CS Inter Group I : Company Accounts and Cost and Management Accounts - June 2004

CS Inter - Group I • Company Accounts and Cost and Management Accounts • June 2004

This Paper has 28 answerable questions with 0 answered.

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

*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.)
Marks

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.)

Marks

(a)

On 31s1 December, 2002, Brightlight Industries Ltd. showed in their accounts debenture redemption fund of Rs. 1,50,000 which was represented by Rs. 1,51,000, 5% municipal bonds purchased for Rs. 1,50,000.

On 28th February, 2003, the company had a balance of Rs.28,000 at their bank and they paid into the bank account, the proceeds of sale of foregoing investments for Rs. 1,50,500. On 1st March, 2003, the debentures of the value of Rs. 1,50,000 were paid.

You are required to prepare debenture redemption fund account and debenture redemption fund investments account in the books of the company. Calculations are to be made to the nearest rupee.

(0)

(b)

On the basis of the following information, calculate the value of equity share :

	Rs.
5,000, 6% Preference shares of Rs. 100 each, fully paid 30,000 Equity shares of Rs. 10 each, fully paid Total tangible assets (other than goodwill) Total outside liabilities Average net profit after tax	5,00,000 3,00,000 9,49,000 95,000 62,560

Expected normal yield for equity shares is 7% of capital employed. Goodwill is to be taken at 5 years' purchase of super profits, if any.

(0)

(c)

What do you mean by 'accounting standards' ?

(0)

(d)

What are the statutory books prescribed under the Companies Act, 1956 ?

(0)

(e)

What is the difference between 'accounting audit trail' and 'operations audit trail'?

(0)

(a)

What are the restrictions imposed by the Banking Regulation Act, 1949 on loans and advances in case of banking companies ?

(0)

(b)

Can a company pay dividend out of current profits without making good past losses ?

(0)

(c)

Precision Ltd. proposed to purchase the business carried on by Fastners Pvt. Ltd. The goodwill for this purpose is agreed to be valued at five year’s purchase of the weighted average profit for the past four years (Use appropriate weights). Profits for the past four years are as follows:

year	profit (Rs.)
1999–2000 2000–2001 2001–2002 2002–2003	2,52,500 3,10,000 2,50,000 3,50,000

On scrutiny of the books of account, the following matters were revealed :

(i)	On Ist December, 2001, a major repair was made in respect of the plant incurring Rs.75,000 which was charged to revenue. The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of de preciation @ 10% on reducing balance method.
(ii)	The closing stock for the year 2000–01 was overvalued by Rs.30,000.
(iii)	To cover management costs, an annual charge of Rs.60,000 should be made for the purpose of valuation of goodwill. You are required to compute the value of goodwill

(0)

(a)

Write a short note on 'preliminary expenses'.

(0)

(b)

Sukriti Ltd. forfeited 100 shares of Rs. 10 each for non-payment of final call of Rs.2. Of these, 60 shares were re–issued @ Rs.9 per share as fully paid. Pass journal entries in the books of Sukriti Ltd. clearly showing how much amount was credited to shares forfeited account and what amount was transferred to capital reserve account.

(0)

(c)

On 1^st April, 2002, Broad Ltd. acquired 20 lakh fully paid equity shares of Rs.10 each in Ways Ltd. for Rs.3.75 crore. The balance sheets of two companies as on 31s1 March, 2003 are given below :

Liabilities	(Rupees in Lakhs)
	Broad Ltd.	Ways Ltd.
Equity share capital of Rs.10 each, fully paid Securities premium General reserve Profit and loss account Creditors Proposed dividends	500 50 60 230 95 75	250 — 140 75 85
	1,010	550
Assets
Land and buildings Plant and machinery Furniture and fixtures Shares in ways Ltd. Stock Debtors Cash at bank Preliminary expenses	90 210 100 375 110 75 50 —	80 135 25 — 145 85 70 10
	1,010	550

Additional information is as under:

