CS Inter Group I : Company Accounts and Cost and Management Accounts - June 2005

CS Inter - Group I • Company Accounts and Cost and Management Accounts • June 2005

This Paper has 23 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)
Marks

PART — A

(Answer Question No. 1 which is COMPULSORY and
any two of the rest from this part)

Marks

(a)

What is the significance of 'accounting standards' ?

(0)

(b)

Zenith Ltd. gave notice of its intention to redeem its outstanding Rs.6,00,000, 9% debentures at 102% and offered the holders the following options to apply for the redemption moneys to subscribe for :

(i)	6% Cumulative preference shares of Rs.20 each at Rs.22.50 per share; and
(ii)	10% Debentures of Rs.100 each at Rs.96. The holders of Rs.2,40,000 debentures accepted the proposal (i); and Rs.3,60,000 debentureholders accepted the proposal (ii) above. Pass the necessary journal entries to give effect to the abovementioned transactions.

(0)

(c)

P Ltd. purchased the business of Q Ltd. for Rs. 10,80,000 payable in fully paid shares. Accordingly, P Ltd. allotted equity shares of Rs.10 each fully paid in full satisfaction of the claim of Q Ltd. Pass the necessary journal entries in the books of P Ltd. based on following assumptions :

(i)	Shares are issued at par; and
(ii)	Shares are issued at a premium of 25%.

(0)

(d)

What are the sources from which bonus shares can be issued ?

(0)

(e)

State the role of a 'merchant banker'.

(0)

(a)

What is 'net asset value' (NAV) in case of mutual fund units ?

(0)

(b)

What are 'accounting software controls' ?

(0)

(c)

The abridged balance sheets of Star Ltd. and Planet Ltd. as at 31^st March, 2004 are given below :

Liabilities	Star Ltd. Rs.	Planet Ltd. Rs.
Share capital Profit and loss account Creditors	8,00,000 1,50,000 2,50,000	3,00,000 — 2,50,000
	12,00,000	5,50,000
Assets
Sundry assets Goodwill Profit and loss account	11,20,000 80,000 —	4,00,000 1,00,000 50,000
	12,00,000	5,50,000

Star Ltd. holds 2,000 shares in Planet Ltd. at a cost of Rs. 1,00,000 and Planet Ltd. holds 1,000 shares in Star Ltd. at a cost of Rs. 1,40,000 which are included in the sundry assets in the books of both companies. The shares in both companies are of Rs.100 each. However, shares in Star Ltd. are fully paid-up while those in Planet Ltd. are Rs.75 paid–up. The two companies have agreed to amalgamate by forming a new company Universe Ltd. on the following basis :

(i)	The shares held by each company in the other company are to be valued at book value having regard to the value of goodwill;
(ii)	The goodwill values of Star Ltd. and Planet Ltd. are Rs.3, 00,000 and Rs. 1,00,000 respectively; and
(iii)	The new shares are to be of a nominal value of Rs.100 each credited as Rs.50 paid.
You are required to prepare –
(i)	A statement showing shareholdings in the new company attributable to the merged companies; and
(ii)	A balance sheet resulting from the amalgamation.

(0)

(a)

Describe the grandfather, father and son strategy as a method of file updation ?

(0)

(b)

Airlinks Ltd. made a public issue of 2,50,000 equity shares of Rs.10 each, the entire amount payable on application. The entire issue was underwritten as follows: Red – 30%; Yellow – 25%; Green – 25%; and White–20% of public issue respectively. Red, Yellow, Green and White had also agreed on firm underwriting of 8,000; 12,000; nil and 30,000 shares respectively. The total subscriptions excluding firm underwriting, including marked applications were 1,80,000 shares.
The marked applications received were as under:

Underwriter	No. of shares
Red Yellow Green White	48,000 40,000 24,000 48,000

Ascertain the net liability of each underwriter.

