period
(d) Averaged with the cost of the new period.

(0)

(iii)

Batch costing method is applicable where ––
(a) Similar articles are produced in batches
(b) Articles are produced in mass scale
(c) Mass production is undertaken in batches
(d) None of the above.

(0)

(iv)

Where the amount of under or over absorbed overheads is significant, it should be disposed off by ––
(a) Transferring to costing profit and loss account
(b) Using a supplementary rate
(c) Carry over to next year
(d) None of the above.

(0)

(v)

Obsolete stocks are those ––
(a) Having low turnover rate
(b) Having no demand for technological change
(c) Having no present demand, but may be in future
(d) None of the above.

(0)

(1 mark each)

(a)

Describe in brief the limitations of management accounting.

(0)

(3 marks )

(b)

What are the characteristics of responsibility accounting ? Explain.

(0)

(3 marks )

(c)

XYZ Contractors obtained a contract to construct a house for Rs.8,00,000. Work was started on 1st January, 2007 and it was estimated that the contract would take 15 months to complete. Work is proceeding according to schedule and the details upto 31st December, 2007 were as follows :

	Rs.
Material and stores Wages paid Plant hire charges and other expenses Establishment expenses Material unused Work certified Cash received Work not yet certified (at cost)	1,87,000 2,70,000 60,000 54,000 11,000 6,00,000 5,40,000 20,000

It is estimated that the following further expenses will be required to complete the work:
Additional material : Rs.25,000; Wages : Rs.20,000; Sub–contract cost : Rs.50,000; Plant hire charges : Rs.10,000; Establishment expenses : Rs.11,800; and Provision for contingencies : 5% of total cost.
You are required to calculate the value of work–in–progress as on 31st December, 2007 taking credit for a reasonable profit and also show the contract account.

(0)

(9 marks )

(a)

In a factory department, the cost of a machine is Rs.11,500. It is expected that it will work for about 20,000 hours and its scrap value is estimated at Rs.1,500. The rent of factory department is Rs.400 per month and 25% of the area of the department is utilised for conducting the operation of the machine. One foreman and one attendant are employed on a salary of Rs.200 and Rs.100 per month respectively, to work on two machines of similar type. The other expenses of the month are as under in the department :

Light charges for the factory department is Rs.160 having 32 points in all, out of which 8 points are used for both these machines. Power used for this machine Rs.160; indirect labour for both machines Rs.100; and repair and renewal for this machine Rs.40.
You are required to find out the machine hour rate for one month (four weeks) when it is expected to work for 40 hours a week.

(0)

(6 marks )

(b)

What are the limitations of historical cost base accounting ? Whether this method has outlived its utility in its present context ? What would be the best basis in your opinion and why ?

(0)

(3 marks )

(c)

From the following information, prepare the balance sheet of Zebra Ltd. :

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

Current ratio : 2.5
Liquid ratio : 1.5
Proprietory ratio (fixed assets/proprietory funds) : 0.75
Working capital : Rs.60,000
Reserves and surplus : Rs.40,000
Bank overdraft : Rs.10,000
There is no long-term loan or fictitious assets.

(0)

(6 marks )

(a)

The financial position of Prerna Ltd. as on 31st March, 2007 and 31st March, 2008 was as follows :

	31st March 2007 (Rs.)	31st March 2008 (Rs.)
Cash Debtors Stock Land Building Machinery	8,000 70,000 50,000 40,000 1,00,000 1,60,000 4,28,000	7,200 76,800 44,000 60,000 1,10,000 1,72,000 4,70,000
Current liabilities Loan from associate company Loan from bank Capital and reserves	72,000 – 60 2,96,000 4,28,000	82,000 40,000 50,000 2,98,000 4,70,000

Additional information –

(i)
(ii)

During the year, Rs. 52,000 were paid as dividends.
The provision for depreciation against machinery as on 1st April, 2007 was Rs.54,000 and on 31st March, 2008 was Rs.72,000.

You are required to prepare the cash flow statement as per Accounting Standard–3 (Revised).

(0)

(7 marks each)

(b)

Bindu Ltd. presents the following information for a year :

Material
Wages
Fixed expenses
Variable overheads
Selling price per unit
Output : 12,000 units

1,20,000
2,40,000
1,20,000
60,000
50

The available capacity is 20,000 units of production in a year. The company has an offer to sell 5,000 additional units at Rs.40 each in a foreign market. It is anticipated that by accepting this offer there will be a saving of Re.1 per unit in material cost on all the units manufactured but fixed expenses will increase by Rs.30,000 and an overall efficiency will drop by 2% on all production. Whether this offer be accepted and why ?

(0)

(8 marks )

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