(i)	The balances of general reserve and profit and loss account on the data of acquisition of shares by Broad Ltd. were Rs. 100 lakhs and Rs. 15 lakhs respectively.
(ii)	In July, 2002, Ways Ltd. distributed 10% dividend for the year 2000–01. Broad Ltd. credited the entire amount of dividend received to its profit and loss account.
(iii)	On 31^st March, 2003, Ways Ltd. owed Rs.30 lakh to Broad Ltd. for goods purchased from it, which sold goods at cost plus 25%. Goods costing Rs.15 lakh to Ways Ltd. were still lying unsold with Ways Ltd. on 31s1 March, 2003.
(iv)	No part of preliminary expenses has been written off during the year. You are required to prepare the consolidated balance sheet of Broad Ltd. and its subsidiary Ways Ltd. as on 31s' March, 2003.

(0)

(a)

Discuss the various characteristics of a sound financial reporting system.

(0)

(b)

As on 31SI March, 2003, the following is the balance sheet of Agile Industries Ltd. : (Rs. In 000’s)

Liabilities Share capital: 14% Preference share capital of Rs. 100 each Equity shares of Rs. 10 each General reserve 15% Debentures Current liabilities	22.50 45.00 27.00 21.00 15.00	Assets Fixed assets Investments Current Assets	97.50 18.00 15.00
	130.50		130.50

Ankit Industries Ltd. agreed to takeover the assets and liabilities of Agile Industries Ltd. on the following terms and conditions :

(i)	—	Discharge of 15% debentures at a premium of 10% by issuing 15% debentures in Ankit Industries Ltd.
	—	Fixed assets 10% above the book value.
	—	Investments at par value.
	—	Current assets at a discount of 10%.
	—	Current liabilities at book value.
(ii)	—	Discharge the debentureholders of Agile Industries Ltd. at 10% premium by issuing 15% debentures of Ankit Industries Ltd.
	—	Preference shareholders are discharged at a premium of 10% by issuing 15% preference shares of Rs.100.
	—	Issue 3 equity shares of Rs.10 each for every 2 equity shares in Ankit Industries Ltd. and pay cash @ Rs. 3 per equity shares.

Calculate purchase consideration under ‘net assets method’ and ‘net payment method’.

(0)

(c)

The following information is extracted from the books of Reliable Electricity Co. Ltd. for the year ended 31sl March, 2003 :

	Rs.
Net profit before charging debenture interest 10% Debentures interest paid during the year Capital base arrived at by the company Reasonable return calculated by the company	22,50,050 3,75,000 1,03,63,000 13,56,150

you are required to indicate the disposal of surplus of the company

(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)

"Ordering costs and carrying costs are equal at EOQ level." Comment.

(0)

(b)

A factory is currently working at 50% of its working capacity and produces 10,000 units. At 60% working capacity, the raw materials cost increases by 2% and selling price falls by 2%.
At 80% working capacity, raw material cost increases by 5% and selling price falls by 5%. At 50% working capacity, the product costs Rs.180 per unit and sold at Rs.200 per unit. The cost of Rs.180 is made up as follows :

	Rs.
Materials Labour Factory overhead (40% fixed) Administration overhead (50% fixed)	100 30 30 20 180

You are required to estimate the profits of the factory when it works at 60% and 80% of its working capacity.

(0)

(c)

State any four objectives of financial statement analysis.

(0)

(d)

State, with reasons, whether the following statements are correct or incorrect :

(i)	Notional costs and imputed costs mean the same thing.
(ii)	Conversion costs and overheads are interchangeable terms.

(0)

(e)

Find out the profit as per financial records, from the following data :

		Rs.
(i)	Profit as per cost records	70,500
(ii)	Undervaluation of closing stock incost records	10,500
(iii)	Administration overheads under-recovered in cost records	5,200
(iv)	Bad debts and preliminary expenses wirtten off in financial accounts only	7,345
(v)	Depreciation overcharged in cost records	3,445

(0)

(a)

An analysis of Matrix Ltd. reveals the following information

	Variable cost (% of Sales)	Fixed Cost (Rs.)
Direct materials Direct labour Factory overheads Distribution overheads General administration overheads	32.8 28.4 12.6 4.1 1.1	— — 1,89,900 58,400 66,700