(0)

(c)

From the following available details, prepare the revenue account of Sunlight General Insurance Ltd., engaged in marine insurance business, for the year ended 31s1 March, 2004 :

			Direct Business Rs.	Re–Insurance Rs.
I	Premium Received Receivable Paid Payable	—Is' April, 2003 —31s1 March, 2004 —Is' April, 2003 —31s1 March, 2004	1,44,00,000 7,20,000 10,80,000 — — —	21,60,000 1,26,000 1,68,000 14,40,000 1,20,000 2,56,000
II	Claims: Paid Payable Received Receivable	—Is' April, 2003 —31s' March, 2004 —Is1 April, 2003 —31^st March, 2004	99,00,000 5,70,000 10,50,000 — — —	7,50,000 75,000 1,32,000 6,00,000 54,000 72,000

III	Commission: ON insurance accepted On insurance ceded	9,00,000 —	66,000 84,000
Other expenses and income :			Rs.
Salaries Rent, rates and taxes Printing and stationery Postage Income-tax paid Interest, dividend and rent received (net) Income-tax deducted at source Legal expenses (including Rs.60,000 for settlement of claims) Bad debts Income-tax refund			15,60,000 1,08,000 1,20,000 18,000 14,40,000 6,80,000 1,47,000 2,40,000 33,000 62,000

Balance of fund as on 1^st April, 2003 was Rs. 1,59,39,000 including additional reserve of Rs. 13,50,000. Additional reserve is to be maintained at 10% of the net premium of the year.

(0)

(a)

The following is the balance sheet of Best Ltd. as at 30^th June, 2004 ;

Liabilities	Rs.
4,00,000 Equity shares of Rs.10 each, fully paid-up 4,00,000 Equity shares of Rs.10 each, paid-up Rs. 7.50 per share 4,00,000 Equity shares of Rs.10 each, paid-up Rs. 5 per share Reserves and surplus Provision for bad debts Sundry creditors Dividend equalisation fund	40,00,000 30,00,000 20,00,000 56,00,000 1,20,000 20,40,000 6,40,000
	1,74,00,000
Assets
Patent and copyrights Land and buildings Plant and machinery Stock Investments at cost Debtors Bank Preliminary expenses	8,00,000 48,00,000 48,00,000 24,00,000 6,00,000 32,00,000 6,40,000 1,60,000
	1,74,00,000

Additional information:

(i)

The normal average profit (after tax) for the company is estimated to be Rs.21,60,000.

(ii)

The applicable capitalisation rate is 12%.

(iii)

The revised values of —

–	Patent and copyrights are estimated @ 50% of its value; and
–	Land and buildings and plant and machinery are revalued at Rs.60, 00,000 and Rs.52, 00,000 respectively.

(iv)

Investments have a market value of Rs.7, 20,000.

(v)

Provision for bad and doubtful debts to be maintained @ 2%.

(vi)

The balance sheet as at 30^th June, 2004 does not contain a provision for income-tax, which are estimated at Rs.3,00,000.

You are required to calculate the value of fully and partly paid-up equity share (per share) by:

(i)

The asset backing method (excluding goodwill) on the notional call method; and

(ii)

The earning capacity method.

(0)

(b)

The following are the figures extracted from the books of the undermentioned companies for the last two years

	Rose Ltd.	Milk Ltd.
	31.3.2003	31.3.2004	31.3.2003	31.3.2004
Liabilities	Rs.	Rs.	Rs.	Rs.
Equity share capital of Rs.10 each, fully paid-up Capital reserve General reserve Profit and loss account Creditors (including Rs.19,000 from Milk Ltd.) Bills payable (including Rs.4,000 to Rose Ltd.) Bank overdraft Proposed dividend	5,00,000 1,00,000 1,20,000 40,000 1,49,000 21,000 — — 9,30,000	5,00,000 1,00,000 1,50,000 80,000 1,69,000 26,000 — — 10,25,000	1,00,000 — 20,000 15,000 36,000 4,000 6,000 — 1,81,000	1,00,000 — 30,000 30,000- 42,000 6,000 10,000 20,000, 2,38,000

	Rose Ltd.		Milk Ltd.
	31.3.2003	31.3.2004	31.3.2003	31.3.2004
Liabilities	Rs.	Rs.	Rs.	Rs.
Freehold properties Furniture Plant and equipments Investment 8,000 Equity shares in Milk Ltd. as on 1.10.2003 Stocks Debtors (including Rs. 19,000 to Rose Ltd.) Bills receivable (including Rs.2,000 to Milk Ltd.) Cash and bank balances	2,30,000 20,000 2,00,000 1,20,000 2,14,000 87,000 35,000 24,000	2,30,000 18,000 1,70,000 1,20,000 2,68,000 92,000 79,000 48,000	20,000 6,000 15,000 — 86,000 37,000 8,000 9,000	20,000 5,400 12,000 — 1,32,000 42,000 18,000 8,600
	9,30,000	10,25,000	1,81,000	2,38,000

You are required to prepare the consolidated balance sheet of Rose Ltd. and its subsidiary Milk Ltd. as at 31^st March, 2004. (Working notes form part of the answer.)

(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.)

Attempt any four of the following:

(i)

Distinguish between 'fixed budget' and 'flexible budget'.

(0)

(ii)

In a company, the weekly minimum and maximum consumption of Material–A are 25 and 75 units respectively. The re–order quantity as fixed by the company is 300 units. Material–A is received within 4 to 6 weeks from the date of issue of supply order. Calculate minimum level and maximum level of Material–A.

(0)

(iii)

A worker produced 200 units in a week's time. The guaranteed weekly wage payment for 45 hours is Rs. 1,350. The expected time to produce one unit is 15 minutes, which is raised further by 20% under the incentive scheme. What will be the earnings per hour of that worker under Halsey (50% sharing) and Rowan bonus schemes?

(0)

(iv)

A–One Co. produces 4,00,000 components of machinery annually at 80% of full capacity. Regular selling price of the component is Rs.33. Budgeted annual production costs and other expenses for the year are as follows:

Raw material cost per unit
Direct labour cost per unit
Variable factory overhead per unit
Variable selling costs
Fixed factory and administrative overheads

Rs.4.25
Rs.5.75
Rs.7.75
5% of selling price
Rs.39,50,000

During the year, A–One Co. received a one–time order to sell 25,000 components for which no selling expenses will be incurred. What should be the minimum price quoted by A–One Co. if it wants to earn minimum of Re. 1 per component on this order?

(0)

(v)

From the data given below, calculate–

(a)

Material cost variance;

(b)

Material price variance;

(c)

Material usage variance; and

(d)

Material mix variance.

Product	Standard Quantity (Units)	Standard Price ( Rs.)	Actual Quantity (Units)	Actual Price (Rs.)
X Y Z	1,050 1,500 2,100	2.00 3.25 3.50	1,100 1,400 2,000	2.25 3.50 3.75

(0)

(a)

From the following information, as per historical cost accounting method, compute the monetary working capital adjustment under current cost accounting method :

	1^st; January, 2003	31^st; December, 2003
Accounts receivable (Rs.) Accounts payable (Rs.) Monetary working capital (Rs.) Price index for materials Price index for finished goods	7,000 3,850 3,150 200 150	12,600 6,440 6,160 230 180

(Note : Index of correct value be modified)

(0)

(b)

A newly set up manufacturing company is planning to produce a product that will sell for Rs.10 per unit. The demand of product is estimated at 10,000 units per year. The company has choice of two machines, each of which has a capacity of producing 10,000 units per year. Machine–A would have fixed costs of Rs.30, 000 per year and would yield a profit of Rs.30, 000 per year on sale of 10,000 units. Machine–B would have fixed costs of Rs. 18,000 per year and would yield a profit of Rs.22, 000 per year on sale of 10,000 units. Variable costs behave linearly for both machines.
Calculate the volume of sales at which the cost of the two machines will be indifferent.

(0)

(c)

What are the various steps involved in the implementation of responsibility accounting system in an organisation?

(0)

(a)

"Management accounting is a decision making system." Comment.

(0)

(b)

How is abnormal gain in process costing accounted?

(0)

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