Budgeted sales are Rs. 18,50,000 you are required to determine ––

(i)	Break–even sales value,
(ii)	Profit at the budgeted sales value.
(iii)	profit, if actual sales
(iv)	drop by 10% and
(v)	increase by 5% from the budgeted sales

(0)

(b)

Following is the profit and loss account of Tradeways Ltd. for the year ended 31^st March, 2003 :

Particulars	(Rs.in '000)	Particulars	(Rs. in '000)
To Opening stock To Purchases To Gross profits c/d To Office and admn. expenses To selling expenses To Net profit	10,000 55,000 50,000 1,15,000 18,000 12,000 20,000	By Sales By Closing stock By Gross profit b/d	1,00,000 15,000 1,15,000 50,000
	50,000		50,000
Balance Sheet as on 31^st March, 2003 (Rs. in '000)
Liabilities		Assets
Share capital of Rs. 10 each Profit and loss a/c creditors Bills payable	1,00,000 20,000 25,000 15,000	Land and buildings Plant and machinery Stock Sundry debtors Bills receivable Cash and bank balance	50,000 30,000 15,000 15,000 12,500 37,500
	1,60,000		1,60,000

you are required to calculate the following :

(i)	Stock turnover ratio;
(ii)	Current ratio;
(iii)	Liquid ratio
(iv)	Operating ratio; and
(v)	Proprietary ratio.

(0)

(c)

A transport service company is running four buses between two towns that are 50 kms. apart. The seating capacity of each bus is 48 passengers. The following particulars were obtained from its records for the month of June, 2003 :

	Rs.
Wages of drivers, conductors and cleaners Salaries of office and supervisory staff Diesel oil and other oils Repairs and maintenance Tax, insurance, etc. Depreciation Interest and other charges	4,800 2,000 8,000 1,600 3,200 5,200 4,000

Actual passengers carried were 75% of the seating capacity. All the four buses ran on all the days of the month. Each bus made one round trip per day. Ascertain the cost per passenger per kilometer.

(0)

(a)

Distinguish between 'costing' and 'cost accounting'.

(0)

(b)

From the following data, calculate —

(i)	expenditure overhead variance;
(ii)	volume overhead variance; and
(iii)	efficiency overhead variance :

	Standard	Actual
Number of units	4,000	3,800
Fixed overhead (Rs.)	40,000	39,000
Working days	20	21

(0)

(c)

Swastik Oils Ltd. has furnished the following information for the year ended 31s1 March, 2003 :

	(Rs. in Lakhs)
Net profit	37,500.00
Dividend (including interim dividend paid)	12,000.00
Provision for income-tax	7,500.00
Income–tax paid dur ing the year	6,372.00
Loss on sale of assets (net)	60.00
Book value of assets sold	277.50
Depreciation charged to P&L account.	30,000.00
Profit on sale of investments	150.00
Value of investments sold	41,647.50
Interest income on investments	3,759.00
Interest expenses	15,000.00
Interest paid during the year	15,780.00
Increase in working capital (excluding cash and bank balance)	84,112.50
Purchase of fixed assets	21,840.00
Investments in joint venture	5,775.00
Expenditure on construction work–in–progress	69,480.00
Proceeds from long–term borrow ings	3 8,97 0.00
Proceeds from short–term borrowings	30,862.50
Opening cash and bank balances	11,032.50
Closing cash and bank balances	2,569.50

You are required to prepare the cash flow statement in accordance with AS-3 for the year ended 31s1 March, 2003. (Make assumptions wherever necessary.)

(0)

(a)

What are the objectives of 'inflation accounting' ?

(0)

(b)

Enumerate the steps in the implementation of a responsibility accounting system.

(0)

(c)

Design Pens Ltd., manufactures only pens where the marginal cost of each pen is Rs.3. It has fixed costs of Rs.25,000 per annum. Present production and sales of pens is 50,000 units and selling price per pen is Rs.5. Any sale beyond 50,000 pens is possible only if the company reduces 20% of its current selling price.

However, the reduced price applies only to the additional units. The company wants a target profit of Rs.1,00,000. How many pens the company must produce and sell if the target profit is to be achieved '?

(0)

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